A

Mini Project Report

On

GENERAL AGREEMENT ON TARIFFS AND TRADE

(GATT)
(International Business)

Submitted for Partial Fulfillment of

MBA Programme, 2009-11
Gujarat Technological University, Ahmedabad.

K. P. Patel School of Management & Computer Studies

(KSMCS)
Approved with all India Council for Technical Education, New Delhi
Affiliated to Gujarat Technological University, Ahmedabad (MBA &
MCA)
Jeevanshilp Campus, Kapadwanj-387620 (Gujarat)
Prepared By:

Enroll. No. Name

097240592 Hardik H Patel
097240592
011 Ghanshyam Mali
097240592
026 Prangesh B Panchal
097240592
042 Pratik Patel
057

Submitted to: Ms. Varsha Kuchara

Faculty, KSMCS

Faculty Signature: ______________

Date of Submission: 03/03/2011

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3. Executive Summary

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.

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"
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 TABLE OF CONTENT

Sr. No Particular Page No.

Executive Summary 3

1 Introduction to the GATT 5

2 A brief history of the and GATT 6

3 Foundation of the GATT 10

4 3 Phases of GATT 11

5 GATT And WTO Trade Rounds 12

6 Objectives Of GATT 16

7 Major Provisions Of GATT 17

8 Achievements And Problems Of GATT 19

9 Dispute Resolution In The WTO 20

10 Did GATT Succeed? 21

11 How Is The WTO Different From GATT? 23

12 Why GATT converted to WTO? 24

13 Conclusion 25

14 Bibliography 26

AN INTRODUCTION TO THE GATT

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Since its inception in 1995, the World Trade Organization (WTO) has regularly been in the news.
There have been optimistic stories of expanding WTO membership that emphasize that freer trade
generates numerous benefits for consumers. Newspapers report on the details of WTO entry
negotiations for important countries like China and remind us of the gains from trade. At other
times, media reports might lead us to believe that disputes among WTO members are about to tear
the organization apart. Disagreements between the U.S. and the European Union (EU) over
everything from U.S. corporate taxation, to genetically modified organisms, to special steel tariffs
make headlines worldwide.

Finally, some groups seem unconvinced by and resentful of claims that free trade makes the entire
world better off. Huge numbers of people from environmental and labor groups gather at various
international meetings of heads of state and government ministers to protest globalization in general
and the WTO in particular. Some representatives of developing countries are concerned that they
have liberalized their trade and agreed to intellectual property protection for developed country
products but have received almost no additional access to agricultural markets in the industrialized
world.

What are we to make of all this? What is the WTO? What is it trying to accomplish and why? How
does the world trading system function? Why are there so many disputes among countries that
belong to the WTO?

This article provides an overview of the General Agreement on Tariffs and Trade, better known as
GATT, and the WTO system. In the first section, I present a brief history of GATT and the WTO. In
the following section, I discuss the fundamental principles that underlie the post-WWII world
trading system and explain how these principles work to increase welfare. In the third section, I
describe the numerous exceptions to GATT’s requirement of nondiscrimination, or equal treatment,
and review the economics literature that seeks to explain the rationale for and consequences of these
exceptions. Then, I present a short summary of dispute resolution within the WTO.

A BRIEF HISTORY OF THE GATT

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The World Trade Organization (WTO) and its predecessor,the General Agreement on Tariffs and
Trade (GATT) have been enormously successful over the last 50 years at reducing tariff and other
trade barriers among an ever-increasing number of countries. The predecessor to the WTO began in
1947 with only 23 members; today it has 146 members, comprising approximately 97 percent of
world trade. See box 1 for a timeline of GATT and the WTO.

Although the WTO, established in 1995, is relatively young for an international institution, it has its
origins in the Bretton Woods Conference at the end of World War II. At this conference, finance
ministers from the Allied nations gathered to discuss the failings of World War I’s Versailles Treaty
and the creation of a new international monetary system that would support postwar reconstruction,
economic stability, and peace. The Bretton Woods Conference produced two of the most important
international economic institutions of the postwar period: the International Monetary Fund (IMF)
and the International Bank for Reconstruction and Development (the World Bank). Recognizing that
the beggar-thy-neighbor tariff policies of the 1930s had contributed to the environment that led to
war, ministers discussed the need for a third postwar institution, the International Trade
Organization (ITO), but left the problem of designing it to their colleagues in government ministries
with responsibility for trade.

By the late 1940s, representatives of the American government had met several times with
representatives of other major nations to design a postwar international trading system that would
parallel the international monetary system. These meetings had two objectives:

1) to draft a charter for the ITO and

2) to negotiate the substance of an ITO agreement,

specifically, rules governing international trade and reductions in tariffs. Although a charter was
drafted, the ITO never came into being. By 1948, support for yet another international organization
had waned in the U.S. Congress. Without American participation, the institution would have been
greatly weakened and, in the event, the effort to create an organization to manage problems relating
to international trade was abandoned.

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However, although the U.S. Congress would not support another international institution, in 1945 it
had given the U.S. president the authority to negotiate a treaty governing international trade by
extending the 1934 Reciprocal Trade Agreements Act. This led to the establishment of the General
Agreement on Tariffs and Trade (GATT) in 1947—a treaty whereby 23 member countries agreed to
a set of rules to govern trade with one another and maintained reduced import tariffs for other
members.4 The GATT treaty did not provide for a formal institution, but a small GATT Secretariat,
with a limited institutional apparatus, was eventually headquartered in Geneva to administer
various problems and complaints that might arise among members. Over the next 40 years, GATT
grew in membership and in its success at reducing barriers to trade. GATT members regularly met
in what came to be known as negotiating rounds. These rounds were primarily focused on
negotiating further reductions in the maximum tariffs that countries could impose on imports from
other GATT members. The success of these rounds is evident (see figure 1).

Tariffs on manufactured products fell from a trade-weighted average of roughly 35 percent before
the creation of GATT in 1947 to about 6.4 percent at the start of the Uruguay Round in 1986.5 Over

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the same time period, the volume of trade among GATT members surged: In 2000 the volume of
trade among WTO members stood at 25 times its 1950 volume. This growth in the volume of trade
is impressive and appears to have accelerated in recent decades (see figure 2).

Comparing the growth of world GDP, expressed as an index number, to the growth of the volume of
trade among GATT/ WTO members, also expressed as an index number, figure 2 shows that while
trade grew more slowly than world GDP in the early years of the GATT/WTO, in recent years it has
outpaced GDP growth. Despite this success, by the 1980s several problems had surfaced with the
GATT apparatus. Firstly, the dispute resolution mechanism of GATT was not functioning as
effectively as had been hoped. Countries with longstanding disagreements were unable to reach any
sort of resolution on a number of issues, ranging from government subsidies for exports to
regulations regarding foreign direct investment. Secondly, a number of commodities, most
importantly, agricultural products and textiles, were widely exempt from GATT disciplines. Thirdly,
it was widely believed that certain forms of administered trade protection—antidumping
duties, voluntary export restraints, and countervailing duties were restricting trade and distorting
trade patterns in many important sectors. Fourthly, trade in services was expanding rapidly and
GATT had no rules regarding trade in services. Fifthly, countries that produced intellectual property

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movies, computer programs, patented pharmaceuticals were becoming increasingly frustrated by the
lack of intellectual property protection in many developing nations.

Lastly, the rules regarding trade-related investment measures for example, domestic purchase
requirements for plants built from foreign direct investment were hotly disputed. To address these
problems, a new round of trade negotiations the Uruguay Round was launched in 1986. The goals of
the Uruguay Round were far more ambitious than in previous rounds.

It sought to introduce major reforms into how the world trading system would function. The treaty
negotiated during the Uruguay Round, the GATT treaty of 1994, established the WTO the
international institution to govern trade that was first visualized by the attendees of the Bretton
Woods Conference 50 years earlier. The new GATT treaty provided for an entirely new and
different dispute resolution mechanism to eliminate the gridlock of the old system. Furthermore, the
Uruguay Round expanded GATT’s authority to new areas—agreements regarding trade in textiles,
agriculture, services, and intellectual property were major achievements. Finally, new sets of rules
regarding administered protection came into effect with the creation of the WTO in 1995.

Foundation of the GATT

The GATT was signed by its 23 founding members on 30 October 1947 and entered into force on 1
January 1948

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23 Founding member countries of the GATT:

United States, India, United Kingdom,

Canada, Myanmar, France,

Cuba, Sri Lanka, Belgium,

Brazil, Pakistan, Luxembourg,

Chile, Syria, Netherlands,

Australia, Lebanon, Norway,

New Zealand, South Africa, Czechoslovakia

China, Zimbabwe,

GATT was introduce as a stepping stone towards the establishment of the ITO and
embodied many principles of the proposed ITO.

3 Phases

 First Phase , from 1947 until the Torquay Round

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  A second phase, encompassing three rounds, from 1959 to
1979
 The Third phase, consisting only of the Uruguay Round
from 1986 to 1994

First Phase

 Commodities which would be covered by the agreement and freezing

existing tariff levels

Year Place/name Subjects covered

1947 Geneva Tariffs

1949 Annecy Tariffs

1951 Torquay Tariffs

Second Phase

 Focused on reducing tariffs

Year Place/name Subjects covered

1960-1961 Geneva Tariffs

Dillon Round

1964-1967 Geneva Tariffs and anti-dumping

Kennedy Round measures

1973-1979 Geneva Tariffs, non-tariff measures,

Tokyo Round “framework”
agreements

Third Phase
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  Extended the agreement fully to new areas such as intellectual
property, services, capital, and agriculture. Out of this round the WTO
was born.

Year Place/name Subjects covered

1986-1994 Geneva Tariffs, non-tariff measures, rules,

Uruguay Round services, intellectual property, dispute

settlement, textiles, agriculture, creation

of WTO, etc

GATT AND WTO TRADE ROUNDS

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Name Start Duration Countries Subjects covered Achievements
Geneva April 1947 7 months 23 Tariffs Signing of GATT, 45,000 tariff
concessions affecting $10 billion
of trade
Annecy April 1949 5 months 13 Tariffs Countries exchanged some 5,000
tariff concessions
Torquay September 8 months 38 Tariffs Countries exchanged some 8,700
1950 tariff concessions, cutting the
1948 tariff levels by 25%
Geneva January 5 months 26 Tariffs, admission $2.5 billion in tariff reductions
II 1956 of Japan
Dillon September 11 months 26 Tariffs Tariff concessions worth $4.9
1960 billion of world trade
Kennedy May 1964 37 months 62 Tariffs, Anti- Tariff concessions worth $40
dumping billion of world trade
Tokyo September 74 months 102 Tariffs, non-tariff Tariff reductions worth more
1973 measures, than $300 billion dollars
"framework" achieved
agreements
Uruguay September 87 months 123 Tariffs, non-tariff The round led to the creation of
1986 measures, rules, WTO, and extended the range of
services, trade negotiations, leading to
intellectual major reductions in tariffs (about
property, dispute 40%) and agricultural subsidies,
settlement, an agreement to allow full access
textiles, for textiles and clothing from
agriculture, developing countries, and an
creation of WTO, extension of intellectual property
etc rights.
Doha November ? 141 Tariffs, non-tariff The round is not yet concluded.
2001 measures,
agriculture, labor
standards,
environment,
competition,
investment,
transparency,
patents etc

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Annecy Round - 1949

The second round took place in 1949 in Annecy, France. 13 countries took part in
the round. The main focus of the talks was more tariff reductions, around 5000 in
total.

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 totalling the remaining
amount of tariffs to ¾ 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.

Geneva Round - 1955-1956

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.

Dillon Round - 1960-1962

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).

Kennedy Round - 1964-1967

Kennedy Round took place from 1964-1967.

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Tokyo Round - 1973-1979

Reduced tariffs and established new regulations aimed at controlling the

proliferation of non-tariff barriers and voluntary export restrictions. 102 countries
took part in the round. Concessions were made on $190 billion worth.

Uruguay Round - 1986-1994

The Uruguay Round began in 1986. It was the most ambitious round to date,
hoping to expand the competence of the GATT to important new areas such as
services, capital, intellectual property, textiles, and agriculture. 123 countries took
part in the round.

Agriculture was essentially exempted from previous agreements as it was given

special status in the areas of import quotas and export subsidies, with only mild
caveats. However, by the time of the Uruguay round, many countries considered
the exception of agriculture to be sufficiently glaring that they refused to sign a
new deal without some movement on agricultural products. These fourteen
countries came to be known as the "Cairns Group", and included mostly small and
medium sized agricultural exporters such as Australia, Brazil, Canada, Indonesia,
and New Zealand.

The Agreement on Agriculture of the Uruguay Round continues to be the most

substantial trade liberalization agreement in agricultural products in the history of
trade negotiations. The goals of the agreement were to improve market access for
agricultural products, reduce domestic support of agriculture in the form of price-
distorting subsidies and quotas, eliminate over time export subsidies on
agricultural products and to harmonize to the extent possible sanitary and
phytosanitary measures between member countries.

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OBJECTIVES OF GATT

The basic objectives of GATT were to serve as clearing house for the member
countries regarding the issue of world trade. In other words, GATT is a forum
where members of GATT will make negotiations regarding problems of trade i.e.
removal of trade restrictions or liberalization of world trade. More broadly the
basic objective of GATT was to liberalize wolf trade in such a way that no country
should provide preferential Treatment to the other country. It means that this
institution is aimed at abolishing discrimination regarding trade concessions and
facilities between member countries. It means that members of GATT have to
accept “Most Favoured Nation Clause”. This clause means that “a member
country is agreed upon that it will not provide any facility or concession to any
member country which it is not providing to other members of GATT.

Another objective of the GATT is grant protection to domestic industry through

fundamental component of GATT is a negotiated balance of mutual tarrif
concessions among contracting parties. The contracting parties commit themselves
not to raise import tarrifs above the negotiated rates. In this way it tries to protect
domestic industries of all contracting parties.

The ultimate aim of establishing liberal world trading system is to raise living
standard, ensure full employment through a steadily growth effective demand and

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real income, develop fully the resources of the world and expand the production
and exchange of goods on global level.

 raising standards of living

 ensuring full employment
 a large and steadily growing volume of real income and effective demand
 developing the full use of the resources of the world
 expanding the production and exchange of goods.

MAJOR PROVISIONS OF GATT

1. Tariff
(i) GATT obligates each country to accord no discriminative, most
favoured nation (MFN) treatment to all other contracting parties with
respect to tariffs.
(ii) MFN treatment does not mean free trade or national treatment. Imports
from contracting parties are subject to tariffs or quotas. MFN treatment
means that no other countries with some exceptions receive better
treatment or lower tariffs.

Exceptions to MFN
(i) Existing tariff preferences such as those between British
Commonwealth.
(ii) GATT/WTO allows the formation of customs union, which causes a
significant erosion of the MFN principle.
(iii) An escape clause allows any contracting party to withdraw or modify
tariff concessions, if it threatens a serious injury to domestic
producers.

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2. Quantitative Restrictions
GATT in general prohibits the use of quantitative restrictions on imports
and exports.

Exceptions
(i) agriculture - when government needs to remove surplus of agricultural
and fisheries products. Important to US
(ii) balance of payments - to safeguard balance of payments. If a country's
foreign exchange reserve is low.
(iii) Developing countries - LDCs may use import quotas to encourage
infant industries.
(iv) National Security- Strategic controls on certain exports. Patents,
Copyrights, Public Morals

3. Developing Countries
Special Provisions to promote the Trade of Developing Countries. In 1965,
the contracting parties added Part IV (Trade and Development) to GATT.
(i) Developed economies will give high priority to reduction/elimination of
tariffs on products of LDCs.
(ii) Refrain from introducing tariffs and NTBs to such imports.
(iii) Refrain from imposing internal taxes to discourage consumption of
primary products from LDCs
(iv) Not expect reciprocal commitments from LDCs.

Other provisions
Provisions to eliminate concealed protection such as customs valuation.
For example, American Selling Price valuation. By ASP, an ad valorem
tariff is imposed on the domestic price. procedural matters: each member

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 is entitled to one vote, decisions are made by majority vote. 2/3 majority is
required to waive obligations. settlements of disputes.

ACHIEVEMENTS AND PROBLEMS OF GATT

Achievements
GATT has enjoyed a membership of over 100 countries and generated
about 85-90% of world trade.
(i) trade liberalization in industrial products (Kennedy Round)
(ii) Adopted codes on NTBs (Tokyo Round)
(iii) No world wars since 1948 (Choi: Increased trade promotes world
peace)

Problems
 Failed to liberalize trade in agricultural products to any significant degree.
This was one of the major goals of the Uruguay Round.
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  Has experienced partial success in regulating trade practices adopted by
member countries in response to BP difficulties.
For example, in 1971 the US imposed a 10% surcharge on its imports,
thereby doubling its average duties.
 Steady erosion of MFN principle by the EU, and to a less extent by the
NAFTA.
Article 24 permits member countries to form a CU or FTA. The EU
adopted VILs to keep out agricultural products, lowered duties to many
African and Mediterranean countries, which are not extended to other
GATT contracting parties.
 Has condoned managed trade for textiles, largely because of pressure
from the US, and automobiles (VERs)
GATT was an executive agreement under the Protocol of Provisional
Application. It was only a gentlemen's agreement with no teeth, no
enforcement power to discipline parties that violate the rules. Moreover,
contracting parties are not obligated to observe rules that are inconsistent
with their domestic laws at the time of entry into GATT. Many countries
sidestep or bypass the rules by narrowly defining commodities for tariff
purposes.
 WTO has not done anything to eliminate pirate activities in Africa.
 WTO has not been able to regulate currency manipulation as a protective
instrument to restrict imports.

DISPUTE RESOLUTION IN THE WTO

Having reviewed the various exceptions to GATT’s non-discrimination rule, I now turn
to the issue of disputes. What happens when a dispute arises between countries over a
GATT rule? What power does GATT have to settle disputes?

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How does GATT enforce its own rules? GATT is a multilateral trade agreement with
the authority to regulate the trade regulations of its member governments. As an
international treaty, it has no authority over individuals, private firms, or public
corporations. Rather, it governs the interactions of countries that voluntarily agree to
abide by its rules.

The WTO mediates and settles disputes among its members. Disputes that cannot be
resolved among the members themselves are referred to a panel of three persons who act
as judges. When a country is found to be in violation of its GATT obligations, it has
three choices. It can appeal and have the case retried before an appellate body, it can
amend its laws to bring them in line with GATT, or it can keep its laws as they are and
face “measured retaliation” from its aggrieved trading partners. If a country loses an
appeal, its options revert to amending its laws or facing retaliation.

Measured retaliation is the WTO’s main enforcement mechanism. In the simplest case,
if one country were to violate its GATT obligations by raising its tariff on some good
and this tariff increase caused the volume of imports from a second country to fall, the
WTO could authorize the second country to punish the first by raising its own tariff on
something. This retaliation by the second country is “measured,” in the sense that it
should reduce trade from the offending first country by roughly the same value as the
first country’s tariff increase.

The practice of measured retaliation is extremely useful in maintaining the smooth

functioning of the world trading system. Historically, when one party to a treaty violated
one of its terms, the other party could either accept the violation or withdraw for the
treaty entirely. Measured retaliation essentially allows both parties to jointly withdraw
from some of their treaty obligations while still enjoying the benefits of the rest of the
treaty.

In fact, while the recent increase in disputes among WTO members may, on the surface,
appear troubling, it could also signal the effectiveness of the dispute resolution system. It
could be that countries that have grievances against their trading partners find the dispute

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settlement system sufficiently effective that they present their disputes to this body rather
than seeking some type of resolution outside the WTO.

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

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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 Multifibre Arrangement.
Even

the institutional structure of GATT and its dispute settlement system were giving
cause for concern.

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.

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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.

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 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.

Why GATT converted to WTO?

 GATT rules discriminated against developing countries under the garb of

clauses such as “escape clauses”, “safeguard rules”, “voluntary export
restraints”, “orderly agreements”.
 ‘Agriculture’ was treated as a special case thus escaping GATT rules.
 Though developed countries removed majority of tariff barriers yet some
others still remained affecting the interests of developing countries.
 US and EEC had concluded several bilateral, discriminatory and restrictive
arrangements
outside GATT rules.
 “Safeguards” rules under GATT undermined the effective working of
GATT.
 Customs union and free trade areas permitted under GATT had been
distorted and abused.
 Though GATT was a mandatory body, it lacked enforcing mechanism.
 Last but not the least, with the emergence of more and more new
developing countries, it was felt that GATT rules devised half a century
ago had outlined their utility.

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 CONCLUSION

A brief history of the WTO and has suggested that the success of the GATT and
WTO system can be attributed to the founding principles of reciprocity and non-
discrimination. I have also reviewed the numerous exceptions to GATT’s
principle of non-discrimination. Although the various exceptions may yield
benefits, theoretical and empirical research in economics questions whether the
benefits of these exceptions are sufficiently large to outweigh the costs.

The WTO is currently engaged in a new round of trade negotiations the Doha
Round. This article’s review of the economics literature suggests that it may be
time to rethink GATT’s rules for administered protection. The proliferation of
antidumping duties is costly to both consumers and many exporters. Many
countries that belong to the WTO would like to make it more difficult for
countries to impose antidumping duties.

However, because antidumping protection is popular among import-competing

firms in both the U.S. and the EU, it will be politically difficult to achieve
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meaningful reform of GATT’s antidumping rules. There may be more support for
modest changes to the Agreement on Safeguards. For example, the discriminatory
application of safeguards has been an issue in many WTO disputes. Negotiators to
the Doha Round could potentially preempt future disputes over safeguards by
closing some loopholes and clarifying the language in the safeguard agreement.

Perhaps the largest gains that could be achieved in the current negotiating round
might come from liberalizing trade in agricultural commodities. Developing
countries, many of which have a comparative advantage in agricultural
production, would like to see developed countries’ agricultural markets open up
through both tariff and subsidy reductions. The liberalization of trade in
agriculture has the potential to generate huge welfare gains for the entire world.

BIBLIOGRAPHY

Wed site :-

www.gatt.org

www.wto.org

www.wikipedia.org

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