The General Agreement on Tariffs and Trade - Literature review Example

The Gеnеrаl Аgrееmеnt on Таriffs аnd Тrаdе Institution: Name: Introduction After the Second World War, nations were planning to develop a new trading order. The two key players in global business, the United Kingdom and the United States conducted intense discussions on how to develop a commercial policy that was free and without discrimination. Initially the United Kingdom proposed the establishment of a commercial union. The United States on the other hand, proposed Multilateral Convention on Trade Policy. Later, twenty three more countries joined the United Kingdom and the United States which led to the establishment of the Gеnеrаl Аgrееmеnt on Таriffs end Trade in 1947 (Irwin, 1993). This particular paper will examine what was the Gеnеrаl Аgrееmеnt on Таriffs аnd Тrаdе. The paper will further examine its main accomplishments and how GATT differed from the now functional World Trade organization. The Gеnеrаl Аgrееmеnt on Таriffs аnd Тrаdе (GATT) was basically a multilateral agreement established with the aim of controlling international trade (Jackson, 1997). It was established with the basis of attaining various objectives. One of the objectives was to ensure that no member country practiced discrimination when undertaken international trade. In order to avoid the practice of discrimination, GATT agreed to use the principle of the Most Favored Nation (MFN). The principle implied that every nation was preferential and thus where restrictions were permitted, every nation had to experience the restriction. The second objective of GATT was the prohibition of quantitative restrictions. This would ensure that only limited restrictions were imposed. The third objective was consultation, whereby GATT was to act as a platform for continuous consultations where member states could resolve their disputes (Cherunilam, 2010). The Gеnеrаl Аgrееmеnt on Таriffs аnd Тrаdе (GATT) embodied certain general principles and conventions that governed international trade between the member states(Miller, 2005). One of the rules that governed the agreements was that any change in commercial policy or changes in tariffs of a certain member state should not be undertaken without consolation of other parties. Also, member countries were required to work towards the lowering of tariffs and other existing barriers to international trade which were supposed to be discussed within the GATT framework (Jackson, 1997). Accomplishments of the Gеnеrаl Аgrееmеnt on Таriffs аnd Тrаdе One of the main accomplishments of GAAT was the lowering of import tariffs which enabled governments to open up their markets for trade. Boudreaux, (2008) highlights that under GATT countries agreed mutually to reduce their tariffs and also to give each member the status of the Most Favored Nation. On the basis of the fact that every government’s tariff reduction was bound together within a single agreement, no government had the fear that when it lowered its tariff then the other government will not have done the same in accordance to the requirements of GATT. Consequently, the lowering of tariffs improved the prospects of trade whereby many governments opened their markets to conduct trade with other members. For instance, in 1947, immediately after the establishment of GATT the average level of tariff reduction on manufactured products by developed nations was reduced from 40% to about 3% after conducting various round table discussions (Glassner, 1998). The reduction led to an increase in the expansion of markets to other countries which encouraged industries to increase their output in order to meet the demands of the market (Cherunilam, 2010). Another achievement of GAAT was that it facilitated the liberalization of trade. Prior to the Second War essentially during the interwar period countries has imposed various restrictions on trade that hindered free trading activities. Nevertheless, the development of GATT promoted liberalization of trade through the removal of trade practices that affect the free flow of services and goods from one country to another (Krugman, 1995). A study conducted by Baggaley and White (1998) on Trade Liberalization Under the GATT revealed that GATT indeed contributed to the liberalization of trade although this factor has widely been contested by scholars such as Irwin, (1995).The findings of the study by Baggaley and White (1998) indicate that the cornerstone principles adopted by GATT enhanced progressively the liberalization of trade an aspect that did not exist before its formation. GATT has also frequently been praised for stimulating post –war recovery in Western Europe and also stopping the occurrence of damages that occurred during the inter war periods (Irwin, 1992). By enabling the creation of a free international and regional trading system in Europe, GATT enabled European markets to take advantage of specialization within their lines of comparative advantage and thus they were able to expand their trading activities rapidly and effectively. Irwin, (1993) argues that evidence of GATTs contribution in the European economic recovery can be attained from the difference in behavior of Europe during the interwar period and behavior after World war 11. As indicated by the Figure 1.0 that shows the export incomes of Western European countries during the I st World War and After the Second World war. It can be stated that there was an increase in export activities which can further be linked to the economic recovery of Europe. Figure 1.0 Another of the many achievements of GAAT was the creation of a reasonably sophisticated process for dispute settlement. Although the original GATT agreement consisted of only a minimum area of dispute settlement (Articles XXII and XXXII) which covered consultations and the submittal of issues to the contracting parties of GAAT . Nevertheless, GATT was very effective in dispute settlement. For instance in the 1950s, a panel of individuals were introduced to come up with findings, determination and recommendations in the event of any conflict between the parties. The panel of individuals was representatives of every government. For several decades the member states used the panel process which mainly solved problems to do with violation of treaty requirements. By the 1980, the panels for dispute settlement were helped by the new legal section that was from the secretariat of GATT. The panels therefore begun to present reports that were clearer and more logical. Many member states found it useful to use the panels and the legal secretariat in resolving their disputes (Jackson, 1997). A significant accomplishment of the Gеnеrаl Аgrееmеnt on Таriffs and Тrаdе involved Intellectual property. Prior to the World war, the multilateral and bilateral agreements that concerned Intellectual property did not exist. With the increase expansion of service industry, there was need to develop regulations that governed intellectual property. Hauser,(1995) discloses that expanding GATT regulations to services was first proposed by the United States during the 1980. The U.S had the objective advancing the access of the global market to the rapidly expanding American service firms in the capital intensive sectors such as Telecommunication and financial services. Other industrialized nations also accepted the suggestion of the United States that it was vital to form agreements even within the service industry. GATT therefore developed the incorporation of the Agreement on Trade Related Aspects of Intellectual property Rights (TRIPS (Annex, 1994). Annex, (1994) highlights that with the adoption of this particular regulation countries were for the first time given the opportunity to tackle disputes that were related patent, trademark, copyright and other related issues. GATT also facilitated transparency in the regulations of conducting trade. Without a doubt conducting multilateral trade needs transparency essentially in the measures adopted by trading partners and the trade regulations (Glassner, 1998). To this end, the GATT regulations were effective in the development of transparency. Kennedy,(1998) highlights that the existence of GATT enabled the quick identification of whether a nation had violated GATT regulation or not . This ensured that transparency was maintained when conducting trade. Some of the violations identified and resolved include the 1952 case that entailed tariff treatment of sardines exported from Portugal and Norway by the Germans. The GATT panel ruled that the products from both countries were like products as outlined by GATTs Article I of the Most Favored Nations. Consequently, the panel advised Germany to view the products from the two countries as like products. Another successful case was the 1989 grievance by the United States opposing the subsidies compensated by the EU to oil producers. The panel ruled that subsidies did vary depending on the amount of import prices. Under Artle XIII the EU had already negotiated the tariff concession with the US in 1962, thus the concession was not be impaired or nullified by the increase or introduction of domestic subsidies on the concerned product (Appleton and Plummer, 2007). How GATT differed from the now functional World Trade organization GATT was terminated in 1994; this led to the development of the WTO. However many regulations that existed in GATT were also adopted by the WTO. One of the significant differences between GATT and WTO is in terms of the nature of the two. GATT was a basically a set of regulations whereby different countries came together with the objective of transforming trading activities. As a result they sat down in round tables and formulated various rules that were to govern operations of international trade. The World Trade Organization on the other hand is a permanent institution or organization that had stable framework and its own governance and secretariat. It’s therefore not a set of rules but an organization (China Trade in services, 2007). Another difference between GATT and WTO was in terms of dispute resolution. Marrakesh, (1994) highlights that under the GATT member states could sometimes violate the rulings of the panel both from the initial stage up to the end. For instance, there are certain members who would completely reject the ruling of the panels and even not implement the changes that should as proposed by the panel (Marrakesh, 1994). In contrast in the WTO the decision of the panel has to be implemented. In case a member country does not agree to the panel’s decision, they are given a short deadline to appeal the ruling. In addition WTO adopted a dispute resolution approach have now become judicialised. Also, in the previous two decades, the diplomatic approaches of dispute settlement that were used by GATT were substituted with quasi- judicial procedures for dispute resolution. The adoption of such an approach by the WTO offers institutional grounds for dealing with breaches of regulations at all levels despite of the position or power held by the actors. Helmedach and Zangl, (2003) highlights that; WTO is more effective in dispute resolution based on the fact that despite of the financial or military resources that a nation has, it is compulsory to comply with the regulations, if a nation does not comply then they can be expelled from the organization. Another difference between GATT and WTO is based the area of transaction or focus. GAAT was originally established with the agenda of tariff reduction. On the contrary, the WTO single agenda was to effectively develop a connected agreement by undertaking negotiations on various concerns in different areas. WTO deals with complex trade transaction issues such as policy concessions in diverse areas which also include other policy concerns. Sometimes when an agreement is signed in one area it means that another area also has to be catered for. For instance, when a trade agreement is signed it can also imply that other policy areas such as human rights, environmental issues and labor regulations have also to be integrated. In reality, in the context of WTO, tariff preference can actually be used as a mechanism to encourage cooperation in other areas. For instance, when negotiations in a certain area are not successful between two countries, the countries may develop the required conditions for creating an exchange that is of mutual benefit (Mattoo and Arvind Subramanian, 2008). Conclusion The above discussion has examined what was the Gеnеrаl Аgrееmеnt on Таriffs аnd Тrаdе. The paper has also examined its main accomplishments and how GATT differed from the now functional World Trade organization. In the discussion some of the accomplishments of GATT include; the lowering of import tariffs which enabled governments to open up their markets for trade, Liberalization of trade , stimulating post –war recovery in Western Europe, the development of a good dispute resolution process, it also catered for Таriffs and Тrаdе involved in Intellectual property and also assisted in creation of transparency in trading activities. The difference between the now existing WTO and GATT include the difference in the nature of the two, transaction or focus and dispute resolution. In conclusion, it can be stated that GATT was actually an effective approach of solving the existing trade related problem that existed during the interwar period. References Appleton, E and Plummer, G.(2007).The World Trade Organization: Legal, Economic and Political Analysis. Springer. Annex, S. (1994). Legal Instruments-Results of the Uruguay Round. DSU. Boudreaux, D, (2008). Globolization. Business & Economics Baggaley , N and White, L.(1998). Trade Liberalization Under the GATT, the NAFTA and the EU: Selected. Journal of comparative international management . 1(1). China Trade in services. (2007). WTO vs GATT: Main Differences. WTO Cherunilam , F.(2010). International business: text and cases. Business & Economics . Glassner, M.(1998). Greenwood Publishing Group.The United Nations at Work. Glassner, G.(1998). The United Nations Work. Greenwood Publishing Group. Hauser, C.(1995). Das neue GATT. Die Welthandelsorganisation nach Abschluß der Uruguay-Runde. München/Wien. Helmedach, A and Zangl, B.(2003). Dispute Settlement Under GATT and WTO an empirical Enquiry into a regime Change. Oxford Press. Jackson, H.(1997). Business & Economics.The World Trading System: Law and Policy of International Economic Relations. MIT Press. Irwin, D. (1992). Long-Run Trends in World Trade and World Output," unpublished manuscript. University of Chicago. Irwin, D.(1993). The GATT's contribution to economic recovery in post-war Western Europe. University of Chicago. Krugman, P.R. (1995). Growing World Trade: Causes and Consequences. ' Brookings Papers on Economic Activity, 327-62. Kennedy, K.(1998). The GATT- WTO system at Fifty. Michigan State University. Marrakesh, A.(1994). Understanding on Rules and Procedures Governing the Settlement of Disputes of the WTO. Sage. Mattoo, A and Arvind Subramanian, A.(2008). India and Bretton Woods II. Economic and Political Weekly November. 62-70. Miller , E. (2005). Achievements and challenges of trade. Sage. Read More