General Agreement on Tariffs and Trade

Toward the end of World War II, representatives of the US and its Allied Forces endeavored to work out the arrangements for a new world order in the post war era. As a result of these negotiations, after World War II the US and its Allies planned to establish three important international institutions to liberalize trade and payment.

1.Three institutions + UN

I. International Monetary Fund (IMF) was established to facilitate international payments.

II. International Bank for Reconstruction and Development. To encourage free flow of private capital, International Bank for Reconstruction and Development (IBRD, now the World Bank) was also established.

III. To facilitate free trade, International Trade Organization (ITO) was to be born.

IV. As a political complement to these institutions, United Nations was also established in 1945 to replace the League of Nations.

GATT was the result of an international conference held at Geneva in 1947 to consider a draft charter for the International Trade Organization (ITO). The US initiated negotiations with 22 other countries that led to commitments to regulate 45,000 tariff rates.

Technically, GATT was viewed as an agreement under the provisions of US Reciprocal Trade Act of 1934, and hence did not require approval of Congress. So GATT began its provisional existence on January 1, 1948, when 23 contracting parties signed the agreement.

Major Provisions of GATT

Tariff

(a) GATT obligates each country to accord non-discriminative, most favored nation (MFN) treatment to all other contracting parties with respect to tariffs.

(b) 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.

Quantitative Restrictions

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

Exceptions

(a) Agriculture - when government needs to remove surplus of agricultural and fisheries products.

(b) Balance of payments - to safeguard balance of payments. If a country's foreign exchange reserve is low.

(c) Developing countries - LDCs may use import quotas to encourage infant industries.

(d) National Security- Strategic controls on certain exports, patents, copyrights, Public Morals

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

4. Achievements and Problems of GATT/WTO

GATT has enjoyed a membership of over 100 countries and generated about 85-90% of world trade.

(a) Trade liberalization in industrial products (Kennedy Round)

(b) Adopted codes on NTBs (Tokyo Round)

(c) No world wars since 1948 (Increased trade promotes world peace)

(d) Replaced by WTO on January 1, 1995.

Date: 2015-12-24; view: 1163