Unit – V General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade was a multilateral agreement regulating
international trade. According to its preamble, its purpose was the “substantial reduction of
tariffs and other trade barriers and elimination of preferences, on a reciprocal and mutually
advantageous basis”. It was negotiated during the UN Conference on Trade and Employment
and was the outcome of the failure of the negotiating governments to create the International
Trade Organisation. GATT was signed in 1947 and lasted until 1994, when it was replaced
by the World Trade Organisation in 1995.

The original GATT text (GATT 1948) is still in effect under the WTO framework
subject to the modifications of GATT 1994.

In 1993, the GATT was updated (GATT 1994) to include new obligations upon its
signatories. One of the most significant changes was the creation of the WTO. The 75
existing GATT members and the European communities became the founding members of
the WTO. The other 52 GATT members rejoined the WTO in the following two years. There
are a total of 157 member countries in the WTO as of 2012.

Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional
body. The WTO arrangements are generally a multilateral agreement settlement mechanism
of GATT.

• Outline of the GATT Agreement, 1947

To a certain extent, the GATT is not a single agreement but is a series of over one
hundred agreements, protocols, process-verbaux, etc. Some of these protocols are
amendments to the text of general articles of GATT, while many are corrections or revisions
of the tariff schedules. A few special “side agreements” have been completed in the context
of GATT, which fill out details of obligations on certain subjects, but these apply only to the
signatories of the side agreements.
The GATT agreement, including the remarkable detailed commitments on tariffs that
comprise the “Tariff Schedules” fills many volumes of treaty text. There are 38 Articles
containing a number of detailed rules and obligations designed generally to prevent nations
from pursuing “beggar-my-neighbour” trade policies which would be self-defeating if
emulated by other nations.
 The original text of GATT until the revision in 1954-55 is divided into three parts. A
new fourth chapter comprising 3 Articles was added to the General Agreement in February,
1965. Part – I includes Articles I and II, i.e., the most favoured nations clause and the tariff
schedules of the contracting parties.
Part III comprises the commercial policy regulations including, inter alia, the
provisions of freedom of transit, anti-dumping and countervailing duties, valuation,
quantitative restrictions, non-discrimination, subsidies, Governmental assistance to economic
development, emergency action, security exception, consultations and nullification and
impairment.
Part II includes, inter alia, the provisions on territorial applications, customs and
unions, and free trade areas, joint action by the contracting parties, modification of schedules,
amendment and withdrawal. Part IV includes the provisions of special and differential
treatment of developing countries.

• Brief overview of the General Clauses of GATT, 1947

The “Most-Favoured-Nation” clause in Article I makes a central feature of the GATT
obligation system, the non-discrimination principle, which had heretofore been contained in
all treaties. Under this clause, each member of GATT is obliged to treat other GATT
Members at least as well as it treats that country which receives its most favourable treatment
with regard to imports and exports.
The detailed commitments by each country to limit tariffs on particular items by the
amount negotiated and specified in its tariff schedule, are the central core of the GATT
system of international obligation.
The obligations relating to the tariff schedules are contained in Article II, which
makes the schedules an integral part of the GATT and its treaty commitments. Basically, for
each commodity listed on a country’s schedule, that country agrees to charge a tariff which
will not exceed an amount specified in that schedule, it can, if it wishes, charge a lower tariff,
however.
A third obligation of GATT is contained in Article III – the national treatment
obligation. Section 4 of this Article states, “The products of the territory of any contracting
party imported into the territory of any other contracting party shall be accorded treatment no
less favourable than that accorded to like products of national origin in respect of all laws,
regulations and requirements affecting their internal sale, offering for sale, purchase,
transportation, distribution or use…” The national treatment obligation specifies that imports
shall be treated no worse than domestically produced goods, under internal taxation or
regulation measures.
There are also non-discrimination type clauses in Articles IV and V. Article IV (6)
deals with cinema films and Article V deals with the transit of goods. The GATT 1947 in
Article VI allows a Government unilaterally to use countervailing duties to offset foreign
subsidies on goods.
In addition to the major obligations outlined above, the GATT contains a number of
obligations relating to the application of tariffs through customs procedure. These obligations
limit systems of valuation for customs purpose (Article VII), the type of fee and formalities
that can be utilised in the convention with importation or exportation (Article VIII), the types
of marks of origin that can be required (Article IX), and provide a requirement for publication
and fair administration of trade regulation (Article X). Quotas, in GATT, are prohibited by
Article XI, unless one of the detailed exceptions applies.
Important exceptions to GATT obligations are claimed in Articles XII to XIV relating
to trade policy in the event of a balance of payments crisis. Basically these Articles allow the
use of quotas (despite prohibition of Article XI) in such cases. Developments of recent years
suggest that these articles are out of date and based on bad policy.
Close relationship between the contracting parties to the GATT 1947 and
International Monetary Fund (IMF) and provisions of the GATT governing that relationship
in particular Article XV of the GATT can be witnessed from the GATT agreement.
Subsidies in GATT are regulated by Article XVI which, however, does not provide
much restraint on what a nation can do. After the 1955 Amendments, a GATT obligation
bans the use of export subsidies which cause goods to be sold abroad at a price less than they
sell in the domestic market, but this obligation applies only to industrialised Members of
GATT.
Article XVII of GATT contains some rather general and fairly less obligations
pertaining to State trading.
The GATT in its Article XVIII states that in order to raise the living standards of less
developed countries with low standard of living it may be necessary to take protective or
other measures effecting imports. They should enjoy additional facilities.
An important exception to the GATT is the escape clause of Article XIX providing
for the use of temporary restraints on imports in cases where imports are causing serious
injury to domestic industry.
 Some important general exceptions which allow freedom from GATT obligations for
purposes of implementing national health and safety regulations and national security are
incorporated in Articles XX and XXI. The ambiguity of these clauses also renders them
vulnerable to abuse.
The primary dispute-settlement mechanism is provided in Articles XXII and XXIII.
Article XXII provides general procedure for consultation, but Article XXIII provides a
procedure that can be invoked in different types of circumstances and could ultimately result
in suspension of certain GATT obligations towards an offering nation.
Customs unions and free trade areas are, under Article XXIV of GATT, allowed to
deviate from the MFN principle so as to give certain preferred status to the trade of members
of the customs union or free trade areas.
The most important exception of GATT is also its most general, namely, the waiver
authority of Article XXV. The contracting parties acting jointly can, by a specified vote,
waive any obligation of the GATT, although there are some serious legal and policy
problems in connection with waivers.
The Article XXXVI entitled “Principles and Objectives” states the need for reduced
barriers to developing country exports as the need for stable prices, noting that reciprocity in
tariff reduction could not be expected from these countries and that cooperation between
GATT and the developmental organisations should be encouraged.
The Article XXXVII entitled “Commitments” called for the reduction and elimination
of all barriers to developing country exports and established a consultation procedure upon
failure to implement these policies.
The last Article XXXVIII entitled “Joint Action” called for collaboration of the
member nations to implement the other two articles by action both within and without GATT.

GATT 1994
The GATT, 1994 shall consist of:
(a) The provisions in the GATT dated 30th October 1947 (excluding the Protocol of
Provisional application) as rectified, amended or modified by the terms of legal
instruments which have entered into force before the date of entry into force of the
WTO Agreement;
(b) the provisions of the legal instruments set forth below that have entered into force
under the GATT, 1947 before the date of entry into force of WTO Agreement:
(i) Protocols and certifications related to tariff concessions;
 (ii) Protocols of accession (excluding the provisions– a) concerning provisional
application and withdrawal of provisional application; and
b) providing that Part II of GATT 1947 shall be applied provisionally to the
full extent not inconsistent with legislation existing on the date of the
Protocol);
(iii) decisions on waivers granted under Article XXV of GATT, 1947 and still in
force on the date of entry into force of the WTO Agreement;
(iv) other decisions of the contracting parties to GATT, 1947;
(c) the Understandings set forth below:
(i) Understanding on the interpretation of Article II (b) of the GATT, 1994;
(ii) Understanding on the interpretation of the Article XVII of the GATT, 1994;
(iii) Understanding on Balance-of-payments provisions of the GATT, 1994;
(iv) Understanding on the interpretation of Article XXIV of the GATT, 1994;
(v) Understanding in respect of waivers of obligation under the GATT, 1994;
(vi) Understanding on the interpretation of Article XXVIII of the GATT, 1994;
and
(vii) The Marrakesh Protocol to GATT 1994 Members, having carried out
negotiations within the framework of GATT, 1947, pursuant to the Ministerial
Declaration on the Uruguay Round hereby agree as follows:
(1) The Schedule annexed to this Protocol relating to a Member on the day on which
the WTO Agreement enters into force for that Member. Any Schedule submitted
in accordance with the ministerial decision on measures in favour of least
developed countries shall be deemed to be annexed to this Protocol;
(2) The tariff reductions agreed upon by each Member shall be implemented in five
equal rate reductions, except as may be otherwise specified in a Member
Schedule;
(3) The implementation of the concessions and commitments contained in the
Schedules annexed to this Protocol shall, upon request, be subject to multilateral
examination by the Members;
(4) After the Schedule annexed to this Protocol relating to member has become a
Schedule to GATT, 1994 pursuant to the provisions of paragraph 1, such Member
shall be free at any time to withhold or to withdraw in whole or in part the
concession in such Schedule with respect to any product for which the principal
 supplier to any other Uruguay Round participant the Schedule of which has not
become A Schedule to GATT, 1994;
(5) The applicable date in respect of each product which is the subject of a concession
provided for in a Schedule of Concessions annexed to this Protocol shall be the
date of this Protocol (April 15, 1994);
(6) In case of a modification or withdrawal of concessions relating to non-tariff
barriers as contained in Part – III of the Schedule, the provisions of Article
XXVIII of GATT, 1994 and the “procedure for negotiations under Article
XXVIII” adopted on 10th November, 1980 shall apply. This would be without
prejudice to the rights and obligations of Members under GATT, 1994.
(7) In each case in which a Schedule annexure to this Protocol results for any product
in treatment less favourable than was provided for such product in the Schedule of
the GATT, 1947 prior to the entry into force of the WTO Agreement, the Member
to whom the Schedule relates shall be deemed to have taken appropriate action as
would have been otherwise necessary under the relevant provisions of Article
XXVIII of GATT, 1947 to 1994. The provisions of this paragraph shall apply to
Egypt, Peru, South Africa and Uruguay. (The agreed Schedule of participants will
be annexed to the Marrakesh Protocol in the treaty copy of the WTO Agreement.)

• General Elimination of Quantitative Restrictions

The GATT, 1947 mentions that:
No prohibition or restrictions other than duties, taxes or other charges, whether made
effective through quotas, import or export licenses or other measures, shall be instituted or
maintained by any contracting party on the importation of any product of the territory of any
other contracting party or on the exportation or sale for export of any product destined for the
territory of any other contracting party.
The main reason for this prohibition is that quantitative restrictions (QRs) can be
more trade restrictive than tariff measures. Tariffs per se do not prevent entry of products,
and those goods that are comparatively priced always have a chance to jump over high tariff
walls.
On the other hand, QRs in the form of quotas and licensing requirements that allow
only a few players or entities to import (“canalising”), effectively put a limit or ceiling in
imports, even if there is a domestic market for these products for reasons apart from price
such as technology, features, convenience, etc.
 GATT provides exceptions to this fundamental principle. Members are allowed to
impose QRs in a non-discriminatory manner for any of the following:

1) Imports
• To safeguard the balance of payments position
• As a safeguard measure when there is serious injury to domestic producers
• Restrictions on any agricultural or fisheries product, when there is a temporary
domestic surplus of the product or when there is over-dependence on an imported
product
• Protection of public morals
• To protect domestic industry at a developing stage (“Infant Industry Protection”)
• Security, arms and ammunition, nuclear material
• Health of human, animal and plant life
• Gold and Silver trade
• Monopolies enforcement
• Protection of patents, trademarks and copyrights
• For the application of standards or regulations for the classification, grading or
marketing of commodities in international trade
• Products made by prison labour
• Protection of national treasures
• Conservation of exhaustible natural resources
• Approved inter-governmental commodity agreements

2) Exports
• To prevent or relieve critical domestic shortages of foodstuffs
• For the application of standards or regulations for the classification, grading or
marketing of commodities in international trade

Quantitative restrictions can also be imposed subject to the authorisation of the other
Members as a retaliatory measure when the recommendations and rulings of a dispute
settlement panel are not implemented within the given reasonable period of time.
 The GATT requires that application of the QRs be made public with information
about the total quantity or value of the product permitted to be imported during a specified
future period and of any change in such quantity or value.
Moreover, any such restriction should not result in a change in the relative value of
imports to the total domestic production. That is, the QRs should continue to maintain the
ratio of imports to domestic production of the product concerned, as it existed during a
previous representative period. The representative period being a normal period that did not
warrant imposition of an import quota.
India began the process of removing import controls ever since the 1980s when a
fresh list of items were allowed to be imported under the Open General License (OGL) every
year.
This process that gathered momentum during the period 1991-96 witnessed QRs
being limited on as many as 6161 tariff lines by March 31, 1996. Since then, 1999-2000 saw
1905 tariff lines being removed from the QR regime while another phase of dismantling of
QRs on 714 tariff lines was announced on March 31, 2000. The Central government’s
notification of March 31, 2003, further removed QRs on import of an additional 69 items.