The General Agreement on Trade and Tariffs

1. The General Agreement on Trade and Tariffs World Trade

2. The WTO's predecessor, the GATT, was established on a provisional basis after the Second World War in the wake of other new multilateral institutions dedicated to international economic cooperation - notably the "Bretton Woods" institutions now known as the World Bank and the International Monetary Fund.

3. The original 23 GATT countries were among over 50 which agreed a draft Charter for an International Trade Organization (ITO) - a new specialized agency of theUnited Nations. • The Charter was intended to provide not only world trade disciplines but also contained rules relating to employment, commodity agreements,restrictive business practices, international investment and services.

4. In an effort to give an early boost to trade liberalization after the Second World War - and to begin to correct the large overhang of protectionist measures which remained in place from the early 1930s – • Tariff negotiations were opened among the 23 founding GATT "contracting parties" in 1946. • This first round of negotiations resulted in 45,000 tariff concessions affecting $10 billion - or about one-fifth - of world trade.

5. The tariff concessions and rules together became known as the General Agreement on Tariffs and Trade and entered into force in January 1948. • It was also agreed that the value of these concessions should be protected by early - and largely "provisional" - acceptance of some of the trade rules in the draft ITO Charter.

6. Although the ITO Charter was finally agreed at a UN Conference on Trade and Employment in Havana Cuba in March 1948 ratification in national legislatures proved impossible in some cases. • When the United States' government announced, in 1950, that it would not seek Congressional ratification of the Havana Charter, the ITO was effectively dead.

7. Despite its provisional nature, the GATT remained the only multilateral instrument governing international trade from 1948 until the establishment of the WTO.

8. Although, in its 47 years, the basic legal text of the GATT remained much as it was in 1948, there were additions in the form of "plurilateral" - voluntary membership agreements and continual efforts to reduce tariffs. • Much of this was achieved through a series of "trade rounds".

9. The biggest leaps forward in international trade liberalization have come through multilateral trade negotiations, or "trade rounds", under the auspices of GATT – the Uruguay Round was the latest and most extensive.

10. Although often lengthy, trade rounds offer a package approach to trade negotiations; an approach with a number of advantages over issue-by-issue negotiations. • For a start, a trade round allows participants to seek and secure advantages across a wide range of issues. • Second, concessions which are necessary but would otherwise be difficult to defend in domestic political terms, can be made more easily in the context of a package which also contains politically and economically attractive benefits.

11. Third, developing countries and other less powerful participants have a greater chance of influencing the multilateral system in the context of around than if bilateral relationships between major trading nations are allowed to dominate. • Finally, overall reform in politically-sensitive sectors of world trade can be more feasible in the context of a global package - reform of agricultural trade was a good example in the Uruguay Round.

12. Most of GATT's early trade rounds were devoted to continuing the process of reducing tariffs. The results of the Kennedy Round in the mid-sixties, however, included a new GATT Anti-Dumping Agreement. • The Tokyo Round during the seventies was a more sweeping attempt to extend and improve the system.

13. Conducted between 1973 and 1979 and with 102 participating countries, the Tokyo Round continued GATT's efforts to progressively reduce tariffs. • The results included an average one-third cut in customs duties in the world's nine major industrial markets, bringing the average tariff on manufactured products down to 4.7 percent compared with about 40 per cent at the time of GATT's creation. • The tariff reductions, phased in over a period of eight years, involved an element of harmonization, bringing the highest tariffs down proportionately more than the lowest.

14. Elsewhere, 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 anew 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 ascribed to these agreements and arrangements which, as a consequence, were often referred to as "codes". They include the following agreements:

15. They include the following agreements: • Subsidies and countervailing measures - interpreting Articles VI, XVI and XXIII of the General Agreement • -Technical barriers to trade - sometimes called the Standards Code • -Import licensing procedures • -Government procurement • -Customs valuation - interpreting Article VII • -Anti-dumping- interpreting Article VI and replacing the Kennedy Round Anti-Dumping Code • -Bovine Meat Arrangement • -International Dairy Arrangement • -Trade in Civil Aircraft

16. Several of the above Codes were amended and extended in the Uruguay Round. • Those on subsidies and countervailing measures, technical barriers to trade, import licensing, customs valuation and anti-dumping, are now multilateral commitments within the WTO Agreement -in other words, all WTO members are committed to them - while those on government procurement, bovine meat, dairy products and civil aircraft remain "plurilateral" agreements.

17. Given its provisional nature and limited field of action, the success of GATT in promoting and securing the liberalization of much of world trade over 47 years is incontestable. • Continual reductions in tariffs alone helped spur very high rates of world trade growth - around 8 per cent a year on average - during the 1950s and 1960s. • And the momentum of trade liberalization helped ensure that trade growth consistently out-paced production growth throughout the GATT era. • The rush of new members during the Uruguay Round demonstrated that the multilateral trading system, as then represented by GATT, was recognized as an anchor for development and an instrument of economic and trade reform.

18. The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of difficult times to come. • GATT's success in reducing tariffs to such a low level, combined with a series of economic recessions in the 1970s and early 1980s, drove governments to devise other forms of protection for sectors facing increased overseas competition. • High rates of unemployment and constant factory closures led governments in Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade. • Both these changes undermined the credibility and effectiveness of GATT.

19. Apart from the deterioration in the trade policy environment, it also became apparent by the early 1980s that the General Agreement was no longer as relevant to the realities of world trade as it had been in the 1940s. • For a start, world trade had become far more complex and important than 40 years before: • the globalization of the world economy was underway, international investment was exploding and trade in services - not covered by the rules of GATT - was of major interest to more and more countries and, at the same time, closely tied to further increases in world merchandise trade.

20. In other respects, the GATT had been found wanting: • for instance, with respect to agriculture where loopholes in the multilateral system were heavily exploited - and efforts at liberalizing agricultural trade met with little success - and in the textiles and clothing sector where an exception to the normal disciplines of GATT was negotiated in the form of the Multifibre Arrangement. • Even the institutional structure of GATT and its dispute settlement system were giving cause for concern.

21. Together, these and other factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. • That effort resulted in the Uruguay Round.

22. The seeds of the Uruguay Round were sown in November 1982 at a Ministerial Meeting of GATT members in Geneva. • Although Ministers intended to launch a major new negotiation, the meeting stalled on the issue of agriculture and was widely regarded as a failure. • In fact, the work program that Ministers agreed formed the basis for what was to become the Uruguay Round negotiating agenda.

23. Nevertheless, it took four more years of exploring and clarifying issues and painstaking consensus-building, before Ministers met again in September 1986, in Punta del Este, Uruguay, to agree to launch the Uruguay Round. • They were able to accept a negotiating agenda which covered virtually every outstanding trade policy issue including the extension of the trading system into several new areas, notably trade in services and intellectual property. • It was the biggest negotiating mandate on trade ever agreed and Ministers gave themselves four years to complete it.

24. By 1988, the negotiations had reached the stage of a "Mid-term Review". • This took the form of a Ministerial Meeting in Montreal, Canada, and led to the elaboration of the negotiating mandate for the second stage of the Round. • Ministers agreed a package of early results which included some concessions on market access for tropical products - aimed to assist developing countries - as well as a streamlined dispute settlement system and the Trade Policy Review Mechanism which provided for the first comprehensive, systematic and regular reviews of national trade policies and practices of GATT members.

25. At the Ministerial meeting in Brussels, in December 1990, disagreement on the nature of commitments to future agricultural trade reform led to a decision to extend the round. • By December 1991, a comprehensive draft text of the "Final Act", containing legal texts fulfilling every part of the Punta del Este mandate, with the exception of market access results, was on the table in Geneva. • For the following two years, the negotiations lurched continuously from impending failure to predictions of imminent success.

26. Several deadlines came and went; farm trade was joined by services, market access, anti-dumping rules and the proposed creation of a new institution, as the major points of conflict; and differences between the United States and European Communities became central to hopes for a final, successful conclusion. • It took until 15 December 1993 for every issue to be finally resolved and for negotiations on market access for goods and services to be concluded. • On 15 April 1994, the deal was signed by Ministers from most of the 125 participating governments at a meeting in Marrakesh, Morocco.

27. How is the WTO different from GATT? • The World Trade Organization is not a simple extension of GATT; on the contrary, it completely replaces its predecessor and has a very different character. Among the principal differences are the following: • - The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s. The WTO is a permanent institution with its own secretariat. • - The GATT was applied on a "provisional basis" even if, after more than forty years, governments chose to treat it as a permanent commitment. The WTO commitments are full and permanent. • - The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers trade in services and trade-related aspects of intellectual property.

28. - While GATT was a multilateral instrument, by the 1980s many new agreements had been added of a plurilateral, and therefore selective, nature. • The agreements which constitute the WTO are almost all multilateral and, thus, involve commitments for the entire membership. • - The WTO dispute settlement system is faster, more automatic, and thus much less susceptible to blockages, than the old GATT system. The implementation of WTO dispute findings will also be more easily assured. • The "GATT 1947" will continue to exist until the end of 1995, thereby allowing all GATT member countries to accede to the WTO and permitting an overlap of activity in areas like dispute settlement. • Moreover, GATT lives on as "GATT 1994", the amended and up-dated version of GATT 1947, which is an integral part of the WTO Agreement and which continues to provide the key disciplines affecting international trade in goods.

29. Problems with Policies

30. There are two important consequences of globalization. First, it extends the third world model to industrial countries. • In the third world, there’s a two tiered society — a sector of extreme wealth and privilege, and a sector of huge misery and despair among people. • That division is deepened by the policies dictated by the West. • It imposes a neoliberal “free market” system that directs resources to the wealthy and to foreign investors, with the idea that something will trickle down.

31. The second consequence, which is also important, has to do with governing structures. • Throughout history, the structures of government have tended to coalesce around other forms of power — in modern times, primarily around economic power. • So, when you have national economies, you get national states. • We now have an international economy and we’re moving towards an international state.

32. Globalization of the economy is exporting jobs to high repression, low wage areas — which undercuts the opportunities for productive labor at home. • It’s a way of increasing corporate profits, of course. And it’s much easier to do with a free flow of capital • To quote the business press, we’re creating “a new imperial age” with a “de facto world government.” • It has its own institutions —like the International Monetary Fund (IMF) and the World Bank, trading structures like NAFTA and GATT (the North American Free Trade Agreement and the General Agreement on Tariffs and Trade), executive meetings like the G 7 (the seven richest industrial countries ; the US, Canada, Japan, Germany, Britain, France, and Italy — who meet regularly to discuss economic policy) and the European Community bureaucracy.

33. The structure of decision making answers basically to the transnational corporations, international banks, etc. • It’s an effective blow against democracy. • All these structures raise decision making to the executive level, leaving what’s called a “democratic deficit” — parliaments and populations with less influence. • Not only that, but the general population doesn’t know what’s happening, and it doesn’t even know that it doesn’t know. • One result is a kind of alienation from institutions. People feel that nothing works for them.