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Session- Dec.


Submitted To: Prof. Harish Kumar

Submitted By:Japinder Singh M.B.A. 1ST Semester Roll. No. 14

Patel Institute of Management and Technology Rajpura

(Affiliated to Punjabi University, Patiala) 1


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Certificate....................................................................................3 Declaration...4 Acknowledgement...5 Preface.........6 Introduction.....7 Objective of GATT........ 11 Principal of GATT..12 Function of GATT..14 The Original Legal Decision.......15 The Panel of Complaint.......17 Four Main Rules of GATT..19 Business Implication.25 Role of India in GATT.....27 Reference..31 Multimedia Presentation...32


This is to certify that the Seminar entitled GENERAL AGREEMENT ON TARIFFS & TRADES(GATT) has been submitted by JAPINDER SINGH under my guidance in partial fulfillment of the degree of M.B.A. during the academic year DEC.2012(Semester-I) .

Prof. Harish Kumar (Department of Commerce) Patel Institution of Management and Technology Rajpura.


I hereby declare that the project work entitled GENERAL AGREEMENT ON TARIFFS & TRADE (GATT)Submitted to Punjabi University, is a record of original work done by me under the guidance of Prof. Harish Kumar, Head of Seminar, Patel Institute of Management & Technology and this project work has not performed the basis for award of any degree.

Japinder Singh


It is matter of great pleasure for me to submit this seminar report on GENERAL AGREEMENT ON TARIFFS & TRADE (GATT), as a part of curriculum for award of M.B.A. with specialization in FINANCE degree of Punjabi University, Patiala . I am thankful to my seminar guide Prof. Harish Kumar, Seminar head in Patel Institute of Management & Technology. I am thankful to department for his constant encouragement and able guidance. I take this opportunity to express my deep sense of gratitude towards those, who have helped us in various ways, for preparing my seminar. At the last but not least, I am thankful to my parent, who had encouraged & inspired me with their blessings

Japinder Singh


The General Agreement on Tariffs and Trade came into force on 1 January 1948. This booklet contains the complete text of the General Agreement together with all amendments which have become effective since its entry into force. The text is identical to that published, since 1969, as Volume IV in the series Basic Instruments and Selected Documents. A guide to the legal sources of the provisions of the Agreement is provided in an appendix. An Analytical Index, containing notes on the drafting, interpretation and application of the articles of the Agreement has been prepared and published by the secretariat. A second publication, complementary to this one, contains the text of the agreements reached as a result of the Tokyo Round of Multilateral Trade Negotiations (1973- 1979). The General Agreement is applied "provisionally" by all contracting parties. The original contracting parties, and also those former territories of Belgium, France, the Netherlands and the United Kingdom which, after attaining independence, acceded to the General Agreement under Article XXVI: 5(c), apply the GATT under the Protocol of provisional Application, the text of which is reproduced in this volume. Chile applies the General Agreement under a Special Protocol of September 1948. The contracting parties which have acceded since 1948 apply the General Agreement under their respective Protocols of Accession. For the convenience of the reader, asterisks mark the portions of the text which should be read in conjunction with notes and supplementary provisions in Annex I to the Agreement. In ccordance with Article XXXIV, Annexes A to I are an integral part of the Agreement. The Schedules of tariff concessions annexed to the General Agreement (not here reproduced) are also, in accordance with Article II: 7, an integral part of the Agreement. By the Decision of 23 March 1965, the CONTRACTING PARTIES changed the title of the head of the GATT secretariat from "Executive Secretary" to "Director-General". However, in the absence of an amendment to the General Agreement to take account of this change, the title "Executive Secretary" has been retained in the text of Articles XVIII: 12(e), XXIII: 2 and XXVI: 4, 5 and 6. The Decision of 23 March 1965 provides that the duties and powers conferred upon the Executive Secretary by the General Agreement "shall be exercised by the person holding the position of Director-General, who shall, for this purpose, also hold the position of Executive Secretary

The General Agreement on Tariffs and Trade (GATT) was established in 1948. During World War II it became evident to the allies that after hostilities ceased it would be desirable to have a multilateral institutional framework within which world trade could be conducted and progressively liberalized, consultation on trade problems among member nations could take place and be resolved, and data on world trade characteristics and trends could be collected and disseminated. Accordingly, after several preparatory sessions, Canada and 22 other nations signed the General Agreement on Tariffs and Trade on 20 October 1947. The agreement came into effect on 1 January 1948. As part of the preparation for this agreement the 23 signing nations carried out negotiations among themselves to reduce some tariffs and other barriers to trade. Canada negotiated with 7 of the countries. Its discussions with the US were the most extensive of any that took place at that time. Canada had negotiated trade agreements with the US in 1935 and 1938, but once both nations signed GATT it became the basic agreement governing trade relations between them, superseding the 1938 agreement. GATT rules (Article I) required that any member country must give all other members the same privileges regarding tariffs or other commercial policy measures that it gives to the most favored nation with which it negotiates - the most-favored-nation principle (MFN). Some exceptions were permitted, and Canada has been a beneficiary of several of them. The US received a waiver from the MFN rules to enter the CANADA-US AUTOMOTIVE PRODUCTS AGREEMENT in 1965 (Auto pact). Canada did not need to get a waiver because it allowed firms from any country to participate, provided they adhered to the rules set forth. Canada, like other developed countries, also received waivers to grant tariff preferences to developing countries on a range of products under the Generalized System of Preferences (GSP). It is also a party to the Multifibre Agreement (MFA) which, until it is phased out by the year 2005 in accordance with the Uruguay Round provisions, allows a number of developed countries to impose quantitative import restrictions on textile imports from developing countries. Finally, FREE TRADE arrangements among countries were expressly allowed under Article XXIV of GATT. Quantitative limits on imports and export subsidies are generally prohibited by GATT (Articles XI and XVI), but exceptions were permitted in certain circumstances. The 2 most important exceptions for Canada were the MFA and the arrangements for agricultural products. These latter products were excluded from the trade liberalization framework of GATT, primarily because of US insistence. Canada and other major agricultural exporters vigorously objected. Canada also subsequently objected to the special waiver which the US received in 1955 to enable it to restrict imports of dairy products, even though it had no domestic production controls. Subsequently, Germany and Switzerland, after much controversy, got other waivers to restrict agricultural imports. Canada, too, developed its own share of restrictions on imports of grains and of dairy and poultry products, as well as export subsidies of some dairy products and eggs to dispose of surpluses. Thus, the early exclusions and waivers from GATT have produced a maze of restrictions on

agricultural imports and export subsidies that have plagued world production and trade in these product lines ever since. These restrictions are only beginning to be dismantled as a result of the provisions agreed upon in the Uruguay Round of GATT. GATT also condemned dumping - selling products abroad for less than they are sold domestically (Article VI). Antidumping duties could be applied against countries that engage in these practices if material injury to domestic industry occurred or was threatened, or if a domestic industry could not be established because of them. Eight rounds of GATT negotiations have taken place, of which by far the most important has been the Uruguay Round, which commenced September 1986. It was concluded on 15 April 1994 after nearly 8 years of negotiations, and came into effect on 1 January 1995. The resulting comprehensive document includes both major revisions to the GATT agreement as it existed after the previous 7 rounds of negotiations, and introduces a wide range of other agreements on two types of items: (1) matters not previously covered by regular GATT rules - such as agriculture, textiles and clothing, trade-related investment measures (TRIMS), trade in services, and intellectual property rights; and (2) issues covered in a sketchy fashion in earlier negotiations - such as rules of origin, dumping, subsidies, safeguards, and dispute settlement procedures. The agreement also establishes the WORLD TRADE ORGANIZATION (WTO) as a new administrative institution replacing or subsuming GATT and encompassing all the agreements and arrangements concluded in the Uruguay Round. Those nations wishing to be members of the WTO must first complete negotiations to become contracting members to the GATT. As of June 1998, 132 countries were members of the WTO, and another 31 developing or transition economies have applied for membership.


Before the creation of the WTO in 1995, GATT was both a trade agreement and an ad hoc organization. The roots of the GATT organization are in the Bretton Woods Conference of 1944, from which emerged a supranational body, the International Trade Organization (ITO). The role of the ITO was to monitor economic policy that is, tariffs and tradeamong economic partners in the West. In 1947, the GATT organization was established. In the immediate aftermath of World War II and the debilitating economic nationalism that preceded it in the 1930s, the United States in particular anticipated the creation of a new economic order and an international treaty and institution to monitor economic policy. However, the ITO was doomed because, ironically, the United States never joined. The original GATT membership consisted of 23 nations, but it soon swelled to 84. Under GATT, trade barriers were to be torn down through multilateral negotiations. As barriers came down, international trade and production would supposedly increase. The GATT first secured these gains through reciprocity, i.e., when one country lowers its tariffs to another country's exports so that the other country will in turn lower its tariffs. Second, GATT implemented the "mostfavored-nation" status, which is accorded to member countries that do not grant one member or a

group of members preferential trade treatment. Trade negotiations since World War II have indeed reduced average tariffs on manufactured and semi-manufactured goods from 40 percent in 1947 to less than 10 percent by the mid-1970s. During the early 1990s, that tariff figure dropped to approximately 5 percent. These reductions helped world trade to surge from $94 billion in 1955 to over $2 trillion in 1980. By 1997 it would reach upwards of $6.6 trillion. After the late 1970s, however, global trade output grew at a much slower pace. The recession of the early 1990s hindered trade cooperation between GATT member countries. During this time three preferential trading blocks arose: the European Union, the North American Free Trade Agreement, and the Association of South East Asian Nations (ASEAN). These trading blocks foreshadowed future foreign policy tensions. For example, the United States and Europe, original framers of the GATT, now impose protectionist measures on entire industrial sectors like steel, chemicals, and electronics at the time that formerly protectionist nations of the developing world embrace free market principles and look to join GATT's supposedly open international trading system. Thus despite GATT's aims and past accomplishments, antidumping and countervailingduty measures of member countriesespecially through the increasing use of Section 301 of the U.S. Trade Law, as well as tariff walls thrown up around the European Communityresulted in not less but more protectionism in the 1980s and early 1990s.


Meanwhile, beginning in 1986, a new set of trade talks known as the Uruguay Round of Multilateral Trade Negotiations had begun. They would eventually lead to the 1994 GATT. These negotiations were intended to reverse the trends toward protectionism and better integrate the emerging economies into the trade system of the major industrial countries. The eight-year talks proved to be a long, drawn-out process, with the concerns of developing nations that wanted to join GATT and attain export-led economic growth often ignored. Instead, the United States fought to secure significant reforms of Europe's Common Agricultural Policy, which originally aimed to protect the continent's farmers against hardship, but which led in time to massive over-production of food and growing government subsidies. Although agriculture is only a small part of economic production among developed nations, the United States saw multilateral farm trade reformprogressively cutting farming subsidies and price supportsas the litmus test for whether other, more contentious trade liberalizations could be achieved. If the West could liberalize its farm and textile sectors, the United States reasoned, developing countries would in turn open their markets to services and capital of developed economies and offer better protection for intellectual property. If such an agreement could be negotiated, the World Bank forecast a $300 billion annual boost to global income. As many predicted, once American and European Union negotiators reached their own private agreement on trade reform in Brussels on 15 December 1993, the GATT of 13 April 1994, was possible. The final agreement signed in Marrakech was voluminous. In addition to the many specific trade issues it encompassed, its most important feature was the creation of the WTO to provide a forum for future negotiations and dispute resolution.


Under the aegis of the WTO, GATT became bundled with not only the annexes and commitment schedules of its contracting nations, but also with parallel agreements modeled after GATT: in services, the General Agreement on Trade in Services (GATS), and in intellectual property, the Trade-Related Aspects of Intellectual Property Rights (TRIPS). All members of the WTO participate in all three agreements, although not all countries have identical obligations. Countries' specific requirements come in large part from bilateral negotiations they undertake with interested partners. Once a bilateral agreement has been reached, it must be extended to all WTO members, all of which are considered "most-favored nations." Commitments under this system are considered legally binding, and when trade disputes arise the WTO's judgment is to be taken as the final authority. The WTO system has thus far had few opportunities to prove whether it can be as effective as its framers intended. A few late-1990s disputes between the European Union and the United Statesinvolving bananas, beef, and a controversial U.S. policy on international business dealings with Cubaare likely to serve as an early test of the WTO's judicial mettle. Already in 1998 the WTO had decided disputes against both the EU and United States, but neither was quick to comply with the rulings, calling into question the usefulness of the new system.



Objectives of GATT Important objectives of GATT are mentioned below: (i) To implement the new world trade system as visualized in the Agreement; (ii) To promote World Trade in a manner that benefits every country; (iii) To ensure that developing countries secure a better balance in the sharing of the advantages resulting from the expansion of international trade corresponding to their developmental needs; (iv) To demolish all hurdles to an open world trading system and usher in international economic renaissance because the world trade is an effective instrument to foster economic growth; (v) To enhance competitiveness among all trading partners so as to benefit consumers and help in global integration; (vi) To increase the level of production and productivity with a view to ensuring level of employment in the world; (vii) To expand and utilize world resources to the best; (viii) To improve the level of living for the global population and speed up economic development of the member nations.



1. Trade without discrimination

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 TradeRelated 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.

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. Freer 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-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. 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.

4. 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.

5. 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 themsel ves 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. Turkey has been a member of WTO since 26 March 1995, For personal interest Goods schedules of Turkey, Services schedules and MFN exemptions of Turkey , Trade Policy Reviews of Turkey, Dispute cases involving Turkey,



Functions of GATT The former GATT was not really an organization; it was merely a legal arrangement. On the other hand, the WTO is a new international organization set up as a permanent body. It is designed to play the role of a watchdog in the spheres of trade in goods, trade in services, foreign investment, intellectual property rights, etc. Article III has set out the following five functions of GATT; (i) The GATT shall facilitate the implementation, administration and operation and further the objectives of this Agreement and of the Multilateral Trade Agreements, and shall also provide the frame work for the implementation, administration and operation of the plurilateral Trade Agreements. (ii) The GATT shall provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the Agreement in the Annexes to this Agreement. (iii) The GATT shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes. (iv) The GATT shall administer Trade Policy Review Mechanism. (v) With a view to achieving greater coherence in global economic policy making, the GATT shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the International Bank for Reconstruction and Development (IBRD) and its affiliated agencies.



Although modern governments have been negotiating trade agreements for several centuries, the use of third-party adjudication to enforce trade agreement obligations appears not to have received serious consideration until the 1946-48 negotiations that created the GATT. Before then, trade agreements had almost always been bilateral in form, and the two parties to such agreements typically did not look to any outside institution to adjudicate their legal disputes. If consultations failed to secure the conduct expected of the other party, the aggrieved party was left with no further recourse except declining to perform some or all of its own obligations. On the whole, governments seem to have been content with this rather weak form of enforcement, no doubt because experience showed that the mutual interest in trade liberalization was usually strong enough to persuade both governments to live up to what they had agreed to. The plan for trade agreements after World War II called for the creation of a large international organization called the International Trade Organization (ITO) that would have one subdivision dealing with international trade in goods (the GATT), and several others dealing with employment, economic development, restrictive business practices and inter-governmental commodity agreements. The legal design of the ITO Charter provided for a rather elaborate procedure of third-party adjudication. Legal disputes could be submitted for a legal ruling by the ITO's eighteen-member Executive Board, followed by an appeal to the full membership in the plenary Conference of the ITO, and followed in turn by a further right to seek an advisory opinion from the International Court of Justice.1 Unfortunately, by the time the Charter was finished and submitted for ratification in 1948, this relatively strong adjudication procedure no longer had very much domestic political support in some of the key member governments. The United States Congress refused to ratify the ITO Charter, and one of the main reasons for its refusal was a growing disenchantment with international legal institutions in the tense and suspicious climate of the early Cold War years. The GATT was negotiated in 1947, in the midst of the ITO negotiations, for the purpose of achieving an immediate reduction in tariffs among the twenty-three countries that were conducting the preliminary phases of the ITO negotiations.3 Although the GATT was a separate agreement that came into force immediately, it was intended that GATT would be incorporated into the ITO when the ITO came into force in 1948 or 1949. Thus, the governments that negotiated the GATT in 1947 clearly intended that its obligations would eventually be enforced by the third-party adjudication mechanism of the ITO Charter. In the GATT itself, however, the hurried character of the tariff-reducing enterprise led governments to fashion a considerably less ambitious dispute settlement procedure for the short period that the GATT was expected to stand alone. Several circumstances created the need to accept this more modest legal design. First, in order to fit within the rather limited negotiating authority of the United States, GATT had to be presented as a "trade agreement" rather than an international organization, and so it could not incorporate any organizational structures like the elaborate three-tier adjudication procedure of the ITO Charter. Under GATT, legal rulings would have to be made by periodic meetings of the signatory governments, with no further organizational structure provided for. Second, in order to avoid formal ratification procedures that would delay implementation of the tariff reductions, the nature of the legal commitment to GATT obligations was limited to a commitment, in a separate protocol, that governments would apply the obligations provisionally, a term that suggests something less than definitive and final legal commitment.4 For the same reason, even this limited commitment was further reduced by granting governments an across-the-board reservation in the protocol for any existing legislation inconsistent with GATT obligations. And finally, because the ITO negotiations had not yet succeeded in defining the legal consequences of various kinds of legal claims that might be brought under a multilateral trade agreement, the GATT's own dispute settlement provision (still in force as GATT Article XXIII) had to be based on a much less precise draft text of the ITO disputes provision as it then stood -- a text that applied to an extremely broad range of potential legal claims and that provided very little guidance as to their 15

respective legal consequences. In sum, these several compromises with expediency left the GATT disputes procedure with hardly any legal foundation at all. As things turned out, the weakness of the GATT's dispute settlement procedure proved to be something of an advantage in the more hostile political climate that greeted the GATT at the end of the ITO negotiations. GATT survived the demise of the ITO Charter, but it, too, was viewed with considerable suspicion by those domestic political interests opposed to any surrender of sovereignty to international institutions. In this climate, an elaborate and conspicuously legal adjudication procedure could have drawn more attention to GATT and subjected it to more intense opposition. The weakness and ambiguity of the GATT disputes procedure gave it a relatively low profile. As often happens, however, the trade policy officials who negotiated the GATT and ITO agreements, and their ministries back home, were not willing to surrender their original legal design quite this easily. If an adjudication procedure had been a good policy before, then it was still a good policy, and it was up to trade policy officials to continue trying to achieve that policy in whatever way they could. They would simply have to be more careful, and perhaps a bit more creative, than was originally anticipated.



The GATT's procedure for third-party adjudication of legal claims took a significant step forward in 1952 when it was decided to refer all the legal claims on the agenda of the Seventh Session of the Contracting Parties to a body called a panel on complaints rather than a conventional working party. The term panel in GATT parlance came from the term panel of experts -- a term coined long before GATT to describe an ad hoc group of government experts (rather than policy officials) convened to render an expert opinion about some technical question that is capable of being answered objectively. The term thus connoted objective decisions based on expertise rather than political representation of one's government. The move to the panels was a natural next step. The need for a neutral and objective tribunal had been acknowledged from the beginning, and the early forms of decision-making had each tried in its own way to achieve such neutrality and objectivity. But it had to be clear to all participants that political bodies could never achieve the degree of neutrality and objectivity that would command the kind of respect needed for an effective legal system. In the hostile political climate of the early 1950s, the panel initiative was a rather dangerous one. That was evident from the very cautious way the GATT went about it. The first version of the proposal merely called for creation of a single working party to handle all the Seventh Session complaints. When the decision was recapitulated a few days later, the name panel was slipped in without explanation. Then, when the Seventh Session panel was appointed its structure was defined in a way to suggest working party practice. Members of the Seventh Session panel were still identified by country, rather than the traditional panel practice of identifying the experts by name. And nothing was said about any changes in working procedure. Most delegations would have known and understood what was really going on here, but all seemed to agree that the less said the better. The actual working procedure of the Seventh Session panel contained some quite significant changes from the procedure followed by working parties. The disputants were not voting members of the panel. All the panel members were in fact from countries that could be called neutrals. The panel would receive oral and written argument from the parties, but it would meet without the parties present to decide the case. The panel would still consult the disputants about ways to make the ruling more acceptable, but it was clear that the panel would reach its own decision in the end.

The panel ruled on four legal claims during the Seventh Session. In each case the parties accepted the new procedures without complaint, and all four cases were successfully resolved. The panel procedure then gradually came into the open during the next few years. Panel members were eventually appointed by name rather than country. The panel's working procedures were finally explained in GATT published


reports, and the fact that panel members were to act in their personal capacity rather than on instruction from their governments was made explicit. In the years between 1952 and 1963, panels resolved fifteen more legal controversies. The results were generally accepted by the disputants, and all produced some result that could have been called a success. By 1963, it could be said that GATT had succeeded in developing a quiet but effective mechanism for adjudicating legal disputes between members. The leadership of the GATT Secretariat is generally credited with having initiated and managed the creation of the panel procedure. By 1952, the GATT's first acknowledged leader -- Dana Wilgress of Canada, the first chairman of the GATT Contracting Parties after chairing the GATT/ITO negotiations -- had left the scene and Eric Wyndham-White's leadership of the Secretariat had by then earned him a role of considerable influence. Throughout his long tenure, Wyndham-White was always a staunch supporter of the panel procedure. The basic elements of the Secretariat's role in panel proceedings were the same as for a working party -meeting arrangements, background information and documentation, and drafting. But the nature of the panel procedure worked to augment the influence that the Secretariat was able to exert on the content of legal rulings. With the parties out of the room when cases were being decided, the Secretariat would be able to take stronger positions on the merits. Likewise, the Secretariat would be able to use its role as principal draftsman more aggressively. To be sure, panel members would continue to exert an important check on the political viability of panel decisions, and their endorsement of decisions would still be critical to their perceived legitimacy. But as time went on, and particularly as new generations of GATT delegates replaced the original ITO veterans, the Secretariat's


Four main rules of GATT

First rule: protecting the domestic industry by tariffs only The legal system which GATT has created to attain the above objective is complex, but it is based on a few basic and simple rules While GATT stands for liberal trade, it recognizes that countries may wish to protect their industries from foreign competition. It urges them to keep such protection at reasonably low levels and to provide it through tariffs. The principle of protection by tariffs is reinforced by provisions prohibiting member countries from using quantitative restrictions on imports. The rule, however, is subject to specified exceptions. An important exception permits countries that are in balance-of-payments (BOP) difficulties to restrict imports in order to safeguard their external financial position. This exception provides greater flexibility to developing countries than is available to developed countries to use quantitative restrictions on imports if these restrictions are necessary to forestall a serious decline in their monetary reserves. Non-observation of the rule against quantitative restrictions Agricultural sector In the past, a number of countries did not abide by the GATT rule on protection by tariffs alone. In the agricultural sector for instance, a number of developed countries maintained quantitative restrictions which went far beyond those warranted by the exceptions provided in GATT. In addition to these restrictions, some of these countries, particularly those belonging to the European Union, applied variable levies instead of fixed tariffs to imports of temperate zone agricultural products such as wheat and other grains, meat and dairy products. The primary purpose of those levies was to ensure a reasonable income to farmers and to maintain a certain parity between the income earned by them and that earned by industrial workers. The levies payable were determined periodically and were generally equal to the difference between the landed import price and the guaranteed reference domestic price. The variable levies thus resulted in domestic production being fully insulated from foreign competition, as the levies completely offset the competitive price advantages of foreign suppliers. Trade in textiles and clothing In the industrial sector, most developed countries did not apply the rule against the use of quantitative restrictions to trade in textiles, a sector of particular interest to developing countries. There was one significant difference between the restrictions applied in the agricultural sector and those applied to textiles. With some notable exceptions, the restrictions maintained in the agricultural sector were outside the scope of GATT rules. In the case of textiles, the restrictions were authorized under the provisions of the Multi-Fiber Arrangement (MFA), negotiated under GATT auspices. MFA permitted countries to derogate from their basic obligation and to impose restrictions on imports of textiles and textile products, provided the conditions it laid down were met.

Developing countries A number of developing countries applied, in addition to high tariffs, quantitative restrictions on imports in both the agricultural and industrial sectors. Such use of restrictions was, however, in most cases justifiable from the legal point of view, under the exceptions to the GATT rules which permit countries in balance-of-payments difficulties to impose quantitative restrictions on imports Reinforcement of the discipline against the use of quantitative restrictions

Tariffication in the agricultural sector The WTO legal system has brought about a considerable change in the use of quantitative restrictions and other non-tariff measures affecting imports. In the agricultural sector for instance, in accordance with the provisions of the Agreement on Agriculture, WTO member countries have abolished quantitative restrictions and their systems of variable levies, replacing these with tariffs. The new tariff rates have been determined by ratification, i.e. calculating the incidence of quantitative restrictions and other measures on the price of the imported products and adding it to the then-prevailing tariffs. After ratification, countries may henceforth protect their domestic agricultural production only by means of tariffs. Phased removal of restrictions on textiles and clothing In the area of textiles and clothing, the Agreement on Textiles and Clothing (ATC) requires member countries maintaining restrictions to phase them out gradually in four stages, so as to abolish them completely by 1 January 2005. Developing countries in balance-of-payments difficulties are urged to use price-based measures In addition, the Understanding on Balance-of-Payments Provisions of GATT 1994 strongly urges member countries not to use quantitative restrictions to safeguard their balance-of-payments (BOP) situations. It requires countries, whether developed or developing, to prefer in such situations price-based measures (such as import surcharges and import deposit requirements) to quantitative restrictions as their impact on the price of imported products is transparent and measurable. Quantitative restrictions can be resorted to only when, because of a critical BOP situation, it is perceived that price-based measures cannot arrest a further sharp deterioration in the external payments position. The WTO legal system has thus, by strengthening the rules against the use of quantitative restrictions, further reinforced the basic GATT rule that protection to domestic production should be given primarily through tariffs.


Second rule: tariffs should be reduced and bound against further Increases Reductions in tariffs The second important rule of GATT is that tariffs and other measures that countries maintain to protect their domestic production should be reduced and, where possible, eliminated through negotiations among member countries and that the tariffs so reduced should be bound against further increases Binding against further increases The concept of binding needs some explanation. The rates of tariffs agreed in the negotiations as well as the other commitments assumed by countries are listed in schedules of concessions. Each WTO member country has a separate schedule and is under an obligation not to impose tariffs or other duties or the concept of binding needs some explanation. The rates of tariffs agreed in the negotiations as well as the other commitments assumed by countries are listed in schedules of concessions. Each WTO member country has a separate schedule and is under an obligation not to impose tariffs or other duties or charges which are in excess of those set forth in its schedule. It is also obliged not to take measures such as the imposition of quantitative restrictions which would reduce the value of the tariff concessions. The rates of tariffs listed in the schedule are known as bound rates of tariffs

Principle governing the exchange of concessions in negotiations What is the principle by which countries agree in trade negotiations to reduce tariffs, to bind them against further increases and to remove other barriers to trade? The basic principle governing the exchange of such concessions is the principle of reciprocity and mutual advantage. A country requesting improved access to the market of other countries, through tariff reductions or the removal of other barriers such as quantitative restrictions, must be ready to make concessions in tariffs and other areas that those countries consider to be advantageous and of reciprocal or equivalent value to the concessions they are making. The rule of full reciprocity does not, however, apply to negotiations between developed and developing countries. Developing countries are required to make concessions in the form of tariff reductions on the basis of relative reciprocity, which takes into account the fact that, because of their lower level of economic development and their trade and financial needs, they may not be able to make concessions on the same basis as developed countries. The rule, however, recognizes that developing countries are not all at the same level of development; some of them have reached higher stages of growth while others are at various stages of development. Forty-eight of them are least developed countries. The developing countries that have reached higher stages of development are required to make larger contributions and concessions in the form of tariff reductions and bindings than those at lower rungs of economic growth. This concept is also known as graduation, since it visualizes that as a developing country develops, it will graduate to a higher status and ultimately may be able to make tariff concessions and accept disciplines in other areas on the same basis as developed countries.

Greater contributions from developing countries in the Uruguay Round Because of the rule of relative reciprocity only a few developing countries made tariff concessions in the Tokyo Round and earlier rounds of negotiations. Furthermore, those that made concessions did so on only a few products. This situation changed considerably in the Uruguay Round, and almost all developing countries have agreed to make concessions by reducing tariffs on a percentage basis. However, in accordance with the principle of relative reciprocity, these concessions have been made at a lower percentage than that applicable to developed countries. During the Uruguay Round, two factors were responsible for the greater willingness of developing countries to make concessions and to accept through negotiations higher obligations. First, a significant number of these countries had made considerable progress in their economic development. The second factor, closely related to the first, was the dramatic shift which had taken place in the trade policies of almost all developing countries. Previously, when they had followed import substitution policies, built high tariff walls and insulated domestic production from foreign competition, it was difficult for them to offer concessions in the form of tariff reductions. These countries are now following policies promoting export growth and are reducing tariffs and eliminating the plethora of licensing and other systems they had maintained to restrict imports. These open and liberal trade policies enabled them in the Uruguay Round not only to take credit for their unilateral tariff reductions by binding them but also to improve their bargaining position in negotiations with their developed country partners.

Third rule: trade according to the most-favored-nation clause

The third basic GATT rule, which provides that trade must not be discriminatory, is embodied in the famous most-favored-nation clause. In simple terms, the principle means that if a member country grants to another country any tariff or other benefit to any product, it must immediately and unconditionally extend it to the like products of other countries. Thus if country A agrees, in trade negotiations with country B, to reduce custom duties on imports of tea from 10% to 5%, the reduced rate must be extended to all WTO member countries. The obligation to extend such MFN treatment applies not only to imports but also to exports. Thus, if a country levies duties on exports of a product to one destination, it must apply it at the same rate to exports to all destinations. Moreover, the obligation to provide MFN treatment is not confined to tariffs. It also applies to:

_ Charges of any kind imposed in connection with importation and exportation; _ The method of levying tariffs and such charges; _ Rules and formalities in connection with importation and exportation; _ Internal taxes and charges on imported goods, and laws, regulations and requirements affecting their sales;


_ The administration of quantitative restrictions (e.g. by allocating quotas among supplying countries on a non-discriminatory basis) where such restrictions are permitted under the exceptions provisions. The principle thus implies that, by agreeing to give MFN treatment, member countries undertake not to discriminate among countries and not to treat a country less favorably than another in all matters connected with foreign trade in goods. Exceptions to the MFN rule The GATT rules, however, recognize that tariffs and other barriers to trade can be reduced on a preferential basis by countries under regional arrangements. The lower or duty-free rates applicable to trade among members of regional arrangements need not be extended to other countries. Regional preferential arrangements thus constitute an important exception to the MFN rule. In order to protect the trade interests of non-member countries, GATT lays down strict conditions for forming such arrangements. These conditions, inter alia, provide that: _ Member countries of regional arrangements must remove tariffs and other barriers to trade affecting substantially all trade among themselves, and _ The arrangement should not result in the imposition of new barriers to trade with other countries. Such arrangements may take the form of customs unions or free-trade areas. In both instances, trade among member States takes place on a duty-free basis while trade with other countries continues to be subject to MFN tariff rates. In the case of customs unions, tariffs of member countries are harmonized and are uniformly applied to imports from outside countries. In free-trade areas, member countries continue to use, without harmonization, the tariffs set out in their individual national schedules. There are now over 100 regional preferential arrangements in force. As box 9 shows, the emphasis on promoting trade on a regional basis by strengthening and deepening tariff and other concessions exchanged under regional preferential arrangements has increased in recent years. As a result, regional trade is steadily on the rise and a growing proportion of world trade is taking place on a regional basis. Such preferential arrangements provide advantages to industries marketing their products in other countries in the region. At the same time, they may put industries in countries outside the region, which have to pay customs duties on an MFN basis, in a position of competitive disadvantage. One of the major challenges which WTO member countries have to face in the coming years is how to ensure complementarily between efforts to develop regional trade and attempts to further liberalize trade at the multilateral level. In addition to these arrangements, developed countries have introduced one-way free-trade arrangements under which imports from either all or a limited number of developing countries enter their markets duty free. These arrangements are non-reciprocal as the developing countries benefiting from preferential access do not extend any preferential treatment to imports from developed countries. Examples of such one-way preferential arrangements are: _ The Generalized System of Preferences (GSP) under which developed countries allow imports from all developing countries of all industrial products, and of selected agricultural products on a preferential and duty-free basis;

_ The Lom Convention under which Member States of the European Union allow imports from a number of developing and least developed countries in Africa, the Caribbean, and Asia and the Pacific (i.e. the ACP countries) to enter on a duty-free basis; _ The Caribbean Basin Initiative, under which the United States allows imports from Caribbean countries on a duty-free basis. The legal basis for the extension of preferential treatment by developed countries to imports from all developing countries under GSP is provided by the Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries. The Decision was adopted under GATT in 1979 and is commonly known as the General Enabling Clause. There is no definitive legal basis available under the provisions of GATT 1994 for preferential arrangements like the Lom Convention and the Caribbean Basin Arrangement, which allow preferential or duty-free access only to the limited number of developing countries with which the developed countries extending preferential treatment have historical or other ties. These arrangements are currently allowed under waivers granted to the preference-giving developed countries from their obligation to extend MFN treatment. From the legal point of view, these limited preferential arrangements lead to discriminatory treatment of imports from developing countries which do not benefit from the preferences. There are therefore pressures on the preference-giving developed countries to modify them and bring them in conformity with GATT rules. The current Lom Convention (Lom IV) will expire in February 2000. The indications are that the European Union may be able to get a waiver to continue the arrangement in more or less its existing form for an additional period of five years, i.e. up to 2005. Negotiations are now taking place between the European Union and the beneficiary ACP countries on how the Convention can be modified to make it consistent with the provisions of GATT 1994 and the General Enabling Clause. The waiver granted to the United States to implement the Caribbean Basin Initiative expires at the end of 2005.

Fourth rule: national treatment The MFN principle, as has been noted, requires Members not to discriminate among countries. The national treatment principle, which complements the MFN principle, requires that an imported product which has crossed the border after payment of customs duties and other charges should not receive treatment that is less favorable than that extended to the like product produced domestically. In other words, the principle requires member countries to treat imported products on the same footing as similar domestically produced goods. Thus it is not open to a country to levy on an imported product, after it has entered the country on payment of customs duties at the border, internal taxes (such as a sales tax) at rates that are higher than those applied to comparable domestic products. Likewise, regulations affecting the sale and purchase of products in the domestic market cannot be applied more rigorously to imported products.


Business implications
The new framework of rules covering agricultural products and textiles which the Uruguay Round has developed will help ensure that GATTs basic rules against the use of quantitative restrictions and requiring that protection to domestic production is given only through tariffs are followed in practice by all countries. Exporting enterprises prefer tariffs to quantitative restrictions for many reasons. Tariffs are transparent and their incidence on price is predictable. The use of quantitative restrictions imposes a certain uncertainty on trade, as administering authorities have the power to adjust the sizes of quotas from time to time. Finally, as the operation of quota restrictions requires licensing, enterprises can export only if their foreign buyers are able to obtain a license. The Uruguay Round has also resulted in significant progress in tariff binding by all countries. The assurance that, because of the binding, the lower rates agreed in the negotiations will not be raised by countries to which exports are being made encourages enterprises to invest in manufacturing plants, equipment and distribution networks and to take other measures to develop trade. Furthermore, the bindings give enterprises a guarantee that the tariffs that are payable on the raw materials and inputs which they have to import for use in export production will not be increased by their own governments. Lastly, the national treatment rule assures exporting enterprises that once their products have entered the importing market after payment of customs duties and other charges payable at the border, they will not be required to pay internal taxes at rates that are higher than those payable on products of domestic origin. The national treatment rule applies not only to internal taxes, but also to the rules governing mandatory standards for products and those applicable to the sale and distribution of goods. As governments are increasingly imposing taxes and adopting product regulations for the protection of the environment and for the health and safety of consumers, the rule that such taxes and regulations should be applied to domestic and imported products on a non-discriminatory basis is of vital importance to exporting enterprises.



Evaluation of GATT The growing acceptance of GATT / WTO, despite their shortcoming, is evinced by the increase in the number of the signatories. When the GATT was signed in 1947, only 23 nation were party to it. It increased to 99 by the time of the seventh round and 117 countries Participated in the next Uruguay Round. In july1995.there were 128 signatories.

GATT contributed significantly to the liberalization and growth of trade in goods. GATT and WTO have helped to create a more liberal trading system contributing to unprecedented growth. The last round the 1986-94 Uruguay Round led to the creation of WTO and provided for global economic and business liberalization of very wide scope and ramifications. Trade liberalization was confined mostly to goods of interest to developed countries. The average level of tariffs on manufactured products in industrial countries was brought down from about 40 % in 1947 to nearly 3% after the Uruguay Round. Trade liberalization has not benefitted developing countries significantly. The developing country export has been hit very hard by the NTBs. evaluate the role of GATT/WTO in trade liberalization


The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. This was formed as General Agreement on Tariff and Trade (GATT) in 1947 as a result of Britton Woodss agreement created by the World Bank and the international monitory fund. Moreover GATT has been established after World War II in the wake of other new multilateral institutions dedicate to international economic cooperation. The eighth GATT round known as the Uruguay Round in 1986 and over the past years the World Trade Organization established in 1995 and its predecessor organizational trading system, thereby contributed to unprecedented global economic growth. WTO currently has 155members which 117 are from developing countries while the WTO secretariat located in Geneva, Switzerland according to the company structure the staff is leading by WTP Director General. Heeding more through organizational structure the main body is Ministerial conference and then General council while the Ministerial conference is being the topmost decision making body. Since Ministerial conference meets once in two years General council has been the WTOs highest level decision making body in Geneva which regularly meets to carry out the functions of WTO. The current Director General of the WTO is Pascal Lamy. The recently introduced round is the Doha rounds the 4th Ministerial conference in Doha, Quarter 2001. As WTOs main purpose is to enclose a free trade to world economy the agenda comprised the both future trade liberalization and new rule making to strengthen the developing counties.



By virtue of its membership in the GATT, India is automatically entitled to enjoy the benefit of the Most Favored 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 an option available to us when the country is just wedded to economic liberalization 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. 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 multifibre 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 liberalized environment of both domestic and external sectors, with abundant supplies of cotton, skilled labour force, improved technology and due modernization, 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. Provisions for intellectual property rights (TRIPs) are a crucial area of the URT with far-reaching implications for developing countries including India. Until now only the process patent was protected. Under the new agreement, inventor's rights widely cover patents, copyright, industrial design, trademarks 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 specialized 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 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 subsidized 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 specialized 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 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 rationalized energy prices, a clear and just export policy, improved infrastructure and financial sector reforms, along with, liberalized 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 exportable that proves 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.


REFERENCES Business Environment book written by (Francis Cherunilam).



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