MCom I Semester Environment General Agreement Trade Tariff Gatt Study Material Notes

MCom I Semester Environment General Agreement Trade Tariff Gatt Study Material Notes : Establishment of GATT Change of Gatt Into Wto Principles of GATT Objectives of GATT Characteristics of GATT Accord Dilemma of Dunkel Proposal and India main Subject of Uruguay Round Effects of GATT Accord on Indian Economy Various Round of Gatt Long Answer Questions Short Answer Questions Objectives Questions :

CTET Paper Level 2 Previous Year Science Model paper II in Hindi

General Agreement on Trade and Tariff-GATT

The current scenario of the world economy is the mixture of achievements, fluctuations, satisfaction and dissatisfaction. Most of the countries have experienced socialism, capitalism and mixed economic system. Now it is period of globalisation. Globalisation is the process of deepening economic integration, increasing economic openness and growing economic interdependence amongst the countries in the world economy. In international economic relations the greatest achievement is the setting up of GATT (General Agreement on Trade and Tariff) in 1947.

ESTABLISHMENT OF GATT

GATT was signed by 23 members on Oct, 30, 1947. The General Agreement on Trade and Tariff (GATT) was established in January 1, 1948 in Geneva to pursue the objective of free trade in order to encourage growth and development of all member countries. Between 1947 and 1993 of GATT there were 8 rounds of negotiations between the participating coutries. The various rounds of GATT are:

1947 (First round), 1949 (Second) 1950-51 (Third) 1956 (Fourth), 1960-61 (Fifth round) 1964-67 (Sixth) round, 1973-79 (Seventh) and 1986-93 (Eighth round). The first seven rounds of negotiation conducted under GATT were aimed at stimulating trade through reduction in non-tariff restrictions on imports imposed by member countries. The 8th round known as ‘Urugay round’ took more than eight years of complex negotiations as considerable differences existed among the member nations on various issues. To break this deadlock, Mr Arthur Dunkel, Director General of GATT compiled a very detailed document known as ‘Dunkel proposals’ and presented it before the member-countries as a compromise document. It came up for intense discussion and debate in the developing countries and public opinion was against signing the draft became more and more vehement as it was felt that the draft was heavily biased in favour of the developed countries and against developing countries, and it was designed as to lead to a surrender of sovereign authority of the government of dveloping nations. On April 15, 1994 the Final Act was ultimately approved and signed by 125 member countries.

CHANGE OF GATT INTO WTO

The signing of the Final Act of the Uruguay Round by member countries of GATT paved the way for the setting up of World Trade Organisation (WTO). The WTO agreement came into force from January 1, 1995 and India became a founder member of the WTO. The present membership of WTO is 159 countries. The WTO is a new international organisation set up as a permanent body and is designed to play the role of a watching in the spheres of trade in goods, trade in services, foreign investment, intellectual property etc. The disputes settlement body set up under WTO provides security and predictablity to multilateral trading system. It has now become mandatory to settle a dispute within 18 months. Quota system and quantitative restrictions have been abolished under WTO agreements.

PRINCIPLES OF GATT

The General Agreement on Trade and Tariff was set up on the following principles :

1 Elimination of restrictions or the principles of most favoured nation : GATT was all along concerned with the promotion of international trade through tariff reduction, doing away with non-discriminatory practices among trading nations and evolving of counter protectionism. The guiding principle of GATT was known as ‘most elegant nation. This clause says that “any advantage, favour, privilege or immunity granted by a contracting party to any product originating in or destined for any country shall be accorded immediately and unconditionally to like product originating in or destined for the territories of all contracting parties

2. Quantitative restrictions on imports : Under GATT agreement quantitative restrictions are completely prohibited. There are some exceptions to this agreement :

(i) When a country faces accute adverse balance of payment, it is free to protect its reserve funds through restriction on import quota.

(ii) The developing countries can utilise import quotas according to the GATT Agreements.

(iii) The import quotas for agriculture and fishery products may be determined only when the country is producing these products on restriction bases.

3. Principles of Tariff Negotiations or reductions of Tariff : GATT provided for reduction in tariffs and trade restrictions in a phased manner over a period of time. The purpose of the principle is to discourage bilateralism and encourage multilateralism so that the world trade could expand in orderly manner. However, formation of custom unions or free trade areas was allowed by GATT provided this encouraged flow of trade between the constituent territories and did not raise barriers to the trade of other member countries.

OBJECTIVES OF GATT

The objectives of the GATT were based on a few fundamental principles contained in the Code of International Trade Conduct:

1 To raise the level of standard of living of its members countries.

2. To increase the production and international trade of the world.

3. Maximum utilisation of available resources of the world.

4. To carry on the economy towards the full employment an income and effective demand. the full employment and increase real

5. To carry on trade on the principles of non discrimination, reciprocity a transparency and to liberalise tariff and non-tarift measures through multilateral negotiations.

CHARACTERISTICS OF GATT ACCORD

The main features of GATT agreement are as follows:

1 The GATT introduced MFN clause (Most Favoured Nation Clause) according to which every member country was considered as a MEN country. According to this clause any concession given to any nation was automatican given to all the member countries.

2. Besides the traditional GATT subiect such as tariff and non-tariff barriers and improvement in GATT rules, disciplines on subsidies and counter-vailing measures, anti-dumping measures, etc. Certain new areas such as trade related aspects of intellectual property right (TRIPS) trade related investment measures (TRIMS) and trade in services were included for the first time for negotiations. TRIPs requires on understanding about the scope of the new patent regime, under TRIPs patents will be available for any invention whether product or process in all fields of industrial technologies. Patents will be available for 20 years.

3. Under it, at only national level the system of decentralisation of foodgrain storage may be adopted.

4. The GATT was applied on a provisional basis in the attempt to establish an international trade organisation.

5. In the industrial nations support was given to the farmers in the form of severe barriers to imports and subsidies to exports.

6. As India’s share in world trade is less than one percent, it is necessary for it to enter into such kind of agreements.

The growing acceptance of GATT is clear from the increase in the number of signatories. The signatory countries account for 90% of the international trade.

DILEMA OF DUNKEL PROPOSAL AND INDIA

The Eights and Final round at Uruguay in 1986-94 known as ‘Uruguay Round’ took more than eight years of complex negotiations as considerable differences existed among the member nations on the various issues. Because of the substantial differences among members on contentious issues, the then Director General of GATT, Arthur Dunkel came up with a Draft Final Act. embodying what he thought could be the agreed outcome of the Uruguay round. This was offered as a single treaty could not be considered as agreed unless the total package was agreed. Known as Dunkel Draft, it came up for intense discussion and debate in the developing countries and public opinion was aginst signing as the draft was heavily biased in favour of the developed countries and against developing countries, and it was so designed as to lead to a surrender of sovereign authority of the governments of developing nations. It was only after a great amount of persuasion and threats by the developed countries (Particularly the USA), that the governments of developing countries succumbed and on April 15. 1994, the Final Act was ultimately approved. Although all member nations of GATT signed the final act and it appears that everything went on with “consensus of all,” the fact is that most of the developing nations agreed to get integrated with the multilateral trading system because otherwise they could have been isolated from the mainstream representing 90 percent of world trade. The main concern of the developing countries had been to minimise the damage.

The Brettonwood Conference of 1944 also recommended the establishment of an International Trade Organisation (ITO). At the International Conference on Trade and Employment held in 1946 at Havana, a proposal for establishment of ITO was made with the objective of augmenting and maintaining world trade and employment. Though the Havana Charter for ITO was designed as a sort of international trade contribution, it could not materialise due to various difficulties and lack of common agreement, but in its place a less ambitious organisation was formed in 1948, known as GATT. This was signed in 1947 by some 23 major trading nations including India. The membership has now gone upto 123. The agreement was concerned only with tariffs and trade restrictions and other related international matters. The member nations meet at regular intervals to negotiate agreements to reduce quotas, tariffs and other restrictions on international trade. “GATT is a contractual agreement among member nations.”

EFFECTS OF GATT ACCORD ON INDIAN ECONOMY

The effects of GATT agreement on Indian economy are as follows:

1 The claim of India is that as consequence of Uruguay agreement, Indian exports had risen at the rate of $2 billion per year.

2. Dunkel Final Act stipulates that farmers of developing countries can be subsidised upto 10 percent of their value of output.

3. Article 27 of TRIPs text states that India may provide for protection of plant varieties either by patent or by an effective suigenesis system or by a combination thereof.

4. A country like India which does not recognise product patents in the fields of drugs, food products and chemical, has been allowed a transition period of 10 years for establishing a product patent regime for such items.

5 .The government has to continue with the drug price control order so far as essential drugs are concerned. It has also to regulate the prices of other drugs. In a country which is plagued by mass poverty, it is very essential that life saving drugs and other basic medicines should be available at affordable low price. This can be achieved only through control over the prices of drugs.

6. The main provisions provided in the TRIMs test ensure that government shall not discriminate against foreign capital. In other words, the TRIMs text compels member countries to give national treatment to foreign capital.

7. GATT agreement has made certain proposals to liberalise the trade of textile and clothings. The Act proposes to phase out MFA (multi-fiber agreement) over a ten year period (1993 to 2003) and to fully liberalise the textile sector at the end of the 10 year peirod.

8. Unrestricted freedom to foreign investment, the critics feel, is a compromise on our economic sovereignty.

VARIOUS ROUNDS OF GATT

Between 1947 and 1993 there were 8 rounds of negotiations conducted under GATT between the participating countries. The first seven rounds of negotiations were aimed ot stimulating international trade through reduction in tariff barriers and also by reduction in non-tariff restrictions on imports imposed by member countries. GATT provided a useful forum for discussion and negotiations on

General Agreement on Trade and Tariff-GATT 223 international trade issues. The 8th round of multi-lateral trade negocio popularly known as ‘Uruguay Round’. (Since it was launched at Punta-d in Uruguay) was started in 1986 at a special session of GATT contracting parties it was launched at Punta-de-Este held at ministerial level. This round was entirely different from the various rounds because it included a number of subjects for consideration.

General Agreement Trade Tariff

MAIN SUBJECT OF URUGUAY ROUND

Ever since the GATT was established after the Second World War, it has been trying hard to achieve international economic co-operation. World has undergone a structural change during four decades since the establishment of GATT in 1948. The share of agriculture in world merchandise trade nad declined in 1987. Simultaneously, the structure of employment and the contribution of various sectors to GDP of developed countries had undergone a qualitative change, the share of the service sector in the GDP of developed countries was rapidly increasing. The share of employment in the service sector was also increasing. For example in 1980, US exports of service amounted to $ 35 billion. The developing countries gained considerably less from the GATT as compared to the most of the developed countries. The trade liberalisation has been confined mostly to the goods which are of interest to the developed nations. As in case of the previous rounds, the developing countries are dissatisfied with the outcome of the Uruguay round. Some of the areas like TRIPS, TRIMs and services have been very senstive as far as the developing countries are concerned as UR agreement requires these countries to lower the protection against competition from the unequal developed economy. These factors impelled developed countries, under the leadership of USA, to take the initiative of bringing service sector into negotiations. Thus, the Uruguay Round (UR) contained the mandate to have negotiations in 15 areas. In part I, negotiations on trade in goods were to be conducted in 14 areas and in part II negotiations on trade in services were to be carried out. Declaration in UR contained the following:

1 Tariff : From the first year of the agreement’s implementation, the industrial countries are then to reduce their tariff bindings by an average of 36% while all developing countries are required to reduce tariffs by an average of 24% on tariffs India has promised to reduce the basic duty by 30%.

2. Non-tariff curbs on imports: GATT rules seek to prohibit quantitative restrictions as far as possible and limit restrictions on trade to the less rigid tariff. Exception is granted to countries having balance of payments difficulties and to the developing countries.

3. Subsidy : According to the GATT agreement, the developing countries may provide subsidy in the following matters :

(i) The amount paid for internal transportation and for reduction of freight. (ii) Financial assistance provided to reduce international freight. (iii) The amount provided to reduce the cost of export of agriculture.

4. Textile : GATT agreement has made certain proposals to liberalise the trade of textiles and clothings. These proposals are very important for developing countries since textile exports constitute the most important item of their export. Ironically, the developed countries who claim to be the greatest champions of free trade have made more comprehensive quota restrictions under the multifiber agreement (MFA). The Act proposes to phase out MFA quotas over a ten year period. At the end of 10 years period, 51 percent of textile market will be liberalised.

5. Safeguards: Uruguay Round has provided safeguards to the developing countries in form of protection of domestic industries from the adverse effects imports. These safeguards are not selective. It extends to all member countries on equal basis. The developing countries may be given further safeguards for specific products.

6. Agriculture : Under the Uruguay round, all member nations of GATT participating in negotiations committed themselves to widespread reduction in tariffs, quantitative restrictions and opening up their economies to international competition. A OA (Agreement on Agriculture) required that providing nontariff barriers in agriculture were to be abolished. Despite the commitment to reduce agricultural subsidies substantially, the developed countries have not shown any willingness to cut down subsidies. As far as India is concerned, support given to agriculture was negative while developed countries of OECD: U.S.A , U.E., Japan, Canada were found heavily subsidising agriculture. The developed countries have used ‘support-under ‘Green-Box’ to their maximum advantage. Dunkel Final Act stipulates that developing countries can subsidise farmers upto 10 percent of their value of output while developed countries have a lower ceiling of 5 percent. Another issue which pertains to agriculture is the proposal in the final act that all countries have to provide access opportunities to imports of at least 4 percent of their total consumption between 1986 and 1988, except for those primary commodities which are considered as staple in the diet of a developing country.

7. Trade Related Intellectual Property Rights (TRIPs): Some critics are of the view that Trade Related Intellectual Property Rights (TRIPs) as embodied in the GATT agreement will have disastrous effect on developing economies. Under TRIPs patents will be available for any invention whether product or process in all fields of industrial technologies. Patent protection will be extended to micro-organism, non-biological and micro-biologcial process and plant varities. This implies that the entire industrial and agricultural sectors and to an extent bio-technology sector will be covered under the patent provision. In the field of food, medicines, drugs and chemical products, the TRIPs agreement provides for granting product patents and such products patents will be available for 20 years with the signing of the treaty India committed itself to reform its patent law in accordance with the TRIPs agreement of WTO.

8. Service Sector : For the first time, trade in services like banking, insurance, travel, mobility of labour etc. was brought within the ambit of negotiations in the Uruguay round. The GATs (General agreement on trade in service) provides a multitateral frame work of principles and services which should govern trade in services under conditions of transparency and progressive liberalisation. There is vast level of difference in the development of services as between the developed countries and the developing countries like India. Therefore inclusion of trade in service is bound to benefit developed countries much more than the developing countries. In fact, the very inclusion of trade in services in Uruguay Round negotiations was on persistent insistence of the developed countries who have all along been arguing that opening up of trade in services is an important requirement for globalisation and development of world trade. The principal exporters of services are the USA, France, Japan and Netherlands in that order and together they count about 60 percent of world under in services. It is these countries that will benefit most from the new agreement on services arrived at in the Uruguay Round and the share of developing countries will decline fur

9. Trade Related investment measures : The Agreement on Trade Related Investment Measures (TRIMs) calls for introducing national treatment of foreign investments and removal of quantitative restrictions. All restrictions on foreign capital investors companies should be scrapped. The foreign investors shall be given the same rights in the matters of investment as a national investor. No restrictions will be imposed on any area of investment. Already Government of India has been over bending to woo foreign direct investment. The difference under the GATT treaty is that these changes will become a part of the multilateral trade treaty and WTO will in future be able to impose discipline. TRIMs treaty abrogates our freedom to become selective in the area of foreign investment.

There is no doubt that in a world of unequal partners, multilateralism is superior to bilateralism and if some concessions are to be extracted from strong partners blonging to US and European Community, then the combined strength of the developing countries can exercise a stronger pull in their favour. One redeeming feature of the GATT is that there is the principle of one country, one vote. However, the developed countries by various new devices, more especially through Intellecutal Property Rights and TRIMs can pull the things in their favour. Although the Government of India is claiming that very substantial benefits are likely to accrue as a consequence of GATT Agreement, but it is premature to reach any definite conclusion. The Final Act is such a big document that it has wheels-within-wheels and the trust of the Act is to the line of developed nations. R.K. Khurana summed up the position. “The consensus, however, is that the Uruguay Round has been a game in which the more powerful nations lay down the rules, unfortunately, India is not one among the powerful trading nations and it is, therefore, doubtful if the country could have achieved anything significantly more than what our negotiations have managed.” The history of GATT reveals that whenever newly industrialised nations have challenged the competitive strength of the developed countries, they have immediately retaliated by imposing both tariff and non-tariff barriers. They have now enlarged those in the form of TRIPs and TRIMs. The innovation of social clause was also conceived with the same intention of blunting the competitive advantage of developing nations. This game will continue. Thus, there is a need for vigilance and combined resistance by Third World countries so that the enlarged scope of GATT is not used to their disadvantage.

EXERCISE QUESTIONS

Long Answer Questions

1 Write critical essay on GATT.

2. What is GATT? Explain the objectives of GATT.

3. Write an essay on Uruguay Round.

Short Answer Questions

1 Write the meaning of GATT.

2. Wrtie any three objectives of GATT.

3. What do you know about Uruguay Round?

4. Write the principles of GATT.

5. Write a note on Trade Related Investment Measures.

6. Write a note Trade Related Intellectual Property Rights.

7. What do you know about the Eighth Round of GATT negotiations?

Objective Questions

(1) Choose the correct alternative:

1 Uruguay round was started in:

(a) 1990

(b) 1986

(c) 1987

(d) none of these

2. The Uruguay round contained the mandate to have negotiations is :

(a) 15 areas

(b) 14 areas

(c) 7 areas

(d) 12 areas

3. The main objective of GATT was:

(a) optimum utilization of resources

(b) adequate transportation system

(c) increase in international trade and production

(d) none of these

4. The period of the Seventh round of GATT was:

(a) 1986

(b) 1980

(c) 1981

(d) 1979

5. GATT was replaced by:

(a) UNCTAD

(b) World Trade Organisation (WTO)

(c) MRTP

(d) none of these

6. The World Trade Organisation replaced GATT in the year:

(a) January 1, 1995

(b) September 20, 1986

(c) July 1, 1991

(d) July 3, 1980

[Ans: 1. (b), 2. (a), 3. (c), 4. (d), 5. (b), 6 (a)]

(II) Write true or false :

1 The GATT was converted into a World Trade Organisation with effect from January 1, 1996.

2. The membership of the World Trade Organisation now is 272 nations.

3. The main objective of GATT is the maximum utilisation of available resources.

4 .Developing countries cannot use the import quotas according to the GATT Agreements.

(Ans: 1. False, 2. False, 3. True, 4. False]

(III) Fill in the Blanks :

1 The main objective of GATT is the raising …. … of the world community as a whole.

2. Under the GATT agreements,… ……. of food storage may be maintained at the national level.

3. The agreements under the World Trade Organisation are arranged at ……….

4. The Uruguay round accepted the imposition of………………… by the developing countries to correct their adverse balance of payments.

[Ans : 1. Standard of living, 2. Decentralisation 3. World level, 4. Quantitative restrictions]

General Agreement Trade Tariff