History of GATT

GATT: ‘provisional’ for almost half a century

From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for much of
world trade and presided over periods that saw some of the highest growth rates in international commerce.
It seemed well-established, but throughout those 47 years, it was a provisional agreement and organization.
The original intention was to create a third institution to handle the trade side of international economic
cooperation, joining the two “Bretton Woods” institutions, the World Bank and the International Monetary
Fund. Over 50 countries participated in negotiations to create an International Trade Organization (ITO) as
a specialized agency of the United Nations. The draft ITO Charter was ambitious.
It extended beyond world trade disciplines, to include rules on employment, commodity agreements,
restrictive business practices, international investment, and services. The aim was to create the ITO at a
UN Conference on Trade and Employment in Havana, Cuba in 1947.

This first round of negotiations resulted in a package of trade rules and 45,000 tariff concessions affecting
$10 billion of trade, about one fifth of the world’s total. The group had expanded to 23 by the time the deal
was signed on 30 October 1947. The tariff concessions came into effect by 30 June 1948 through a
“Protocol of Provisional Application”. And so the new General Agreement on Tariffs and Trade was born,
with 23 founding members (officially “contracting parties”).
The 23 were also part of the larger group negotiating the ITO Charter. One of the provisions of GATT says
that they should accept some of the trade rules of the draft. This, they believed, should be done swiftly and
“provisionally” in order to protect the value of the tariff concessions they had negotiated. They spelt out
how they envisaged the relationship between GATT and the ITO Charter, but they also allowed for the
possibility that the ITO might not be created. They were right.
Failure of Havana Charter
The Havana conference began on 21 November 1947, less than a month after GATT was signed. The ITO
Charter was finally agreed in Havana in March 1948, but ratification in some national legislatures proved
impossible. The most serious opposition was in the US Congress, even though the US government had
been one of the driving forces. In 1950, the United States government announced that it would not seek
Congressional ratification of the Havana Charter, and the ITO was effectively dead. So, the GATT became
the only multilateral instrument governing international trade from 1948 until the WTO was established in
1995.
For almost half a century, the GATT’s basic legal principles remained much as they were in 1948. There
were additions in the form of a section on development added in the 1960s and “plurilateral” agreements
(i.e. with voluntary membership) in the 1970s, and efforts to reduce tariffs further continued. Much of this
was achieved through a series of multilateral negotiations known as “trade rounds” — the biggest leaps
forward in international trade liberalization have come through these rounds which were held under
GATT’s auspices.
In the early years, the GATT trade rounds concentrated on further reducing tariffs. Then, the Kennedy
Round in the mid-sixties brought about a GATT Anti-Dumping Agreement and a section on development.
The Tokyo Round during the seventies was the first major attempt to tackle trade barriers that do not take
the form of tariffs, and to improve the system. The eighth, the Uruguay Round of 1986-94, was the last and
most extensive of all. It led to the WTO and a new set of agreements

History
From the early days of the Silk Road to the creation of the General Agreement on
Tariffs and Trade (GATT) and the birth of the WTO, trade has played an important
role in supporting economic development and promoting peaceful relations among
nations.

 The General Agreement on Tariffs and Trade (GATT) traces its origins to
the 1944 Bretton Woods Conference, which laid the foundations for the post-
World War II financial system and established two key institutions,
the International Monetary Fund (IMF) and the World Bank.
o The conference delegates also recommended the
establishment of a complementary institution to be known
as the International Trade Organization (ITO), which they
envisioned as the third leg of the system.
o In Havana in 1948, the UN Conference on Trade and
Employment concluded a draft charter for the ITO, known as
the Havana Charter, which would have created extensive rules
governing trade, investment, services, and business and
employment practices.
 The Havana Charter never entered into force,
primarily because the U.S. Senate failed to ratify it. As
a result, the ITO was stillborn.
o Meanwhile, an agreement as the GATT signed by 23 countries in
Geneva in 1947 came into force on Jan 1, 1948 with the following
purposes:
 to phase out the use of import quotas
 and to reduce tariffs on merchandise trade,
 The GATT became the only multilateral instrument (not an institution)
governing international trade from 1948 until the WTO was established in 1995.
 Despite its institutional deficiencies, the GATT managed to function as a de
facto international organization, sponsoring eight rounds (A round is a series
of multilateral negotiations) of multilateral trade negotiations.

Year Place/name N
 1947 Geneva 45,000 tariff cuts - average 35%

1949 Annecy Tariff reductions

1951 Torquay Tariff reductions

1956 Geneva Tariff reductions

1960-1961 Geneva Dillon Round

Tariff reductions

35% average cut on industrial go

1964-1967 Geneva Kennedy Round
laws

1973-1979 Geneva Tokyo Round 34% average cut on industrial

services trade and inctual proper

1986-1994 Geneva Uruguay Round
institution created.

 Tokyo Round of conference

In other issues, the Tokyo Round had mixed results. It failed to come to grips with the
fundamental problems affecting farm trade and also stopped short of providing a modified
agreement on “safeguards” (emergency import measures). Nevertheless, a series of
agreements on non-tariff barriers did emerge from the negotiations, in some cases
interpreting existing GATT rules, in others breaking entirely new ground. In most cases,
only a relatively small number of (mainly industrialized) GATT members subscribed to
these agreements and arrangements. Because they were not accepted by the full GATT
membership, they were often informally called “codes”.
 So, the GATT became the only multilateral instrument governing international
trade from 1948 until the WTO was established in 1995.
 The Uruguay Round, conducted from 1987 to 1994, culminated in the
Marrakesh Agreement, which established the World Trade Organization
(WTO).
main objectives of the Uruguay Round were:

 to reduce agricultural subsidies
  to lift restrictions on foreign investment
 to begin the process of opening trade in services like banking and insurance.
 to include the protection of intellectual property
They also wanted to draft a code to deal with copyright violation and other forms of intellectual
property rights.also to reduce tariff rates

o The WTO incorporates the principles of the GATT and provides

a more enduring institutional framework for implementing and
extending them.
o The GATT was concluded in 1947 and is now referred to as the
GATT 1947. The GATT 1947 was terminated in 1996 and WTO
integrated its provisions into GATT 1994.
 The GATT 1994 is an international treaty binding
upon all WTO Members. It is only concerned with
trade in goods.

Why WTO replaced the GATT

 The GATT was only a set of rules and multilateral agreements and lacked
institutional structure.
o The GATT 1947 was terminated and WTO preserved its provisions
in form of GATT 1994 and continues to govern trade in goods.
 The trade in services and intellectual property rights were not covered by
regular GATT rules.
 The GATT provided for consultations and dispute resolution, allowing a GATT
Party to invoke GATT dispute settlement articles if it believes that another
Party’s measure caused it trade injury.
o The GATT did not set out a dispute procedure with great specificity
resulting in lack of deadlines, laxity in the establishment of a
dispute panel and the adoption of a panel report by the GATT
Parties.
o It made the GATT as a weak Dispute Settlement mechanism

Marrakesh Declaration – GATT to WTO

GATT stood for, ‘General Agreement on Tariffs and Trade’. It was an international trade
agreement that was signed in 1947 in a bid to reduce trade barriers among world nations. It was
superseded by the WTO in 1994 when Uruguay Round of Trade Negotiations, after eight years
of talks, signed the Marrakesh Declaration/ Marrakesh Agreement.
What is the Uruguay Round?
GATT member nations introduced Uruguay Round of Trade Negotiations at Punta del Este,
Uruguay in September 1986. It covered almost all trade policy issues. The Uruguay round is
called the largest trade negotiation ever.
What happened in the Uruguay Round?
With the original agenda to wind up the trade negotiations in four years, Uruguay Round of trade
negotiations took seven and a half years to bring forward the final agreement called the
Marrakesh Agreement. The main points of the Uruguay Round are given below:

1. All articles encompassed by GATT were put to review under Uruguay Round.
2. Some of the subjects that the Uruguay Round covered were:

o Market Access for Tropical Products

o Dispute Settlement System
o Trade Policy Review Mechanism
o Agriculture: services, market access, anti-dumping rules
o Proposed creation of a new institution
 Blair House Accord – A deal signed between the EU and the USA to settle their
differences on agriculture in November 1992.
 Marrakesh Agreement – On 15 April 1994, the deal was signed by ministers
from most of the 123 participating governments at a meeting in Marrakesh,
Morocco

Overview of Marrakesh Agreement for UPSC

Marrakesh Agreement included among other provisions, commitments to reopen the negotiations
over agriculture and services. Hence, it was taken up in WTO’s Doha Round of Negotiations.

1. Along with the establishment of the WTO, the Marrakesh Declaration mentioned its
functions and scope.
2. Marrakesh Agreement is called the The following agreements were covered in the
Marrakesh Declaration:

o Multilateral Agreements on Trade in Goods

o General Agreement on Trade in Services and Annexes
o Agreement on Trade-Related Aspects of Intellectual Property Rights
o Plurilateral Trade Agreements
o Agreement on Agriculture
o Agreement on Sanitary and Phytosanitary measures
o Agreement on Textiles and Clothing
o Agreement on Technical Barriers to Trade
o Agreement on Trade-Related Investment Measures
o Agreement on Anti-Dumping
o Agreement on Customs Evaluation
o Agreement on Preshipment Inspection
o Agreement on Rules of Origin
o Agreement on Import Licensing Procedures
o Agreement on Subsidy and Countervailing Measures
 o Agreement on Safeguards
o General Agreement on Trade in Services
o Agreement on Trade-Related Aspects of Intellectual Property Rights, Including
Trade in Counterfeit Goods
Quick Facts on Marrakesh Agreement for UPSC Preparation

What is the Uruguay Round Agreement?

Uruguay Round of Trade Negotiations culminated into the Marrakesh Agreement of 1994 which
established WTO and set out many trade agreements on multiple subjects.

Why is GATT replaced by WTO?

Some of the reasons that led to subsuming of GATT under WTO are:

1. To bring enhanced negotiations and successful agreements on Agriculture and Textiles

which is said to fail under GATT
2. There were multiple legal problems under GATT, where countries were unconvinced to
open their markets for imports of goods. Example, China And Japan were not convinced
to open their markets for US goods.
3. GATT’s failure in negotiating trade in services and Intellectual Property Rights
4. The absence of a global mechanism for the dispute settlements among member nations

Does GATT still exist?

According to WTO, GATT still exists as its umbrella treaty for trade in goods, updated as a result
of the Uruguay Round negotiations.

What is the old name of WTO?

The World Trade Organisation was established by the Marrakesh Agreement (in line with the
Uruguay Round of Trade Negotiations. It subsumed GATT which is the General Agreement on
Tariffs and Trade.

What is the difference between GATT and WTO?

GATT was an international treaty that was signed in 1947. WTO is an international organisation
that was established following GATT’S Uruguay Round and subsumed GATT as its umbrella
treaty.

Also refer to class notes

WTO

Structure of the World Trade Organisation:

The WTO secretariat (numbering 625 of many nationalities) is
headed by Director General. However, the WTO is headed by the
Ministerial Conference who enjoys absolute authority over the
institution. It not only carries out functions of the WTO but also
takes appropriate measures to administer the new global trade
rules. In addition to these, the structure of the WTO consists of a
General Council to oversee the WTO agreement and ministerial
decisions on a regular basis.

The Council sits in its headquarters Geneva, Switzerland usually

once a month. Besides General Council, there is the Council for
Trade in Goods, the Council for Trade in Services, the Council for
Trade Related Intellectual Property Rights (TRIPS). These Councils
and their respective subsidiary bodies perform their respective
functions

Decision-making is made by consensus. If consensus is not reached

then majority voting plays the crucial rate. The significant task
facing the WTO is that of making the new multilateral trading
system truly global. Implementation of WTO agreements and
ministerial decisions are crucial to credibility of the multilateral
trading system and indispensable for expanding global trade,
creating additional jobs and improving the standard of living.

Functions of the World Trade Organisation:

At the heart of the Organisation are the WTO agreements,
negotiated and signed by the bulk of the world’s trading nations.
The goal is to help producers of goods and services, exporters, and
importers conduct their business. The WTO’s overriding objective is
to help trade flow smoothly, frets, fairly, and predictably.

With these objectives in mind, we can state the following

six specific functions:
i. It shall facilitate the implementation, administration and
operation of the WTO trade agreements, such as multilateral trade
agreements, plurilateral trade agreements.

ii. It shall provide forum for negotiations among its members

concerning their multilateral trade relations.

iii. It shall administer the ‘Understanding on Rules and Procedures’

so as to handle trade disputes.

iv. It shall monitor national trade policies.

v. It shall provide technical assistance and training for members of
the developing countries.

vi. It shall cooperate with various international organisations like

the IMF and the WB with the aim of achieving greater coherence in
global economic policy-making.

The WTO was founded on certain guiding principles—non-

discrimination, free trade, open, fair and undistorted competition,
etc. In addition, it has special concern for developing countries.

The three agreements establishing the WTO are:

(i) GATT,

(ii) GATS, and TRIPS

i. GATT:
GATT is related to increasing market access by reducing various
trade barriers operating in different countries. Dismantling of trade
restrictions was to be achieved by the reduction in tariff rates,
reductions in non-tariff support in agriculture, abolition of
voluntary export restraints or phasing out the Multi-fibre
Arrangement (MFA), cut in subsidies, etc.

To improve market access, industrialised countries will have to

reduce tariffs by 36 p.c. over six years and 24 p.c. for developing
nations over 10 years. World trade in textiles and clothing’s is
governed by the MFA which requires to be phased out within 10
years (1993-2002).

On 1 January 2003, textiles and clothing sector will stand integrated

into GATT, with the elimination of MFA restrictions. GATT aims at
elimination of farm support and export support in developed
countries. The agreement says that all countries will have to reduce
aggregate support levies if it is in excess of 5 p.c. of the total value of
agricultural produce, but for developing countries it is more than 10
p.c. The value and the volume of direct export subsidies will have to
be cut by 36 p.c. and 21 p.c., respectively, over six years for
developed countries.

ii. GATS:

Multilaterally agreed and legally enforceable rules and disciplines

relating to trade in services are covered by General Agreement on
Trade in Services. It envisages free trade in services, like banking,
insurance, hotels, construction, etc., so as to promote growth in the
developed countries by providing larger markets and in the
developing countries through transfer of technologies from the
developed countries.

As a result of this agreement, access of service personnel into

markets of member countries will henceforth be possible on a non-
discriminatory basis under transparent and rule-based system.
Under the agreement, service sector would be placed under most
favoured nation (MFN) obligations that prevents countries from
discriminating among different nations in respect of services.

iii. TRIPS:
The TRIPS Agreement covers seven specific areas, viz. copyrights,
trademarks, industrial designs, integrated circuits, geographical
indications, trade records and patent. Of these seven areas, the most
important as well as debatable aspect is the patents right. The basic
principle of the patent system is that an inventor, who makes a full
disclosure of what he has invented, is granted a statutory monopoly
to exploit his invention.

Patents should be available for any invention, whether products or

processes, in all fields of technology provided they are new, involve
an inventive step and capable of industrial application. Patents
should be available and patent rights enjoyable without
discrimination.

TRIPS also say that members must provide for the protection of
plant varieties either by patents or by an effective sui generis
system. The sui generis system commonly refers to the system of
Plant Breeders’ Rights (PBRs)—the exclusive right to produce seed
of the protected variety for the seed trade and control of its
marketing.

In addition, WTO members have set procedures for settling

disputes arising out of the violation of trade rules. Thus, there exists
a multilateral system of settlement of disputes. The WTO agreement
also allows governments to take appropriate action against
dumping.

Criticisms of the World Trade Organisation:

Free trade policy pursued by the WTO over the years has widened
the income gap between rich and poor nations, instead of
minimising the gap. Secondly, WTO functions in a discriminatory
way as it is more biased to the rich countries and MNCs. In fact, this
strategy of the WTO has not benefited the developing countries.

One can see that the market access of these countries in industry
has not improved, non- tariff barriers like anti-dumping measures
have increased and domestic support and export subsidies for
agricultural products in the rich countries still remain high. Thirdly,
it is criticised that labour relations and environmental issues have
been side-lined or ignored by the WTO. Finally, decision-making
process in the WTO is rather non-transparent, ineffective and non-
inclusive since “the vast majority of developing countries
have very little real say in the WTO system.”

Decision-making in WTO
 Organization chart
The WTO's top decision-making body is the Ministerial Conference. Below this is the General
Council and various other councils and committees.
Current WTO chairpersons 
  
 Ministerial conferences
Ministerial conferences usually take place every two years.
  
  General Council
The General Council is the top day-to-day decision-making body. It meets a number of times a
year in Geneva.

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Membership 
 Members and observers  
The WTO has over 160 members representing 98 per cent of world trade. Over 20 countries
are seeking to join the WTO.
 Accessions  
To join the WTO, a government has to bring its economic and trade policies in line with WTO
rules and negotiate its terms of entry with the WTO membership. How to accede to the terms
and conditions of WTO and being a part of it.