The General Agreement on Tariffs and Trade (GATT) - Example

Table of Contents 1.0 Introduction 2 2.0 General Agreement on Tariffs and Trade (GAAT) 3 3.0 Main Accomplishments of GAAT 5 4.0 Difference between GAAT and WTO 6 5.0 Conclusion 7 6.0 References 8 1.0 Introduction This report has been designed in a synchronized manner to provide readers with an understanding of the General Agreement on Tariffs and Trade (GAAT) and its major importance in the international trade. The report highlights what exactly is GAAT and then moves ahead to discuss the accomplishments and contributions made by GAAT. The report also in a prudential manner discusses how GAAT is differentiated from the functional World Trade Organization (WHO) to ensure that readers have been equipped with complete theoretical and practical understanding of the entire topic under study. 2.0 General Agreement on Tariffs and Trade (GAAT) The General Agreement on Tariffs and Trade (GAAT) was founded as a part of the Bretton Woods Conference to ensure economic recovery after the long impacted World War-II. The GAAT is a set of multilateral trade agreement which was designed for the abolition of rigid quotas system and reduction in the tariff duties among the various contracting nations who decided to implement GAAT and its underlying principles and rules. GAAT was formed to be concluded by a total of 23 nations at Geneva, 1947 and became effective from 1st of January, 1948. GAAT subsequently proved to be the most effective instrument in liberalizing the world trade and played a significant role in the huge expansion of world trade during the second half of the 20th Century. However GAAT was finally replaced by World Trade Organization (WTO) in 1995 when a total of 125 countries acted as signatories to the agreement which later became the most prominent code of conduct governing almost over 90 percent of the universal trade. The GAAT was basically a set of rules and principles which was based on no institutional foundation and was applied on a provisional basis with its rules mainly applied on trade of goods. The basic objective of GAAT was to reduce the numerous barriers to international trade which could be achieved through reduction in tariff rates, quantitative restrictions and different subsidies on trade as per requirement and agreement between the participating nations of GAAT. Further GAAT was not an organization and rather an agreement. As per the preamble of GAAT, the major objectives of the contracting nations to GAAT included the following. Ensuring an enhancement in the general standard of living of all people. Ensuring full employment so as to enhance the economic stability and boosting up the growth of all developed, developing and under developing economies. A large and steady growth in the effective volume of real income along with a rise in effective demand on the trading of goods. Expansion of production and exchange of goods. Utilizing the world available resources to add to the maximum advantage for growing economies. The role of GAAT was to integrate the developing nations into an open multilateral trading system and increase the participation of trading nations in the GAAT system by enabling the nations to add flexibility in the application of certain rules which would act as an important tool for nations to expand and diversify their trade both domestically and internationally. Its most important principle was to trade in an international fore-front without any discrimination which could be achieved as each member country would open its market equally to every other. GAAT further included a long schedule of specific tariff concessions for each participating nation of GAAT so as to liberalize world trade. Another important implication or principle of GAAT was to provide protection through tariffs to the member countries rather than the long rigid system of import quotas or other qualitative restrictions prominent at that point of trading system. General rules of GAAT included uniform custom regulations and the mandatory obligation on each member country to negotiate themselves in various tariff cuts requested by one member nation to the other. The rules provided flexibility by the enactment of an escape clause which could be used by the member nations to alter agreements in their domestic products which was suffering and generating a negative real income due to various trade concessions. The Uruguay round is established as the most ambitious set of trade liberalization agreement in the entire history of GAAT and was one the major contribution of GAAT which has been discussed in detail in the later part of this report. With more liberalization in world trade and more countries moving towards GAAT along with rising challenges and GAAT being an organizational framework with no or very little power to discipline the contacting parties which violated its terms and conditions and problems in the effective running of GAAT it was finally replaced by a more institutional framework named World Trade Organization (WTO) in 1995 where 125 different countries acted as its active registered members and today governs over 90 percent of the global trade and its policies were mainly directed towards new multilateral trade agreements, provision of a forum for quick settlement of disputes along with fresh negotiations between the member countries, better surveillance on the national trade and larger cooperation among the emerging economies to ensure development of economic policies at global level to enhance international trade (Dadush, 2009). 3.0 Main Accomplishments of GAAT GAAT has been successful in reducing the tariff rates between the member countries and liberalizing trade on a global basis during its many rounds conducted in different parts of the globe and during different time spans ranging from 1948 to 1993 when finally the Uruguay Round was concluded. However the greatest achievement or contribution of GAAT was recognized in Uruguay round where they strongly reinforced and extended the multilateral rules governing general trade and its rules. Alterations were made in geo-politics shaping the international trade and fresh and new commitments by major emerging nations to continue promoting the global growth and ensure global expansion of the business. The major contribution of GAAT which formed part of the Uruguay Round is discussed as under. Commitment to reduce tariffs in global trade by one-third in future 10 years to come. Imposition of new restriction on subsidies to ensure a phase down in trade distortions. To significantly increase the authority and power of GAAT to ensure dispute settlements. GAAT Secretariat were given intense power and authority to review the trade rules and policies of its member counties (Dadush and Bennett, 2010). Establishing new policies and rules for intellectual property rights and enforcement of the same. Establishing multilateral rules governing trade of services etc. It is to be further noted the above mentioned Uruguay round enabled GAAT to attract more members to its list and finally the WTO was set under the same. Other major contributions apart from the Uruguay Round of GAAT were. GAAT during its long term existence was able to enjoy the membership of over 100 countries and was successful I generating about 86-95 percent of the global trade. GAAT was successful in implementation of trade liberalization policy and rules on industrial products during the Kennedy Round which was signed by over 50 countries contributing over 75 percent of global trade in 1967. Further it was for the first instance that negations departed from individual product wise to a liner method of cutting tariffs on industrial goods (Cuyvers, Philippe De and Stijn, 2005). GAAT during its Tokyo Round held in the year 1973 successfully adopted NTB’s and helped in reducing the weighted average tariff imports on manufactured goods from 7 to 4.7 percent in nine major industrial markets of the world. One of the major contribution of GAAT was it was successful in maintaining world peace and enhance world trade as the world witnessed no major wars after the Second World War in 1948 for which it was established. The GAAT was finally replaced by World Trade Organization on January 1st 1995, now let us look at the contrasting differences between GAAT and the current functional World Trade Organization. 4.0 Differences between GAAT and WTO World Trade Organization has been set up under the Uruguay round as an international organization to establish rules and policies for international trade though a consensus among its member nations. Let us have a closer look of the various points of differences between GAAT and WTO which is discussed as under. The General Agreement on Tariff and Trade (GAAT) was probably a set of rules which has no institutional foundation whereas World Trade Organization was a permanent institution with a solid framework and has its own Secretariat (Collins and Rodrik, 2001). The rules, policies and principles of GAAT was applicable only trading of goods whereas the new WTO was configured to make rules on trading of goods, trading of services and further on trade related aspects in context to intellectual property rights. GAAT was a multilateral agreement with a series of new agreements which were adapted during the Tokyo Round on a selective basis causing a deep fragmentation in the trading system (Broadman, 2005). On the other hand WTO was founded and adopted by all the member countries as a single undertaking with multilateral agreements involving commitment from all member of the organization. The dispute settlement system was organized in a better and effective manner which has to deal its disputes in a limited timeframe thus ensuing quick and faster settlement of all disputes among the member nations whereas in the GAAT system the disputes generally took long time to be resolved as it had formal permanent appellate body which looked after disputes after finding data and facts with larger detailed rules to be implemented during the finding and implementation process (Brown, 2009). GAAT was further weak in terms of power and authority which is not the case of WTO which has been high powers to resolve any dispute on a quicker basis further GAAT allowed the domestic legislation to continue which was eliminated by the foundation of World Trade Organization. GAAT was more characterized with contracting parties who decided upon a common agreement to ensure enhancement of global trade between the respective countries on basis of the agreement mutually decided by the two parties whereas WTO has signatory members who mutually agree upon various international policies to liberalize international trade (Blanchard, Olivier, Kenneth and Jeffrey 2004). A real critical distinction which could be clearly visible from the foundation of both GAAT and WTO was a creation of binding dispute settlement system. Under the General Agreement for Trade and Tariff contracting parties in cases of any disputes would had to approach their case before the formal body which lacked to settle cases due to lack of an effective enforcement mechanism (Baldwin, 2010). However the same is not the case in WTO which is highly characterized with an effective enforcement mechanism which runs on a real time basis to provide quick responses and automatic solutions to many disputes between the member countries. On basis of an organizational contrast another striking difference which exists between General Agreement on Tariffs and Trade and World Trade Organization is the agreements in GAAT between the contracting parties were applied on a provisional basis whereas the same is not in case of WTO where the agreements between the member countries has a legal permanent provision and status making it more towards the real enhancement of international trade on a global basis. Thus we witness that there has been a subsequent line of differences which exists between GAAT and WTO which clearly highlights the importance of both GAAT and WTO and further highlight the formal legal power of GAAT being more superior and powerful than GAAT. 5.0 Conclusion This report has been drafted in a logical and sequential manner to provide readers with a complete understanding of the GAAT and WTO. The report highlights the reason for which GAAT was established after the World War-II and the different policies and regulations of GAAT which was mainly directed towards the enhancement of international trade. The report also highlights the major contributions or accomplishments made by GAAT which was more during the various rounds of GAAT and more particularly during the Uruguay Round. Finally the report highlights the major and critical differences between GAAT and WTO to ensure that readers have been equipped with both theoretical and practical understanding of the entire topic under study. 6.0 References Baldwin, R. (2010). Sources of the WTO’s Woes: Decision-Making’s Impossible Trinity. Policy Insight no. 49, Geneva: Centre for Economic Policy Research Blanchard, T., Olivier, J., Kenneth A. and Jeffrey D. (2004). eds. The Transition in Eastern Europe (Volumes 1 and 2). National Bureau of Economic Research Project Report. Chicago: University of Chicago Press Brown, P. (2009). Antidumping, Safeguards, and Protectionism During the Crisis: Two New Insights From 4th Quarter 2009. Vox, May 1, 2014, http://www.voxeu.org/index.php?q=node/4635 Broadman, H (2005). From Disintegration to Reintegration: Eastern Europe and the Former Soviet Union in International Trade. Washington, D.C.: World Bank Collins, S. and Rodrik, D. (2001). Eastern Europe and the Soviet Union in the World Economy. Washington, D.C.: Institute for International Economics Cuyvers, L., Philippe De, L., and Stijn, V. (2005). From AFTA Towards an ASEAN Economic Community… and Beyond. Discussion Paper no. 46. Antwerp: Centre for ASEAN Studies, 2005. Dadush, Uri. (2009). WTO Reform: The Time to Start Is Now. Policy Brief no. 80. Washington, D.C.: Carnegie Endowment for International Peace Dadush. U, and Bennett, S. (2010). The World Order in 2050. Policy Outlook. Washington, D.C.: Carnegie Endowment for International Peace. Read More