CHAPTER 1

1.1 INTRODUCTION

General Agreement on Tariffs and Trade (GATT), set of multilateral trade agreements aimed at
the abolition of quotas and the reduction of tariff duties among the contracting nations. When
GATT was concluded by 23 countries at Geneva, in 1947 (to take effect on Jan. 1, 1948), it was
considered an interim arrangement pending the formation of a United Nations agency to
supersede it. When such an agency failed to emerge, GATT was amplified and further enlarged at
several succeeding negotiations. It subsequently proved to be the most effective instrument of
world trade liberalization, playing a major role in the massive expansion of world trade in the
second half of the 20th century. By the time GATT was replaced by the World Trade
Organization (WTO) in 1995, 125 nations were signatories to its agreements, which had become
a code of conduct governing 90 percent of world trade.

In 1944, developed countries participated in bretton woods meeting. In this meeting they wanted
to make international trade organisation but all countries could not agree on its terms but 1948 ,
they had made a general agreement for tariffs and trade after signing GATT in 1947 by 23
countries including India. Now no. of member countries reached up to 184.

GATTs most important principle was that of trade without discrimination, in which each
member nation opened its markets equally to every other. As embodied in unconditional most-
favoured nation clauses, this meant that once a country and its largest trading partners had agreed
to reduce a tariff, that tariff cut was automatically extended to every other GATT member. GATT
included a long schedule of specific tariff concessions for each contracting nation, representing
tariff rates that each country had agreed to extend to others. Another fundamental principle was
that of protection through tariffs rather than through import quotas or other quantitative trade
restrictions; GATT systematically sought to eliminate the latter. Other general rules included
uniform customs regulations and the obligation of each contracting nation to negotiate for tariff
cuts upon the request of another. An escape clause allowed contracting countries to alter
agreements if their domestic producers suffered excessive losses as a result of trade concessions.

1
GATTs normal business involved negotiations on specific trade problems affecting particular
commodities or trading nations, but major multilateral trade conferences were held periodically
to work out tariff reductions and other issues. Seven such rounds were held from 1947 to 1993,
starting with those held at Geneva in 1947 (concurrent with the signing of the general
agreement); at Annecy, France, in 1949; at Torquay, Eng., in 1951; and at Geneva in 1956 and
again in 196062. The most important rounds were the so-called Kennedy Round (196467), the
Tokyo Round (197379), and the Uruguay Round (198694), all held at Geneva. These
agreements succeeded in reducing average tariffs on the worlds industrial goods from 40 percent
of their market value in 1947 to less than 5 percent in 1993.

The Uruguay Round negotiated the most ambitious set of trade-liberalization agreements in
GATTs history. The worldwide trade treaty adopted at the rounds end slashed tariffs on
industrial goods by an average of 40 percent, reduced agricultural subsidies, and included ground
breaking new agreements on trade in services. The treaty also created a new and stronger global
organization, the WTO, to monitor and regulate international trade. GATT went out of existence
with the formal conclusion of the Uruguay Round on April 15, 1994. Its principles and the many
trade agreements reached under its auspices were adopted by the WTO.

2
 1.2 OBJECTIVE OF THE RESEARCH

To understand role of general agreement of tariff and trade (GATT) in international trade.

To understand the basic principles of general agreement of tariff and trade (GATT).

To understand the purpose and benefits of general agreement of tariff and trade (GATT).

To understand why general agreement of tariff and trade (GATT) was replaced by world
trade organisation (WTO).

To understand how world trade organisation (WTO) is different from general agreement
of tariff and trade (GATT).

1.3 LIMITATION OF THE RESEARCH

It is simple to assume that every work will proceed without any hurdles. But as usual there were
many hurdles and bottlenecks faced during the working on this project. The main limitations
were as follows:

The limitation in this survey was that I could not conduct a survey on a big scale, due to the
time constraint.

Unavailability of the resource persons.

Ease of access to important and relevant data

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 CHAPTER 2

2.1 A BRIEF HISTORY OF GATT

The WTO's predecessor, the GATT, was established on a provisional basis after the Second
World War in the wake of other new multilateral institutions dedicated to international economic
cooperation - notably the "Bretton Woods" institutions now known as the World Bank and the
International Monetary Fund.

The original 23 GATT countries were among over 50 which agreed a draft Charter for an
International Trade Organization (ITO) - a new specialised agency of the United Nations. The
Charter was intended to provide not only world trade disciplines but also contained rules relating
to employment, commodity agreements, restrictive business practices, international investment
and services.

In an effort to give an early boost to trade liberalization after the Second World War - and to
begin to correct the large overhang of protectionist measures which remained in place from the
early 1930s - tariff negotiations were opened among the 23 founding GATT "contracting parties"
in 1946. This first round of negotiations resulted in 45,000 tariff concessions affecting $10
billion - or about one-fifth - of world trade. It was also agreed that the value of these concessions
should be protected by early - and largely "provisional" - acceptance of some of the trade rules in
the draft ITO Charter. The tariff concessions and rules together became known as the General
Agreement on Tariffs and Trade and entered into force in January 1948.

Although the ITO Charter was finally agreed at a UN Conference on Trade and Employment in
Havana in March 1948 ratification in national legislatures proved impossible in some cases.
When the United States' government announced, in 1950, that it would not seek congressional
ratification of the Havana Charter, the ITO was effectively dead. Despite its provisional nature,
the GATT remained the only multilateral instrument governing international trade from 1948
until the establishment of the WTO.

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Although, in its 47 years, the basic legal text of the GATT remained much as it was in 1948,
there were additions in the form of "plurilateral" voluntary membership, agreements and
continual efforts to reduce tariffs. Much of this was achieved through a series of "trade rounds".

The original intention was to create a third institution to handle the trade side of international
economic co-operation joining the two Bretton Woods institutions, the World Bank and the
International Monetary Fund. Over 50 countries participated in negotiations to create an
International Trade Organization (ITO) as a specialized agency of the United Nations. The draft
ITO Charter was ambitious. It extended beyond world trade disciplines, to include rules on
employment, commodity agreements, restrictive business practices, international investment, and
services.

Even before the talks concluded, 23 of the 50 participants decided in 1946 to negotiate to reduce
and bind customs tariffs. With the Second World War only recently ended, they wanted to give an
early boost to trade liberalization, and to begin to correct the legacy of protectionist measures
which remained in place from the early 1930s.

First round of negotiations resulted in 45,000 tariff concessions affecting $10 billion of trade,
about one fifth of the worlds total. This 23 countries also agreed that they should accept some of
the trade rules of the draft ITO Charter. The combined package of trade rules and tariff
concessions became known as the General Agreement on Tariffs and Trade. It entered into force
in January 1948, while the ITO Charter was still being negotiated. The 23 became founding
GATT members.

After this first round of negotiations in Geneva Switzerland, GATT improved by 7 more rounds
of negotiations. Finally in the 8th round named Uruguay Round creation of WTO covered.

5
 2.2 THE 128 COUNTRIES THAT HAD SIGNED GATT BY 1994

On 1 January 1995, the WTO replaced GATT, which had been in existence since 1947, as the
organization overseeing the multilateral trading system. The governments that had signed GATT
were officially known as GATT contracting parties. Upon signing the new WTO agreements
(which include the updated GATT, known as GATT 1994), they officially became known as
WTO members.

The list below is historical. It contains the 128 GATT signatories as at the end of 1994, together
with the dates they signed the agreement.

Angola 8 April 1994

Antigua and Barbuda 30 March 1987
Argentina 11 October 1967
Australia 1 January 1948
Austria 19 October 1951
Bahrain 13 December 1993
Bangladesh 16 December 1972
Barbados 15 February 1967
Belgium 1 January 1948
Belize 7 October 1983
Benin 12 September 1963
Bolivia 8 September 1990
Botswana 28 August 1987
Brazil 30 July 1948
Brunei Darussalam 9 December 1993
Burkina Faso 3 May 1963
Burundi 13 March 1965
Cameroon 3 May 1963
Canada 1 January 1948
Central African Republic 3 May 1963
Chad 12 July 1963

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Chile 16 March 1949
Colombia 3 October 1981
Congo, Republic of 3 May 1963
Costa Rica 24 November 1990
Cte d'Ivoire 31 December 1963
Cuba 1 January 1948
Cyprus 15 July 1963
Czech Republic 15 April 1993
Denmark 28 May 1950
Djibouti 16 December 1994
Dominica 20 April 1993
Dominican Republic 19 May 1950
Egypt 9 May 1970
El Salvador 22 May 1991
Fiji 16 November 1993
Finland 25 May 1950
France 1 January 1948
Gabon 3 May 1963
The Gambia 22 February 1965
Germany 1 October 1951
Ghana 17 October 1957
Greece 1 March 1950
Grenada 9 February 1994
Guatemala 10 October 1991
Guinea 8 December 1994
Guinea Bissau 17 March 1994
Guyana 5 July 1966
Haiti 1 January 1950
Honduras 10 April 1994
Hong Kong 23 April 1986
Hungary 9 September 1973

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Iceland 21 April 1968
India 8 July 1948
Indonesia 24 February 1950
Ireland 22 December 1967
Israel 5 July 1962
Italy 30 May 1950
Jamaica 31 December 1963
Japan 10 September 1955
Kenya 5 February 1964
Korea, Republic of 14 April 1967
Kuwait 3 May 1963
Lesotho 8 January 1988
Liechtenstein 29 March 1994
Luxembourg 1 January 1948
Macao 11 January 1991
Madagascar 30 September 1963
Malawi 28 August 1964
Malaysia 24 October 1957
Maldives 19 April 1983
Mali 11 January 1993
Malta 17 November 1964
Mauritania 30 September 1963
Mauritius 2 September 1970
Mexico 24 August 1986
Morocco 17 June 1987
Mozambique 27 July 1992
Myanmar, Union of 29 July 1948
Namibia 15 September 1992
Netherlands 1 January 1948
New Zealand 30 July 1948
Nicaragua 28 May 1950

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Niger 31 December 1963
Nigeria 18 November 1960
Norway 10 July 1948
Pakistan 30 July 1948
Papua New Guinea 16 December 1994
Paraguay 6 January 1994
Peru 7 October 1951
Philippines 27 December 1979
Poland 18 October 1967
Portugal 6 May 1962
Qatar 7 April 1994
Romania 14 November 1971
Rwanda 1 January 1966
Senegal 27 September 1963
Sierra Leone 19 May 1961
Singapore 20 August 1973
Slovak Republic 15 April 1993
Slovenia 30 October 1994
Solomon Islands 28 December 1994
South Africa 13 June 1948
Spain 29 August 1963
Sri Lanka 29 July 1948
Saint Kitts and Nevis 24 March 1994
Saint Lucia 13 April 1993
Saint Vincent and the Grenadines 18 May 1993
Suriname 22 March 1978
Swaziland, Kingdom of 8 February 1993
Sweden 30 April 1950
Switzerland 1 August 1966
Tanzania 9 December 1961
Thailand 20 November 1982

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Togo 20 March 1964
Trinidad and Tobago 23 October 1962
Tunisia 29 August 1990
Turkey 17 October 1951
Uganda 23 October 1962
United Arab Emirates 8 March 1994
United Kingdom 1 January 1948
United States of America 1 January 1948
Uruguay 6 December 1953
Venezuela 31 August 1990
Yugoslavia 25 August 1966
Zaire 11 September 1971
Zambia 10 February 1982
Zimbabwe 11 July 1948

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 2.3 BASIC PRINCIPLES OF GATT

The General Agreement on Tariff and Trade is a multilateral treaty that lays down agreed rules
for conducting international trade. It came into force in January 1948. 119governments which
together account for 90 per cent of the world merchandise trade subscribe it to. Its basic aim is to
liberalize trade and for the last 45 years it has been concerned with negotiating the reduction of
trade barriers and with international trade relations. The rapid and uninterrupted growth in the
volume of international trade till1992 provides a good testimony for the success of the GATT.

WTO embodies many reciprocal rights and obligations for trading countries and its core
principle is the Most-Favoured-Nations (MFN) clause. Under this, trade must be conducted on
the basis of non-discrimination-all members are bound to accord each other treatment in tariffs
and trade as favourable as they give to any other member-country.

A second principle is that, to the maximum extend possible, trade protection should be given
to domestic industries not through non-tariff measures such as quantitative restrictions, arbitrary
technical standards, and health regulations, etc; but only through the customs tariff, so that the
extent protection is clear and competition is still possible.

Other basic provisions are national treatment (non-discrimination), transparency of trade

rules, and general prohibition of quantitative restrictions or quotas.

A final principle embodied in the WTO is fair competition. Fair competition in the GATT
context is reflected in a number of provisions. Government subsidization of exports is prohibited
and\or countervailable by importing countries.

Certain types of the behaviour pursued by exporting firms (as opposed to governments) are
also countervailable. Thus, dumping by exporters-which usually mean charging a price in the
export market that is less than what is charged in the home market maybe offset by importing
country governments through the imposition of an anti-dumping duty if the dumping injures
domestic competitors.

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BASIC PRINCIPLES OF GATT:

1. Trade without discrimination:

Trade must be conducted on the basis of non-discrimination. All contracting parties are bound to
grant to each other treatments favourable as they would to any country (most favoured nation) in
the application and administration of import and export duties and charges. Expectations to this
basic rule are allowed only in the case of regional trading arrangements and the developing
countries.

a) Most-favoured-nation (MFN):

Under the WTO agreements, countries cannot normally discriminate between their trading
Partners. Grant someone a special favour (such as a lower customs duty rate for one of their
products) and you have to do the same for all other WTO members.

This principle is known as most-favoured-nation (MFN) treatment. It is so important that it is the

first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in
goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) and the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) , although in each
agreement the principle is handled slightly differently. Together, those three agreements cover all
three main areas of trade handled by the WTO.

b) National Treatment:

Imported and locally-produced goods should be treated equally - at least after the foreign goods
have entered the market. The same should apply to foreign and domestic services, and to foreign
and local trademarks, copyrights and patents.

2. Free Trade

Since GATTs creation in 1947-48 there have been eight rounds of trade negotiations. A ninth
round, under the Doha Development Agenda, is now underway. At first these focused on
lowering tariffs (customs duties) on imported goods. As a result of the negotiations, by the mid-

12
1990s industrial countries tariff rates on industrial goods had fallen steadily to less than 4%.
Opening markets can be beneficial, but it also requires adjustment. The WTO agreements allow
countries to introduce changes gradually, through progressive liberalization. Developing
countries are usually given longer to fulfil their obligations.

3. Protection only through tariff:

Protection should be given to domestic industries only through customs tariffs and not through
other commercial measures. The aim of this rule is to make the extent of protection clear and to
make competition possible. Exception is, however, made in the case of developing countries
where the demand for imports by development may require them to maintain quantitative
restrictions in order to prevent an excessive drain on their foreign exchange resources.

4. A Stable basis of trade:

The binding of the tariff levels negotiated among the contracting countries provides a stable
predictable basis for trade. Binding of tariffs means that these cannot be increased unilaterally.
Although provision is made for the renegotiation of bound tariffs, a return tariffs is discouraged
by the requirement that any increase be compensated for.

5. Consultation:

A basic principle of GATT is that member-countries should consult one another on trade matters
and problems. They can call on GATT for a fair settlement of cases in which they feel that their
rights under the GATT are being withheld or compromised by other members. The agreement
consists of four parts: Part I: Main obligations of the contracting parties; Part II: A code of fait
trade practices to guide members in their commercial policies; Part III: Conditions for
membership and withdrawal; and Part IV: Expansion of trade of developing countries through
special concessions.

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 6. Predictability

With stability and predictability, investment is encouraged, jobs are created and consumers can
fully enjoy the benefits of competition choice and lower prices. The multilateral trading
system is an attempt by governments to make the business environment stable and predictable.

In the WTO, when countries agree to open their markets for goods or services, they bind their
commitments. For goods, these bindings amount to ceilings on customs tariff rates. Sometimes
countries tax imports at rates that are lower than the bound rates. Frequently this is the case in
developing countries. In developed countries the rates actually charged and the bound rates tend
to be the same.

7. Promoting Fair Competition

The rules on non-discrimination MFN and national treatment which we explained before are
designed to secure fair conditions of trade. So too are those on dumping (exporting at below cost
to gain market share) and subsidies. The issues are complex, and the rules try to establish what is
fair or unfair, and how governments can respond, in particular by charging additional import
duties calculated to compensate for damage caused by unfair trade.

8. Encouraging development and economic reform

The WTO system contributes to development. On the other hand, developing countries need
flexibility in the time they take to implement the systems agreements. And the agreements
themselves inherit the earlier provisions of GATT that allow for special assistance and trade
concessions for developing countries.

Over three quarters of WTO members are developing countries and countries in transition to
market economies. During the seven and a half years of the Uruguay Round, over 60 of these
countries implemented trade liberalization programmes autonomously.

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 2.4 THE PURPOSE AND BENEFIT OF GATT

PURPOSE

The main purpose of the GATT was substantial reduction of tariffs and other trade barriers and
the elimination of preferences, on a reciprocal and mutually advantageous basis.

In the historical view, GATT was formed to inherit International Trade Organization. In 1945,
United States invited its alliances in the war-time to negotiate an agreement which to reduce the
tariff in goods. Later on, the United Nation proposal to have a conference to draw a charter for an
International Trade Organization; however the Charter never enter into force. Almost at the same
time, the first round of GATT negotiation took place in Geneva to salvaged from the aborted
attempt to create the ITO.(WTO) In 1947, eight out of twenty three countries signed the GATT
original text, GATT 1947. In the absence of an international organization for trade, the only
existed international organization for trade, GATT took over to handle the problems in
international trade.

Another purpose of GATT was to reduce tariff. Before the GATT was formed, the tariff of each
country was very high. The result of setting high tariff was because after the Second World War
the economy of every country was suffering from depression. So the countries had to set high
tariffs to protect their domestic producers and manufactures so that they could also protect their
currencys value. The high tariffs managed to cut down all the imports and exports between
countries. As we can see that after the formed of GATT, they manage to keep on reduce the
tariffs between countries to help international trade to encourage more imports and exports to go
on again. They managed to reduce in all the 8 rounds of the multilateral negotiations.

Future more, reduce discriminatory treatment was also a purpose that the GATT was formed.
Discriminatory treatment happened in a lot of countries that they tend to be bias to the country
that they favoured. This issue was quite serious in the 1980s. It sometimes caused the less
favour countries not to invest anymore in that country. Their choices of export and import to a
country would be reduced. Both countries stopped export and import to each other would suffer
some lost in the economic because there was no cash flow movement between them. If without

15
discriminatory treatment, every country would feel be respected and continue to do business with
each other so that a large and steadily growing volume of real income and effective demand.

BENEFITS

The over 50 years history of GATT, it had promoted prosperity and development of it
contracting members, and had positives in the development of world economic after the World
War II. There are such benefits of GATT in its 50 years history:

Firstly, GATT has reduced the tariff and boosted to the economy after the Second World War
ended by encourage the imports and exports among countries again. After the Second World War
ended, the tariffs level set by each country were very high. After the forming of GATT, it actively
act perform is role in international trade, it reduced the tariffs by holding several rounds of
multilateral negotiations which held for months or even years for each rounds. In the significant
rounds prior Uruguay Round, there were a more than 21% tariff cut achieved in each round. In
the Uruguay Round, the participants had made an agreement which included 550 pages of tariff
reduction on 85 percent of world trade. The reduction of tariff had reduced the trade burdens lied
on the countries which involved in international trade, so that promoted the trade liberalization
and boosted the economics of contracting parties.

Secondly, GATT was formed to help developing country to work well in the international trade.
With the increasing number of developing countries contracted to GATT, the position of
developing countries in the multilateral negotiation rounds had improved. The addition of Part
IV Trade and Development to the agreement in 1968 had provided a lot of benefit to the less
developed countries. It includes requirements on the concept of non-reciprocity in trade
negotiations between developed and developing countries which means when developed
countries grant trade concessions to developing countries they should not expect the developing
countries to make matching offers in return. (WTO) It benefits the developing country in trade
transaction with developed countries. In Uruguay Round, the GATT further reduced the tariff on
developing countries. There was a significant reduction of average tariff rate on less-developed
countries after Uruguay Round. For instance, the average tariff rate in India was 71.4% before
Uruguay Round, and there was a big drop in the percentage after the Uruguay Round, it was
32.4%. By reducing the tariff and other trade barrier on developing countries, and promote the

16
development of economic of developing countries, it has reduced the economic gap between
industrial countries and developing countries.

GATT was also created to reverse the commercial policies of the 1930s that involved greater
restrictions on and discrimination in the world trade. This objective is to stop the countries
sought to insulate themselves from the Great Depression through what become as beggar-thy-
neighbour policies so here comes these anti trades to arise in part. GATT is to help countries to
make more imports and exports by reducing the tariff so before these countries have been
blocking imports and is proved to be a futile method of increasing domestic employment due to
the economic slump. Since exports and imports will increase the number of job vacancies
because of new investments from the other countries. These help to push up countries economy.

17
 2.5 GATT AND INDIA

Of course, it is out of question for India to have remained outside the mainstream of the GATT.
By virtue of its membership in the GATT, India is automatically entitled to enjoy the benefit of
the Most Favoured Nation (MFN) treatment from all the other participating members. Secondly,
keeping aloof herself from the GATT, India would have had to undergo bilateral agreements with
several countries for improving her trade relations and yet could not have assured the same what
could have been yielded through the GATT. Today, even a country like China has been keen on
joining the GATT.

In the whole bargaining process of the Uruguay Round, the Indian government, by and large,
played merely a spectator's role under the pretext that no clauses of the negotiations are seriously
detrimental to the interests of the country. The only consolation is that, there was hardly and
option available to us when the country is just wedded to economic liberalisation and the GATT
multilateralism is a lesser evil than bilaterism.

Another argument was put forward that in view of the emerging regional trade blocs such as
EFTA (European Free Trade Association), NAFTA (North American Trade Agreement), so also
possibilities of other free trade blocs in the Asian and Pacific regions, it was in the interests of
India that the government had to be pragmatic and positive enough in its approaches to the
Uruguay Round's decisions.

At this juncture, it is not easy to say with full confidence about India's position as a net gainer or
a loser from the new Treaty as there are both plus and minus points on several issues. A real
picture of the URT's implications will be revealed only through a close scrutiny of the provisions
made in the 500-page document when it is signed and sealed in April 1994. Meanwhile, the
present study, in brief, makes only a broad perception of the likely outcomes of the new treaty.

Agriculture has been a major subject of the URT. Under the new treaty, member countries are
required to reduce their agro-export subsidies over the six years if these exceed 10 per cent of the
value of agricultural production.

18
In the case of India, there is no need to fear about this clause, since our product and non-product
specified agro-subsidies are already below 10 per cent of the total agro-output value. Member
countries have agreed to reduce import duties on agricultural products by 36 per cent. Further,
developed countries will have to import at least three per cent of their agro- output.

These provisions will give a boost to India's agro-exports when European farm exports will tend
to be more expensive in the world market. There is also the possibility of a rise in rice imports
from Japan and Korea. India has to try its best to grab the opportunity and exploit its growth
potential and enlarged agro-exports including margined products. Though, India is basically an
agrarian economy, paradoxically she is a dwarf player in the agro-trade world market.

It is necessary to strengthen the country's agricultural sector for quantitative improvement and
high productivity. Unless there is a definite improvement in the quality of agro-products and
sufficient marketable surplus is generated at competitive prices, Indian agricultural exports will
remain a grey area in the emerging world economic order.

From India's viewpoint, "Textiles" appears to be a green area of the GATT agreement. It is
presumed that India's textile exports should be boosted by the phase-out of the multi-fibre
arrangement (MFA) under the new treaty. India's textile exports have already doubled from Rs.
9,558 crores in 1990-91 to Rs. 18,643 crores in 1992-93. Of the total textile exports of India, 52
per cent of the total cotton textile exports and 77 per cent of readymade garments exports are to
the quota countries. With the dismantling of the quota system, apparently, India will have a better
access to the quota- countries markets for her textile exports, especially cotton piece goods,
knitted fabrics and ready- made garments.

Indeed, under the liberalised environment of both domestic and external sectors, with abundant
supplies of cotton, skilled labour force, improved technology and due modernisation, India
should be in a position to emerge as a major force in the global textile markets, despite the stiff
competition from countries like China, Malaysia, Taiwan and even Pakistan. The progressive
opening of textile quotas under URT should strengthen India's exports in areas where the country
has a strong comparative advantage. A healthy and pragmatic textile policy in the country is the
need of the hour.

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Provisions for intellectual property rights (TRIPs) is a crucial area of the URT with far-reaching
implications for developing countries including India. Up till now only the process patent was
protected. Under the new agreement, inventor's rights widely cover patents, copyright, industrial
design, trade mark as well as performing art.

The phasing-out period is specified as 10 years for drugs and agro- chemicals and 5 years for the
rest. In the years to come, software packages will tend to become more expensive for our
country.

India's software industry may become stagnant, unless the government modifies the present duty
structure on software and Indian companies are encouraged to develop specialised software
packages. Moreover, the real outcome of gains will very much depend on how successfully the
government would try to wangle more quotas and concessions in bilateral negotiations with other
countries.

The Indian software professionals are also expected to seek overseas assignments on an
increasing scale with the easing of restrictions on their movement in the US and other developed
countries. After TRIPs, the software piracy is expected to come down throughout the world.

This would also provide more opportunities for the Indian professionals to develop new original
software packages to sell in the global markets. Of course, with the growing R&D everywhere,
competition will be intensified and only the best will survive. Official claims put Indian benefits
from skilled manpower exports to go up from $ 1.2 billion at present to $ 5 billion per annum by
the end of this century.

The TRIPs are likely to create some adverse effect on pharmaceutical industry in India, when the
new discoveries would become available at very heavy costs of royalties. According to the new
agreement, when the product patents will be brought into force in the year 2005 in the
developing countries including India, drug prices will zoom.

The indigenous pharmaceutical industry following the process patent will be in an adverse
position. Pranab Mukherjee, then Union Commerce Minister, however, felt that the government
could deal with the situation of rising drug prices by instituting price control, since the

20
government retained such right. But the industrialists feared that, such a policy will prove
detrimental to the Indian drug companies.

Only a pragmatic drug policy by the government can help. Decontrol is essential for growth of
the Indian drug industry. Product-wise price control should be scrapped so that adequate returns
are yielded by the industry which can be used for R&D to combat the product patent challenge.
Further, efforts should be made in exploring the potential in western markets for generic
products, that is, products whose patents have expired.

Indian drugs also need to have their focus in finding new chemical molecules useful for
treatment of tropical diseases like malaria, cholera and typhoid. Indian pharmacists should try to
develop Ayurvedic drugs as an alternative form of medicine. Under the GATT agreement then
India can hope to increase her exports of generic, tropical and ayurvedic drugs to many
countries. This obviously calls for a rational and pragmatic drug policy on the part of the
government.

Under the TRIPs, seeds will be patented. Indian farmers' inputs costs will be enhanced due to
royalties on seeds to be paid. Similarly, agro-chemicals of patented manufacture will be more
expensive. As a result, food grain prices will go up and the average Indian consumer will be
adversely affected. Effective and subsidised public distribution system (PDS) can only rescue the
poor. But, this would pose an added fiscal burden on the government.

Regarding services, the new treaty provides for fair trade and non-discrimination, easing entry
restrictions on specialised and skilled labour. This will help India to some extent as her
consultancy exports will get a boost.

Further, on account of the anti-dumping strategy and rules adopted in the URT, India's local
chemical industry can be protected. Similarly, using the same clause the US Government can
also prevent India's textile exports when its quota region is over.

India has to be the least worried about her financial sector, since the TRIMs provisions exclude
banking and insurance, and the country has the right to formulate its own investment policy. In
financial services, the entry of some well-known international players will, however, induce

21
competition which will force the Indian players to improve. Similarly, the entry of well-known
firms in tourism, telecommunication and consultancy will be beneficial to the Indian consumers
when they will be in a position to enjoy quality products.

According to a World Bank-OECD Study, as an impact of URT, India's trade is expected to reach
a level of 4.6 billion dollars by 2002. Government economists in India, including Pranab
Mukherjee, have rather a conservative estimate of the gain amount to be around 2 billion dollars.
But these are just expectations. Real happening depends on many factors, which time along can
tell.

Of course, with the rationalised energy prices, a clear and just export policy, improved
infrastructure and financial sector reforms, along with, liberalised industrial and trade policies,
India must make all efforts to increase its share in the expanding global trade under the emerging
new order.

India's share in global exports, at present, is just around 0.5 per cent as against that of 1.9 per
cent in 1950. The positive side of the URT and the export optimism prevailing in the country
should be exploited for improving India's export scenario on world's front. All efforts must be
made to see that our exports expand by at least 15 per cent per annum in US dollar terms.

Internal restrictions on exports need to be removed. To sustain the export-led growth strategy of
the country steps should the taken to provide an aggressive export push. An important feature of
India's expert-led growth strategy is the degree to which the country can supply exportables that
prove acceptable to customers in the world markets. Good design and better quality at
competitive prices are highly significant factors.

In this respect, foreign collaborations with multinational corporations may prove important for
the Indian economy, provided there is a clear understanding on this issue. The country has yet to
build a reputation for the; 'Indian' as symbol of quality trade mark in the global markets.

22
 CHAPTER 3

3.1 GATT NEGOTIATING ROUNDS

Trade Rounds the package route to progress

The biggest leaps forward in international trade liberalization have come through multilateral
trade negotiations, or "trade rounds", under the auspices of GATT the Uruguay Round was the
latest and most extensive.

Although often lengthy, trade rounds offer a package approach to trade negotiations; an approach
with a number of advantages over issue-by-issue negotiations. For a start, a trade round allows
participants to seek and secure advantages across a wide range of issues. Second, concessions
which are necessary but would otherwise be difficult to defend in domestic political terms, can
be made more easily in the context of a package which also contains politically and
economically attractive benefits. Third, developing countries and other less powerful participants

23
have a greater chance of influencing the multilateral system in the context of a round than if
bilateral relationships between major trading nations are allowed to dominate. Finally, overall
reform in politically sensitive sectors of world trade can be more feasible in the context of a
global package - reform of agricultural trade was a good example in the Uruguay Round.

Most of GATT's early trade rounds were devoted to continuing the process of reducing tariffs.
The results of the Kennedy Round in the mid-sixties, however, included a new GATT Anti-
Dumping Agreement. The Tokyo Round during the seventies was a more sweeping attempt to
extend and improve the system.

During the GATT (General Agreement on Tariffs and Trade) years, eight rounds of tariff
negotiations were held between 1947 and 1994: Geneva (1947), Annecy (1949), Torquay (1950-
51), Geneva (1956), Geneva (1960-61) - also known as the Dillon Round, the Kennedy Round
(1964-67), the Tokyo Round (1973-79) and the Uruguay Round (1986-94).

1st Round (Geneva Tariff Conference, 1947)

1st Round: Geneva Tariff Conference, 1947: consisted of tariff negotiations between the
participants in the Preparatory Committee of the United Nations Conference on Trade and
Employment. About 45,000 concessions were exchanged. This was the first occasion when tariff
negotiations were conducted multilaterally. Negotiations were conducted under the principal
supplier rule.

In other words, the granting of a concession only had to be considered if the country supplying
the largest part of the product made a request for a tariff reduction. This Tariff Conference is
deemed to have been the first round of multilateral trade negotiations.

2nd Round (Annecy Tariff Conference, 1949)

2nd Round: Annecy Tariff Conference: the second of the eight rounds of multilateral trade
negotiations. It was held at Annecy, France, from April to August 1949.

It was primarily aimed at facilitating accession to the GATT by ten countries (Denmark,
Dominican Republic, Finland, Greece, Haiti, Italy, Liberia, Nicaragua, Sweden and Uruguay),

24
which had not participated in the 1947 Geneva tariff negotiations. In the event, Uruguay did not
accede until 1953

3rd Round (Torquay Round: 1951)

The third round occurred in Torquay, England in 1950. Thirty-eight countries took part in the
round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to of the
tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana
Charter signified the establishment of the GATT as a governing world body.

4th Round (Geneva Round: 19551959)

The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries
took part in the round. $2.5 billion in tariffs were eliminated or reduced.

5th Round (Dillon Round: 19601962)

The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named
after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first
proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9
billion in tariffs, it also yielded discussion relating to the creation of the European Economic
Community (EEC).

6th Round (Kennedy Round: 19621967)

The sixth round of GATT multilateral trade negotiations, held from 1963 to 1967. It was named
after U.S. President John F. Kennedy in recognition of his support for the reformulation of the
United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave
the President the widest-ever negotiating authority.

As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it
became clear, long before the Round ended, that a more comprehensive approach was needed to
deal with the emerging challenges resulting from the formation of the European Economic

25
Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international
trader more generally.

Japan's high economic growth rate portended the major role it would play later as an exporter,
but the focal point of the Kennedy Round always was the United States-EEC relationship.
Indeed, there was an influential American view that saw what became the Kennedy Round as the
start of a transatlantic partnership that might ultimately lead to a transatlantic economic
community.

To an extent, this view was shared in Europe, but the process of European unification created its
own stresses under which the Kennedy Round at times became a secondary focus for the EEC.
An example of this was the French veto in January 1963, before the round had even started, on
membership by the United Kingdom.

Another was the internal crisis of 1965, which ended in the Luxembourg Compromise.
Preparations for the new round were immediately overshadowed by the Chicken War, an early
sign of the impact variable levies under the Common Agricultural Policy would eventually have.
Some participants in the Round had been concerned that the convening of UCTAD, scheduled
for 1964, would result in further complications, but its impact on the actual negotiations was
minimal.

In May 1963 Ministers reached agreement on three negotiating objectives for the round:

(a) Measures for the expansion of trade of developing counties as a means of furthering their
economic development,

(b) Reduction or elimination of tariffs and other barriers to trade, and

(c) Measures for access to markets for agricultural and other primary products.

The working hypothesis for the tariff negotiations was a linear tariff cut of 50% with the smallest
number of exceptions. A drawn-out argument developed about the trade effects a uniform linear
cut would have on the dispersed rates (low and high tariffs quite far apart) of the United States as
compared to the much more concentrated rates of the EEC which also tended to be in the lower
held of United States tariff rates.
26
The EEC accordingly argued for an evening-out or harmonization of peaks and troughs through
its cerement, double cart and thirty: ten proposals. Once negotiations had been joined, the lofty
working hypothesis was soon undermined. The special-structure countries (Australia, Canada,
New Zealand and South Africa), so called because their exports were dominated by raw
materials and other primary commodities, negotiated their tariff reductions entirely through the
item-by-item method.

In the end, the result was an average 35% reduction in tariffs, except for textiles, chemicals, steel
and other sensitive products; plus a 15% to 18% reduction in tariffs for agricultural and food
products. In addition, the negotiations on chemicals led to a provisional agreement on the
abolition of the American Selling Price (ASP). The was a method of valuing some chemicals
used by the noted States for the imposition of import duties which gave domestic manufacturers
a much higher level of protection than the tariff schedule indicated.

However, this part of the outcome was disallowed by Congress, and the American Selling Price
was not abolished until Congress adopted the results of the Tokyo Round. The results on
agriculture overall were poor. The most notable achievement was agreement on a Memorandum
of Agreement on Basic Elements for the Negotiation of a World Grants Arrangement, which
eventually was rolled into a new International Grains Arrangement.

The EEC claimed that for it the main result of the negotiations on agriculture was that they
"greatly helped to define its own common policy". The developing countries, who played a
minor role throughout the negotiations in this Round, benefited nonetheless from substantial
tariff cuts particularly in non-agricultural items of interest to them.

Their main achievement at the time, however, was seen to be the adoption of Part IV of the
GATT, which absolved them from according reciprocity to developed countries in trade
negotiations. In the view of many developing countries, this was a direct result of the call at
UNCTAD I for a better trade deal for them.

There has been argument ever since whether this symbolic gesture was a victory for them, or
whether it ensured their exclusion in the future from meaningful participation in the multilateral
trading system. On the other hand, there was no doubt that the extension of the Long-Term

27
Arrangement Regarding International Trade in Cotton Textiles, which later became the Multi-
Fiber Arrangement, for three years until 1970 led to the longer-term impairment of export
opportunities for developing countries.

Another outcome of the Kennedy Round was the adoption of an Anti-dumping Code, which gave
more precise guidance on the implementation of Article VI of the GATT. In particular, it sought
to ensure speedy and fair investigations, and it imposed limits on the retrospective application of
anti-dumping measures.

Kennedy Round took place from 1962-1967. $40 billion in tariffs were eliminated or reduced.

7th Round (Tokyo Round : 1973-1979) - a first try at reforming the trading
system

Conducted between 1973 and 1979 and with 102 participating countries, the Tokyo Round
continued GATT's efforts to progressively reduce tariffs. The results included an average one-
third cut in customs duties in the world's nine major industrial markets, bringing the average
tariff on manufactured products down to 4.7 per cent compared with about 40 per cent at the time
of GATT's creation. The tariff reductions, phased in over a period of eight years, involved an
element of harmonization, bringing the highest tariffs down proportionately more than the
lowest.

Elsewhere, the Tokyo Round had mixed results. It failed to come to grips with the fundamental
problems affecting farm trade and also stopped short of providing a new agreement on
"safeguards" (emergency import measures). Nevertheless, a series of agreements on non-tariff
barriers did emerge from the negotiations, in some cases interpreting existing GATT rules, in
others breaking entirely new ground. In most cases, only a relatively small number of, mainly
industrialized, GATT members ascribed to these agreements and arrangements which, as a
consequence, were often referred to as "codes". They include the following agreements:

Subsidies and countervailing measures - interpreting Articles VI, XVI and XXIII of the General
Agreement

Technical barriers to trade - sometimes called the Standards Code

28
 Import licensing procedures
Government procurement
Customs valuation - interpreting Article VII
Anti-dumping- interpreting Article VI and replacing the Kennedy Round Anti-Dumping
Code
Bovine Meat Arrangement
International Dairy Arrangement
Trade in Civil Aircraft

Several of the above Codes were amended and extended in the Uruguay Round. Those on
subsidies and countervailing measures, technical barriers to trade, import licensing, customs
valuation and anti-dumping, are now multilateral commitments within the WTO Agreement -in
other words, all WTO members are committed to them - while those on government
procurement, bovine meat, dairy products and civil aircraft remain "plurilateral" agreements.

29
DID GATT SUCCEED?

Given its provisional nature and limited field of action, the success of GATT in promoting and
securing the liberalization of much of world trade over 47 years is incontestable. Continual
reductions in tariffs alone helped spur very high rates of world trade growth - around 8 per cent a
year on average - during the 1950s and1960s. And the momentum of trade liberalization helped
ensure that trade growth consistently out-paced production growth throughout the GATT era. The
rush of new members during the Uruguay Round demonstrated that the multilateral trading
system, as then represented by GATT, was recognized as an anchor for development and an
instrument of economic and trade reform.

The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of
difficult times to come. GATT's success in reducing tariffs to such a low level, combined with a
series of economic recessions in the 1970s and early 1980s, drove governments to devise other
forms of protection for sectors facing increased overseas competition. High rates of
unemployment and constant factory closures led governments in Europe and North America to
seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race
to maintain their holds on agricultural trade. Both these changes undermined the credibility and
effectiveness of GATT.

Apart from the deterioration in the trade policy environment, it also became apparent by the early
1980s that the General Agreement was no longer as relevant to the realities of world trade as it
had been in the 1940s. For a start, world trade had become far more complex and important than
40 years before: the globalization of the world economy was underway, international investment
was exploding and trade in services - not covered by the rules of GATT - was of major interest to
more and more countries and, at the same time, closely tied to further increases in world
merchandise trade. In other respects, the GATT had been found wanting: for instance, with
respect to agriculture where loopholes in the multilateral system were heavily exploited - and
efforts at liberalizing agricultural trade met with little success - and in the textiles and clothing
sector where an exception to the normal disciplines of GATT was negotiated in the form of the
Multi-fibre Arrangement. Even the institutional structure of GATT and its dispute settlement
system were giving cause for concern.

30
Together, these and other factors convinced GATT members that a new effort to reinforce and
extend the multilateral system should be attempted. That effort resulted in the Uruguay Round.

8th Round (Uruguay Round : 1986-1994) - creating a new system

The seeds of the Uruguay Round were sown in November 1982 at a Ministerial Meeting of
GATT members in Geneva. Although Ministers intended to launch a major new negotiation, the
meeting stalled on the issue of agriculture and was widely regarded as a failure. In fact, the work
programme that Ministers agreed formed the basis for what was to become the Uruguay Round
negotiating agenda.

Nevertheless, it took four more years of exploring and clarifying issues and painstaking
consensus -building, before Ministers met again in September 1986, in Punta del Este, Uruguay,
to agree to launch the Uruguay Round. They were able to accept a negotiating agenda which
covered virtually every outstanding trade policy issue including the extension of the trading
system into several new areas, notably trade in services and intellectual property. It was the
biggest negotiating mandate on trade ever agreed and Ministers gave themselves four years to
complete it.

By 1988, the negotiations had reached the stage of a "Mid-term Review". This took the form of a
Ministerial Meeting in Montreal, Canada, and led to the elaboration of the negotiating mandate
for the second stage of the Round. Ministers agreed a package of early results, which included
some concessions on market access for tropical products - aimed to assist developing countries -
as well as a streamlined dispute settlement system and the Trade Policy Review Mechanism
which provided for the first comprehensive, systematic and regular reviews of national trade
policies and practices of GATT members.

At the Ministerial meeting in Brussels, in December 1990, disagreement on the nature of

commitments to future agricultural trade reform led to a decision to extend the round. By
December 1991, a comprehensive draft text of the "Final Act", containing legal texts fulfilling
every part of the Punta del Este mandate, with the exception of market access results, was on the
table in Geneva. For the following two years, the negotiations lurched continuously from
impending failure to predictions of imminent success. Several deadlines came and went; farm

31
trade was joined by services, market access, anti-dumping rules and the proposed creation of a
new institution, as the major points of conflict; and differences between the United States and
European Communities became central to hopes for a final, successful conclusion. It took until
15 December 1993 for every issue to be finally resolved and for negotiations on market access
for goods and services to be concluded. On 15 April 1994, the deal was signed by Ministers from
most of the 125 participating governments at a meeting in Marrakesh, Morocco.

32
 3.2 ROLE OF GATT IN PROMOTING INTERNATIONAL TRADE

The main role of GATT in the international trade was regulating the contracting parties to
achieve the purpose of the agreement which were reducing tariffs and other barriers, and to
achieve the liberalization in international trade. The role was reflected in following aspects:

Firstly, GATT established a set of standard to guide the contracting parties to participate in
international trade practices. GATT stipulated several of basic principle to conduct the
contracting parties in international business, such as General Most-Favoured-Nation Treatment
(Article II), Non-discriminatory Administration of Quantitative Restrictions (Article XIII), and
General Elimination of Quantitative Regulations (Article XI) and so on in the GATT 1947.
Every contracting party should obey these basic principles when they were involved in trade
relations, otherwise they would be condemned, even be taken revenge by other parties. Besides
this, contracting parties reached quite a little of agreements, and made some rules during
pervious multilateral trade negotiations. For instance, Kennedy Round which was started from
May 1964 brought about the Anti-dumping Agreement. (WTO). These rules and agreements
which were made in the multilateral rounds later become the basic principles which were
accepted by all the parties, and stimulated the development of international trade.

Secondly, GATT reduced the tariff on the basis of mutual benefit, accelerate the trade
liberalization after the World War II. GATTs major contribution was to reduce of tariffs by
sponsoring rounds of multilateral negotiations. By sponsoring the multilateral negotiations,
there was a significant reduce of the tariff. There were about 35% average tariff reductions in
both Kennedy Round and Tokyo Round. Future more, in the Uruguay Round which was the most
productive in the history of GATT multilateral negotiation, the contracting parties practiced the
rules that kept cutting the tariff rate, there was an average tariff cut of 39% in this round of
negotiation. By cutting the tariff rate, there is less trade barriers in doing international business
which will mutual benefit the parties which participated, and promote trade liberalization.

Thirdly, GATT reduced the discrimination in tariff and trade which promoted to reduce other
trade barriers. As stated in the Article II: schedule of concession in GATT 1947, Each
contracting party shall accord to the commerce of the other contracting parties treatment no less
favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to

33
this Agreement. According to this statement, GATT regulate the contracting parties cannot
increase the levels of tariff as their wish, but some countries used other non-tariff barriers to
promote their protectionism. Therefore, GATT claimed the contracting parties should not use
other barriers to protect their own industries, it requested the reduction of the non-tariff barriers
and quantitative restriction to make sure the benefit from the reduction of tariff not be erased by
the non-tariff barriers. After Kennedy Round, the multilateral negotiation started to cover non-
tariff barriers on goods. In 1968/1969, GATT compiled the Inventory of Non-tariff Barriers
which listed more than 800 individual trade barriers in several volumes. Codes was one of the six
agreements passed in the Tokyo Round, it established new rules on government procurement,
technical barriers to trade, customs valuation, import licensing, antidumping, and subsidies and
countervailing measures. The codes worked towards the goal which to eliminate the non-tariff
barriers. Future more, the Uruguay Round also made the progress in decreasing and eliminating
non-tariff barriers, especially in agriculture products. All these are good for eliminating the trade
barriers, which towards the development of the international trade.

Fourthly, GATT protected the benefits of the developing countries to a certain extent to
international trade. One of the basic objectives of GATT was that raising of standards of living
and the progressive development of the economies of all contracting parties, and considering that
the attainment of these objectives is particularly urgent for less-developed contracting parties.
(GATT 1947) In order to achieve this objective, GATT established some special measures for
less-developed countries, such as provide tariff protect for specific industries, quotas which are
with the purpose of balance of payment. With the increasing number of developing countries
jointed the GATT, there were more concern in the trade position and benefit of less-developed
countries, more over with the developing countries flight, so GATT established some measures
for developing countries so that will benefit the less-developed countries in export-oriented
trade. At the GATT ministerial meeting of 1963, it enabled the Contracting Parties to discharge
the responsibilities towards the development objectives of the developing countries which led to
add Part IV which entitled Trade and Development to the General Agreement. The new Part
IV provided preferential treatment to the developing countries. In the Uruguay Round which was
an important milestone for developing countries in their integration into the global economy,
the participants agreed a number of rules which would benefit the developing countries, for
example, agricultural liberalization, manufacture trade liberalization. There was a significant
34
reduction of non-tariff barriers (especially export subsidies) in agriculture, it converted virtually
all agriculture nontariff barriers into tariff. In manufacture trade, the tariff levied on manufacture
products which imported from developing countries was reduced by 40 percent on average. All
these measurement reduced the burden on the economy of developing countries, and had
positives in the development of trade for less developed countries.

Finally, GATT acted as the court of international trade, by providing a platform for contracting
parties to negotiation and talk to settle disputes in international trade. One of the objectives of
GATT was to settle the disputes between two or more parties. When two or more parties are
involved in the international trade, it is inevitable that without disputes. Some of the disputes
may be solved by the two parties themselves, however, some disputes could not be solved by
themselves, without the help of the third party, and the disputes may be remaining unresolved for
years. So it needed GATT to solve those disputes which could not solve by parties themselves.
Before it was replaced by WTO, in a certain period, GATT had become a legal mechanism to
settle trade disputes among contracting parties, it provided a platform for contracting parties to
settle disputes so that the trade conflicts and disputes can be solved immediately which would
protect the benefit of both parties, and lay the foundation to achieve the main objective of GATT.

35
 3.3 WHY GATT WAS REPLACED BY WTO?

On January 1, 1995, the World Trade Organization was found to replace GATT after the eighth
round of GATT multilateral negotiation. WTO to replace GATT was an inevitability of history.
The replacement of the General Agreement on Tariffs and Trade (GATT) by the WTO heightened
concern among critics because its stronger enforcement powers represent a further shift in power
from citizens and national governments to a global authority run by unelected bureaucrats. There
are such reasons why GATT was replaced WTO.

Firstly, the major weakness of the GATT was provisional arrangement. It was not an effective
international covenant, and it had no real enforcement mechanism. If the bilateral agreement
broke by one of another country, GATT has nothing could be done. There are some rules that
have been set for enforcement by GATT but it has been dysfunction due to the rule did not have
the power to make other countries or parties to follow the rule or agreement set by GATT.
Moreover, the GATT created the solution during the emergency moment which is temporary.
This will lower down the credibility of GATT and resulted nobody would follow the agreement.
According to the WTO.org, in the period of 1948 to 1994, the General Agreement on Tariffs and
Trade (GATT) offer the rules for most of world trade and presided over the periods. Within the
period, there was some moment of highest growth rates which was over the international
commerce. It seemed well-established, but throughout those 47 years, it was a provisional
agreement and organization. Besides that, the GATT system can still survived because of taking
those sensitive areas of trade outside the rules. There were some rules for enforcement but they
were basically has not been functioning. The "rules" were being unnoticed after the member
countries internal political pressures or special-interest demands have become overwhelming.

Secondly, the scope on jurisdiction of GATT was limited only in products transaction. However
with development of globalization, the transactions in services and technologies, and
international investments constitute a high proportion of international trade. Since the GATT
only concentrated on the products transaction, there was a gap for GATT to regulate the
transactions in services and technologies and international investments. With the increasing
proportions of transactions in services and technologies, and international investments in
international trade, it is unavoidable that some countries will impose tariff and other trade barrier

36
or non-tariff barriers in these kinds of transitions. Because of the jurisdiction of GATT only
limited in products transaction, so in this situations GATT can make nothing on it and leave the
burden on trade rampant in the trade, it far block GATT to promote its objective to achieve trade
liberalization.

Thirdly, there were some limitations in the disputes settlement systems of GATT. According to
the WTO.org, the major weakness of the disputes settlement systems of GATT was it should
have a positive consensus in the GATT Council to bring the dispute into a panel, and adoption of
the panel report as well. The positive consensus means that all the contracting parties should
agree the decision of Council. For example, when the Council decide to the bring the dispute
between two or more parties in to panel, if there was objection from one of the contracting
parties, the Council can block the establishment of the panel. This weakness of dispute
settlement system gives the chance for those countries which have discrimination on the parties
involved in the disputes to object the decision. This will make the disputes among parties remain
unsolved, and it does not have any positives on the promoting international trade liberalization.

Fourthly, some rules in GATT were not strict enough, it was hard to execute in real economic
practices. Some contracting parties would construe the rules of GATT in their self interests, and
GATT did not have the necessary means of verification and inspection. In the Article XIX in
GATT 1947, there is a statement that any product is being imported into the territory of that
contracting party to cause or threaten serious injury to domestic producers in that territory of like
or directly competitive products In this statement, GATT did not provide specific regulations
about how to verify the injuries and how to investigate and check the injuries, more over the
GATT did not specifically define who was the domestic producers. These made it hard to execute
the rules. For example, as stated in the article, to cause serious injury to domestic producers,
because it was not quite strict, some countries which did not injury seriously may use this article
to impose sterner measures to other countries.

Finally, the historical multilateral rounds of GATT were influenced by the policies of some larger
countries. From the Geneva Round to Uruguay Round, there was national sovereignty existing in
the multilateral negotiation rounds. The multilateral negotiation rounds were influenced by the
Western signatory states, the decision making right was major handled by the Western countries,

37
especially United States. Although the balance of power has changed by the establishing of
European Communities (later known as European Union) and the emergence of Japan, but these
countries are all industrial countries, they have the common interest in economic interest. So
before the Part IV was add to GATT, there was a long period that GTAA was the place for small
number of developed countries to adjust trade policies. With more and more developing
countries contracted to GATT, the status of developing counties had improved. Yet still had
majority of developing countries did not have common interest with United States and the
Western European countries, so did economic interest. So the strong national sovereignty among
contracting parties baffled the development of GATT.

All in all, these factors make the GATT was replaced by WTO was needs of the times and follow
the tide of development economy.

38
 3.4 HOW IS THE WTO DIFFERENT FROM GATT?

The World Trade Organization is not a simple extension of GATT; on the contrary, it completely
replaces its predecessor and has a very different character. Among the principal differences are
the following:

The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a
small associated secretariat, which had its origins in the attempt to establish an International
Trade Organization in the 1940s. The WTO is a permanent institution with its own secretariat.

The GATT was applied on a "provisional basis" even if, after more than forty years, governments
chose to treat it as a permanent commitment. The WTO commitments are full and permanent.

The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers
trade in services and trade-related aspects of intellectual property.

While GATT was a multilateral instrument, by the 1980s many new agreements had been added
of a plurilateral, and therefore selective, nature. The agreements, which constitute the WTO, are
almost all multilateral and, thus, involve commitments for the entire membership.

The WTO dispute settlement system is faster, more automatic, and thus much less susceptible to
blockages, than the old GATT system. The implementation of WTO dispute findings will also be
more easily assured.

The "GATT 1947" will continue to exist until the end of 1995, thereby allowing all GATT
member countries to accede to the WTO and permitting an overlap of activity in areas like
dispute settlement. Moreover, GATT lives on as "GATT 1994", the amended and up-dated
version of GATT 1947, which is an integral part of the WTO Agreement and which continues to
provide the key disciplines affecting international trade in goods.

CHAPTER 4
39
 4.1 CONCLUSION

When highlighting the achievements of the GATT, the first aspect to be pointed out is the fact
that, the system has managed to survive up until its recent substitution by the WTO. In its
regulatory role of international trade (Jackson and Winhan) it has, at least in theory, controlled
more than 80% of world trade (MAGRO MAS, op.cit., p. 200) and has also settled multiple
economic conflicts by coercing those contracting parties which wanted to adopt certain measures
contrary to the established rules, through consulting and even through tolerating conduct of
dubious legality (such as GATTs position). A second and undeniable achievement has been the
continuous expansion of international trade, which began to take place from the moment that the
arrangement was applied (especially among the developed countries) (Jaenicke, 1983) thanks to
tariff reductions in those manufacturing sectors not considered as sensitive and with
considerable access in these areas especially from the incorporation in the Kennedy round, of
the lineal system (Jackson, 1967: p. 137) in substitution for the product by product system. From
then on and until the Uruguay round, such a system has been used with notable success. The
GATT is both a collection of agreements and negotiations center (Olivier, 1976).

The GATT had probably played a predominant role in the international trade. This idea is
corroborated by Olivier Long, who said in this world full of uncertainty and innovation, the
GATT is one of the oldest and most known institutions. Therefore, it must be prepared to comply
with a critical analysis and to provide adequate follow-up. This analysis is now underway. It
might well reveal flaws that should be corrected. But I firmly believe that the GATT has
altogether proved its great value for all trading countries, both developed, in developing or
socialist. As a code of agreed principles of international trade, live and in constant evolution, it is
the essential feature in which members operate and develop their trade and commercial relations.
As a place of meeting, it gives way to solve trade problems as at when they arise, to prevent any
relapse into protectionism that all nations would suffer greatly, and develop the international
trading system as given necessities. Finally, today, where countries require development of
imaginative measures to meet their needs of trade, the GATT is the effective tool with which
governments seek to make agreement on measures to meet these needs.

40
The GATT remained since the end of the Second World War as the only multilateral code
governing international trade and for more than 40 years, several changes were made in trade
relations between the different nations of the world. The GATT has, during this period, risen
concrete positive actions; but in some areas, it remains to be done.

This conclusion will be a somewhat hasty review of the GATT at the period of its evolution. In
the assets of the GATT, it must include the multilateral negotiations which allow several nations
to express their views on issues of international trade. The GATT has devoted special attention to
the problems of developing countries and has established a special procedure for resolving
disputes between contracting parties. Enormous efforts are made to facilitate access for
developing countries to markets of industrialized countries. Some measures are taken regarding
the trade of some products of strategic interest to developing countries. The GATT has prevented
the international trade in the fall of bilateralism and the pre-war period, and has released several
tariff and non-tariff barriers.

It should be noted that one of the main objectives of the GATT is to promote development, and
raise living standards in developing countries which is far from being achieved. There is,
however, the opposite phenomenon. GATT is responsible for the deterioration of terms of trade
of developing countries. The GATT Agreement shall, to maintain its credibility, address the
critical issue of deteriorating terms of trade. The recommendations must have the force of law
and become directly enforceable in member states. Given these shortcomings of the known role
of GATT (entered into force in 1948) in international trade, it was replaced by the WTO in
January 1995. Despite the significant progress of the WTO in resolving problems of international
trade, this new organization is currently experiencing limitations. Since the gap in many
economic areas in general, and particularly in international trade, is very wide between the
developed and developing countries, problems will not be lacking in The management of
commercial disputes.

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 APPENDIX

BIBLIOGRAPHY
Managerial economics in a global economy by DOMINICK SALVATOR

WEBLIOGRAPHY
www.gatt.org
www.wto.org
www.investopedia.com/terms/g/gatt.asp
gatt.stanford.edu
www.gatt-tech.com
www.une.edu.ve/~cpittol/Archivo/GATT_History.htm
en.wikipedia.org/wiki/General Agreement on Tariffs and Trade

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