World Trade Organization

The World Trade Organization (WTO) is an international organization designed

to supervise and liberalize international trade. The WTO came into being on January 1,
1995, and is the successor to the General Agreement on Tariffs and Trade (GATT),
which was created in 1947, and continued to operate for almost five decades as a de
facto international organization.
The World Trade Organization deals with the rules of trade between nations at a
near-global level; it is responsible for negotiating and implementing new trade
agreements, and is in charge of policing member countries' adherence to all the WTO
agreements, signed by the bulk of the world's trading nations and ratified in their
parliaments. Most of the WTO's current work comes from the 1986-94 negotiations
called the Uruguay Round, and earlier negotiations under the GATT. The organization is
currently the host to new negotiations, under the Doha Development Agenda (DDA)
launched in 2001.
The World Trade Organization deals with regulation of trade between
participating countries; it provides a framework for negotiating and formalizing trade
agreements, and a dispute resolution process aimed at enforcing participants
adherence to WTO agreements which are signed by representatives of member
governments and ratified by their parliaments.

The WTO has 153 members, representing more than 95% of total world trade
and 30 observers, most seeking membership. The WTO is governed by a ministerial
conference, meeting every two years; a general council, which implements the
conference's policy decisions and is responsible for day-to-day administration; and a
director-general, who is appointed by the ministerial conference.

1 VIVEKANAD COLLEGE FOR BBA

 MISSION

The WTO's stated goal is to improve the welfare of the peoples of its member
countries, specifically by lowering trade barriers and providing a platform for negotiation
of trade.
Its main mission is "to ensure that trade flows as smoothly, predictably and freely
as possible".
This main mission is further specified in certain core functions serving and
safeguarding five fundamental principles, which are the foundation of the multilateral
trading system.

FUNCTIONS
Among the various functions of the WTO, these are regarded by analysts as the
most important:
• It oversees the implementation, administration and operation of the covered
agreements.
• It provides a forum for negotiations and for settling disputes.
• Additionally, it is the WTO's duty to review the national trade policies, and to
ensure the coherence and transparency of trade policies through surveillance in
global economic policy-making.
• Another priority of the WTO is the assistance of developing, least-developed and
low-income countries in transition to adjust to WTO rules and disciplines through
technical cooperation and training.
• The WTO is also a center of economic research and analysis: regular
assessments of the global trade picture in its annual publications and research
reports on specific topics are produced by the organization.

2 VIVEKANAD COLLEGE FOR BBA

 • Finally, the WTO cooperates closely with the two other components of the
Bretton Woods system, the IMF and the World Bank.

PRINCIPLES OF THE TRADING SYSTEM

The WTO establishes a framework for trade policies; it does not define or specify outcomes.
That is, it is concerned with setting the rules of the trade policy games. Five principles are of
particular importance in understanding both the pre-1994 GATT and the WTO:

• Nondiscrimination. It has two major components: the most favoured nation

(MFN) rule, and the national treatment policy. Both are embedded in the main
WTO rules on goods, services, and intellectual property, but their precise scope
and nature differ across these areas. The MFN rule requires that a WTO member
must apply the same conditions on all trade with other WTO members; i.e. a
WTO member has to grant the most favorable conditions under which it allows
trade in a certain product type to all other WTO members. "Grant someone a
special favour and you have to do the same for all other WTO members."
National treatment means that imported and locally-produced goods should be
treated equally (at least after the foreign goods have entered the market) and
was introduced to tackle non-tariff barriers to trade (e. g. technical standards,
security standards et al. discriminating against imported goods).
• Reciprocity. It reflects both a desire to limit the scope of free-riding that may
arise because of the MFN rule, and a desire to obtain better access to foreign
markets. A related point is that for a nation to negotiate, it is necessary that the
gain from doing so be greater than the gain available from unilateral
liberalization; reciprocal concessions intend to ensure that such gains will
materialize.

3 VIVEKANAD COLLEGE FOR BBA

• Binding and enforceable commitments. The tariff commitments made by WTO
members in a multilateral trade negotiation and on accession are enumerated in
a schedule (list) of concessions. These schedules establish "ceiling bindings": a
country can change its bindings, but only after negotiating with its trading
partners, which could mean compensating them for loss of trade. If satisfaction is
not obtained, the complaining country may invoke the WTO dispute settlement
procedures.

• Transparency. The WTO members are required to publish their trade

regulations, to maintain institutions allowing for the review of administrative
decisions affecting trade, to respond to requests for information by other
members, and to notify changes in trade policies to the WTO. These internal
transparency requirements are supplemented and facilitated by periodic country-
specific reports (trade policy reviews) through the Trade Policy Review
Mechanism (TPRM). The WTO system tries also to improve predictability and
stability, discouraging the use of quotas and other measures used to set limits on
quantities of imports.

• Safety valves. In specific circumstances, governments are able to restrict trade.

There are three types of provisions in this direction: articles allowing for the use
of trade measures to attain non economical objectives; articles aimed at ensuring
"fair competition"; and provisions permitting intervention in trade for economic
reasons.
Doha Development Round

4 VIVEKANAD COLLEGE FOR BBA

The Doha Development Round commenced at Doha, Qatar in November 2001 and is
still continuing. Its objective is to lower trade barriers around the world, permitting free
trade between countries of varying prosperity. As of 2007, talks have stalled over a
divide between the developed nations led by the European Union, the United States
and Japan and the major developing countries (represented by the G20 developing
nations), led and represented mainly by India, Brazil, China and South Africa.
The Doha Round began with a ministerial-level meeting in Doha, Qatar in 2001.
Subsequent ministerial meetings took place in Cancun, Mexico (2003), and Hong Kong,
China (2005). Related negotiations took place in Geneva, Switzerland; Paris, France;
and again in Geneva.

Major Agreements under GATT and WTO

There have been various agreements negotiated across GATT and WTO set up
multilaterally. Among them the major ones are:

 Agreement on Agriculture
 Textiles and Clothing
 Trade Related Investment Measures (TRIMS)
 Anti-Dumping Measures
 Subsidies and Counter-Measures
 General Agreement on Trade in Services (GATS)
 Trade Related Aspects of Intellectual Property Rights (TRIPS)
 Sanitary and Phyto-Sanitary(SPS) Agreement
 Agreement on Technical Barriers to Trade (TBT)

Trade Related Aspects of Intellectual Property Rights (TRIPS)

5 VIVEKANAD COLLEGE FOR BBA

In law, intellectual property (IP) is an umbrella term for various legal entitlements which
attach to certain names, written and recorded media, and inventions. The holders of
these legal entitlements may exercise various exclusive rights in relation to the subject
matter of the IP. The adjective "intellectual" reflects the fact that this term concerns a
process of the mind.
TRIPS contains requirements that nations' laws must meet for: copyright rights,
including the rights of performers, producers of sound recordings and broadcasting
organizations; geographical indications, including appellations of origin; industrial
designs; integrated circuit layout-designs; patents; monopolies for the developers of
new plant varieties; trademarks; trade dress; and undisclosed or confidential
information.
Many of the TRIPS provisions on copyright were imported from the Berne Convention
for the Protection of Literary and Artistic Works and many of its trademark and patent
provisions were imported from the Paris Convention for the Protection of Industrial
Property
A TRIP also specifies enforcement procedures, remedies, and dispute resolution
procedures.
The TRIPS agreement introduced intellectual property law into the international trading
system for the first time, and remains the most comprehensive international agreement
on intellectual property to date.

6 VIVEKANAD COLLEGE FOR BBA

Controversy

Since TRIPS came into force it has received a growing level of criticism from developing
countries, academics, and Non-governmental organizations. Some of this criticism is
against the WTO as a whole, but many advocates of trade liberalization also regard
TRIPS as bad policy. TRIPS' wealth redistribution effects (moving money from people in
developing countries to copyright and patent owners in developed countries) and its
imposition of artificial scarcity on the citizens of countries that would otherwise have had
weaker intellectual property laws are a common basis for such criticisms.

Access to essential medicines

The most visible conflict has been over AIDS drugs in Africa. Despite the role which
patents have played in maintaining higher drug costs for public health programs across
Africa, this controversy has not led to a revision of TRIPs. Instead, an interpretive
statement, the Doha Declaration, was issued in November 2001, which indicated that
TRIPs should not prevent states from dealing with public health crises. After Doha,
Parma, the United States and to a lesser extent other developed nations began working
to minimize the effect of the declaration.
A 2003 agreement loosened the domestic market requirement, and allows developing
countries to export to other countries where there is a national health problem as long
as drugs exported are not part of a commercial or industrial policy. Drugs exported
under such a regime may be packaged or colored differently to prevent them from
prejudicing markets in the developed world.

7 VIVEKANAD COLLEGE FOR BBA

Another controversy has been over the TRIPS Article 27 requirements for patentability
"in all fields of technology", and whether or not this necessitates the granting of software
and business method patents.

General Agreement on Trade in Services (GATS)

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade
Organization (WTO) that entered into force in January 1995 as a result of the Uruguay
Round negotiations. The treaty was created to extend the multilateral trading system to
services, in the same way the General Agreement on Tariffs and Trade (GATT)
provides such a system for merchandise trade.

All members of the WTO are signatories to the GATS. The basic WTO principle of most
favoured nation (MFN) applies to GATS as well.

Four Modes of Supply

The agreement covers all internationally traded services. It also defines four modes of
trading services:
1. Services supplied from one country to another(e.g. international telephone calls),
officially known as ‘Cross Border Supply’
2. Consumers or firms making use of a service in another country (e.g. Tourism),
officially ‘Consumption Abroad’
3. A foreign company setting up subsidiaries or branches to provide services in
another country (e.g. foreign banks setting up operations in a country), officially,
‘Commercial Presence’

8 VIVEKANAD COLLEGE FOR BBA

 4. Individuals traveling from their own country to supply services in another (e.g.
fashion models or consultants), officially ‘Presence of Natural Persons’

Criticisms

The GATS document has been criticized for allegedly replacing the authority of national
legislature, with the authority of the GATS Disputes Panel. Such allegations argue that
GATS intends to override all "burdensome rules". The WTO and member governments
disagree with such allegations. GATS hearings are closed and held in secret.
While national governments have an option to exclude any specific service from
liberalisation under the GATS, they are also under international pressure to refrain from
so excluding any service "provided on a commercial basis". However, important public
utilities including water and electricity supply most commonly involve purchase by
consumers and are thus demonstrably "provided on a commercial basis". The same
may be said of many health and education services which are sought to be 'exported' by
some countries as profitable industries.
The most notorious privatisation of a public utility occurred in January 2000 when the
government of Bolivia gave control over the water supply of the city of Cochabamba to a
Bechtel Corporation subsidiary, a deal which resulted in a steep price increase,
widespread public protest and the shooting of protesters by troops. When the
corporation was forced to give up, it filed a multimillion-dollar legal demand in a World
Bank tribunal against the government for its loss of potential profits. After persistent
international criticism over several years,

9 VIVEKANAD COLLEGE FOR BBA

 STRUCTRE OF WTO

10 VIVEKANAD COLLEGE FOR BBA

FORMAL STRUCTURE
According to WTO rules, all WTO members may participate in all councils, committees,
etc., except Appellate Body, Dispute Settlement panels, and plurilateral committees.

Highest level: Ministerial Conference

The topmost decision-making body of the WTO is the Ministerial Conference, which has
to meet at least every two years. It brings together all members of the WTO, all of which
are countries or separate customs territories. The Ministerial Conference can make
decisions on all matters under any of the multilateral trade agreements.

Second level: General Council

The daily work of the ministerial conference is handled by three groups: the General
Council, the Dispute Settlement Body, and the Trade Policy Review Body. All three
consist of the same membership - representatives of all WTO members - but each
meets under different rules.
1. The General Council, the WTO’s highest-level decision-making body in Geneva,
meets regularly to carry out the functions of the WTO. It has representatives (usually
ambassadors or equivalent) from all member governments and has the authority to act
on behalf of the ministerial conference which only meets about every two years. The
council acts on behalf on the Ministerial Council on the entire WTO affairs. The current
chairman is Amb. Muhamad Noor Yacob (Malaysia).
2. The Dispute Settlement Body is made up of all member governments, usually
represented by ambassadors or equivalent. The current chairperson is H.E. Mr. Mr.
Bruce Gosper (Australia).

11 VIVEKANAD COLLEGE FOR BBA

3. The WTO General Council meets as the Trade Policy Review Body (TPRB) to
undertake trade policy reviews of Members under the TRPM. The TPRB is thus open to
all WTO Members. The current chairperson is H.E. Ms. Claudia Uribe (Colombia).

Third level: Councils for Trade

The Councils for Trade work under the General Council. There are three councils -
Council for Trade in Goods, Council for Trade-Related Aspects of Intellectual Property
Rights, and Council for Trade in Services - each council works in different fields. Apart
from these three councils, six other bodies report to the General Council reporting on
issues such as trade and development, the environment, regional trading arrangements
and administrative issues.
1. Council for Trade in Goods- The workings of the General Agreement on Tariffs and
Trade (GATT) which covers international trade in goods, are the responsibility of the
Council for Trade in Goods. It is made up of representatives from all WTO member
countries. The current chairperson is Amb. Yonov Frederick Agah (Nigeria).
2. Council for Trade-Related Aspects of Intellectual Property Rights- Information
on intellectual property in the WTO, news and official records of the activities of the
TRIPS Council, and details of the WTO’s work with other international organizations in
the field.
3. Council for Trade in Services- The Council for Trade in Services operates under
the guidance of the General Council and is responsible for overseeing the functioning of
the General Agreement on Trade in Services (GATS). It’s open to all WTO members,
and can create subsidiary bodies as required.

12 VIVEKANAD COLLEGE FOR BBA

Fourth level: Subsidiary Bodies
There are subsidiary bodies under each of the three councils.
1. The Goods Council- subsidiary under the Council for Trade in Goods. It has 11
committees consisting of all member countries, dealing with specific subjects such as
agriculture, market access, subsidies, anti-dumping measures and so on. Committees
include the following:
• Information Technology Agreement (ITA) Committee
• State Trading Enterprises
• Textiles Monitoring Body - Consists of a chairman and 10 members acting under
it.
• Groups dealing with notifications - process by which governments inform the
WTO about new policies and measures in their countries.

2. The Services Council- subsidiary under the Council for Trade in Services which
deals with financial services, domestic regulations and other specific commitments.

3. Dispute Settlement panels and Appellate Body- subsidiary under the Dispute
Settlement Body to resolve disputes and the Appellate Body to deal with appeals.

The WTO operates on a one country, one vote system, but actual votes have never
been taken. Decision making is generally by consensus, and relative market size is the
primary source of bargaining power. The advantage of consensus decision-making is
that it encourages efforts to find the most widely acceptable decision. Main
disadvantages include large time requirements and many rounds of negotiation to
develop a consensus decision, and the tendency for final agreements to use ambiguous
language on contentious points that makes future interpretation of treaties difficult.

13 VIVEKANAD COLLEGE FOR BBA

DISPUTE SETTLEMENT BODY
Dispute settlement is regarded by the WTO as the central pillar of the multilateral
trading system, and as a "unique contribution to the stability of the global economy".
WTO members have agreed that, if they believe fellow-members are violating trade
rules, they will use the multilateral system of settling disputes instead of taking action
unilaterally.
The operation of the WTO dispute settlement process involves
The DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent
experts and several specialized institutions.
The General Council discharges its responsibilities under the DSU through the Dispute
Settlement Body (DSB). Like the General Council, the DSB is composed of
representatives of all WTO Members. The DSB is responsible for administering the
DSU, i.e. for overseeing the entire dispute settlement process. If a member state
considers that a measure adopted by another member state has deprived it of a benefit
accruing to it under one of the covered agreements, it may call for consultations with the
other member state. If consultations fail to resolve the dispute within 60 days after
receipt of the request for consultations, the complainant state may request the
establishment of a panel. It is not possible for the respondent state to prevent or delay
the establishment of a panel, unless the DSB by consensus decides otherwise. The
panel, normally consisting of three members appointed ad hoc by the Secretariat, sits to
receive written and oral submissions of the parties, on the basis of which it is expected
to make findings and conclusions for presentation to the DSB. The proceedings are
confidential, and even when private parties are directly concerned, they are not
permitted to attend or make submissions separate from those of the state in question.
The final version of the panel's report is distributed first to the parties, and two weeks
later it is circulated to all the members of the WTO. The report must be adopted at a
meeting of the DSB within 60 days of its circulation, unless the DSB by consensus

14 VIVEKANAD COLLEGE FOR BBA

decides not to adopt the report or a party to the dispute gives notice of its intention to
appeal. A party may appeal a panel report to a standing Apellate Body, but only on
issues of law, and legal interpretations developed by the panel. Members may express
their views on the report of the Appellate Body, but they cannot derail it: an Apellate
Body report shall be adopted by the DSB and unconditionally accepted by the parties,
unless the DSB decides by consensus within thirty days of its circulation not to adopt
the report.

ACCESSION AND MEMBERSHIP

The process of becoming a WTO member is unique to each applicant country, and the
terms of accession are dependent upon the country's stage of economic development
and current trade regime. The process takes about five years, on average, but it can
last more if the country is less than fully committed to the process or if political issues
interfere. As is typical of WTO procedures, an offer of accession is only given once
consensus is reached among interested parties.

15 VIVEKANAD COLLEGE FOR BBA

 Criticisms of WTO

The stated aim of the World Trade Organization (WTO) is to promote free trade and
stimulate economic growth. Some people argue that free trade leads to a divergence
instead of convergence of income levels within rich and poor countries.[1] WTO treaties
have also been accused of a partial and unfair bias toward multinational corporations
and wealthy nations.

Developing countries
Critics contend that small countries in the WTO wield little influence, and despite the
WTO aim of helping the developing countries, the influential nations in the WTO focus
on their own commercial interests. Some examples of this bias are:
* Rich countries are able to maintain high import duties and quotas in certain
products, blocking imports from developing countries (e.g. clothing);
* The increase in non-tariff barriers such as anti-dumping measures allowed
against developing countries;
* The maintenance of high protection of agriculture in developed countries while
developing ones are pressed to open their markets;
* Many developing countries do not have the capacity to follow the negotiations
and participate actively in the Uruguay Round; and
* The TRIPs agreement which limits developing countries from utilizing some
technology that originates from abroad in their local systems (including medicines
and agricultural products).

Labor and environment

Other critics claim that the issues of labor and environment are steadfastly ignored.
Steve Charnovitz, former Director of the Global Environment and Trade Study (GETS),

16 VIVEKANAD COLLEGE FOR BBA

believes that the WTO "should begin to address the link between trade and labor and
environmental concerns." He also argues that "in the absence of proper environmental
regulation and resource management, increased trade might cause so much adverse
damage that the gains from trade would be less than the environmental costs." Further,
labor unions condemn the labor rights record of developing countries, arguing that to
the extent the WTO succeeds at promoting globalization, then in equal measure do the
environment and labor rights suffer.

Decision making
Other critics have characterized the decision making in the WTO as complicated,
ineffective, unrepresentative and non-inclusive; more active participants, representing
more diverse interests and objectives, have complicated WTO decision-making, and the
process of "consensus-building" has broken down. They argue that the GATT decision
making worked in the past because there were fewer countries actively engaged and
there was no compulsion for all countries to adhere to the results. They have thus
proposed the establishment of a small, informal steering committee (a "consultative
board") that can be delegated responsibility for developing consensus on trade issues
among the member countries.
The Third World Network has called the WTO "the most non-transparent of international
organizations", because "the vast majority of developing countries have very little real
say in the WTO system", and proposes the following:
1. The processes of consultations, discussion, negotiations and decision-making in the
WTO have to be made truly transparent, open, participatory and democratic.
2. Any proposals for changes to the rules, or new agreements, or new commitments on
countries should be made known in their draft form to the public at least six months
before decisions are taken.

17 VIVEKANAD COLLEGE FOR BBA

3. The discussions and negotiations that are being planned and are taking place at the
WTO must be made known, and all Members must be allowed to be present and
participate. The practice of small informal groups making decisions on behalf of all
Members must be stopped.
4. Parliaments and Parliamentarians should be kept constantly informed of proposals
and developments at the WTO, and they should have the right to make policy
choices regarding proposals arising in the WTO that have an effect on national
policies and practices.
Civil society should be given genuine opportunities to know what are the issues being
discussed and the status of the discussions in the various committees and on the
various issues. Civil society groups and institutions must be given genuine opportunities
to express their views and to influence the outcome of policies and decisions.

18 VIVEKANAD COLLEGE FOR BBA

The case for open trade
World trade and production have accelerated

19 VIVEKANAD COLLEGE FOR BBA

 Both trade and GDP fell in the late 1920s, before bottoming out in 1932. After
World War II, both have risen exponentially, most of the time with trade outpacing GDP.
(1950 = 100. Trade and GDP: log scale)

The economic case for an open trading system based on multilaterally agreed
rules is simple enough and rests largely on commercial common sense. But it is also
supported by evidence: the experience of world trade and economic growth since
the Second World War. Tariffs on industrial products have fallen steeply and now
average less than 5% in industrial countries. During the first 25 years after the war,
world economic growth averaged about 5% per year, a high rate that was partly the
result of lower trade barriers. World trade grew even faster, averaging about 8%
during the period.
The data show a definite statistical link between freer trade and economic
growth. Economic theory points to strong reasons for the link. All countries, including
the poorest, have assets — human, industrial, natural, financial — which they can
employ to produce goods and services for their domestic markets or to compete
overseas. Economics tells us that we can benefit when these goods and services
are traded. Simply put, the principle of “comparative advantage” says that countries
prosper first by taking advantage of their assets in order to concentrate on what they
can produce best, and then by trading these products for products that other
countries produce best.
In other words, liberal trade policies — policies that allow the unrestricted flow of
goods and services — sharpen competition, motivate innovation and breed success.
They multiply the rewards that result from producing the best products, with the best
design, at the best price.
But success in trade is not static. The ability to compete well in particular
products can shift from company to company when the market changes or new

20 VIVEKANAD COLLEGE FOR BBA

technologies make cheaper and better products possible. Producers are encouraged
to adapt gradually and in a relatively painless way. They can focus on new products,
find a new “niche” in their current area or expand into new areas.
Experience shows that competitiveness can also shift between whole countries.
A country that may have enjoyed an advantage because of lower labour costs or
because it had good supplies of some natural resources, could also become
uncompetitive in some goods or services as its economy develops. However, with
the stimulus of an open economy, the country can move on to become competitive
in some other goods or services. This is normally a gradual process.
Nevertheless, the temptation to ward off the challenge of competitive imports is
always present. And richer governments are more likely to yield to the siren call of
protectionism, for short term political gain — through subsidies, complicated red
tape, and hiding behind legitimate policy objectives such as environmental
preservation or consumer protection as an excuse to protect producers.
Protection ultimately leads to bloated, inefficient producers supplying consumers
with outdated, unattractive products. In the end, factories close and jobs are lost
despite the protection and subsidies. If other governments around the world pursue
the same policies, markets contract and world economic activity is reduced. One of
the objectives that governments bring to WTO negotiations is to prevent such a self-
defeating and destructive drift into protectionism.

21 VIVEKANAD COLLEGE FOR BBA

 The GATT years: from Havana to
Marrakesh
The WTO’s creation on 1 January 1995 marked the biggest reform of
international trade since after the Second World War. It also brought to reality — in
an updated form — the failed attempt in 1948 to create an International Trade
Organization. Much of the history of those 47 years was written in Geneva. But it
also traces a journey that spanned the continents, from that hesitant start in 1948 in
Havana (Cuba), via Annecy (France), Torquay (UK), Tokyo (Japan), Punta del Este
(Uruguay), Montreal (Canada), Brussels (Belgium) and finally to Marrakesh
(Morocco) in 1994. During that period, the trading system came under GATT,
salvaged from the aborted attempt to create the ITO. GATT helped establish a
strong and prosperous multilateral trading system that became more and more
liberal through rounds of trade negotiations. But by the 1980s the system needed a
thorough overhaul. This led to the Uruguay Round, and ultimately to the WTO.

22 VIVEKANAD COLLEGE FOR BBA

 Year Place/name Subjects covered Countrie
s

1947 Geneva Tariffs 23

1949 Annecy Tariffs 13

1951 Torquay Tariffs 38

1956 Geneva Tariffs 26

1960-1961 Geneva (Dillon Round) Tariffs 26

1964-1967 Geneva (Kennedy Round) Tariffs and anti-dumping 62

measures

1973-1979 Geneva (Tokyo Round) Tariffs, non-tariff measures, 102

“framework” agreements
1986-1994 Geneva (Uruguay Round) Tariffs, non-tariff measures, rules, 123
services, intellectual property,
dispute settlement, textiles,
agriculture, creation of WTO, etc

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

23 VIVEKANAD COLLEGE FOR BBA

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.
Meanwhile, 15 countries had begun talks in December 1945 to reduce and bind
customs tariffs. With the Second World War only recently ended, they wanted to give
an early boost to trade liberalization, and to begin to correct the legacy of
protectionist measures which remained in place from the early 1930s.
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.
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

24 VIVEKANAD COLLEGE FOR BBA

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.

 Did GATT succeed?

GATT was provisional with a limited field of action, but its success over 47 years
in promoting and securing the liberalization of much of world trade is incontestable.
Continual reductions in tariffs alone helped spur very high rates of world trade
growth during the 1950s and 1960s — around 8% a year on average. And the
momentum of trade liberalization helped ensure that trade growth consistently out-
paced production growth throughout the GATT era, a measure of countries’
increasing ability to trade with each other and to reap the benefits of trade. The rush
of new members during the Uruguay Round demonstrated that the multilateral

25 VIVEKANAD COLLEGE FOR BBA

trading system was recognized as an anchor for development and an instrument of
economic and trade reform.
But all was not well. As time passed new problems arose. The Tokyo Round in
the 1970s was an attempt to tackle some of these but its achievements were limited.
This 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 foreign competition. High rates
of unemployment and constant factory closures led governments in Western 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 GATT’s credibility and effectiveness.
The problem was not just a deteriorating trade policy environment. By the
early1980s the General Agreement was clearly 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, trade in services — not covered by GATT rules — was of
major interest to more and more countries, and international investment had
expanded. The expansion of services trade was also closely tied to further increases
in world merchandise trade. In other respects, GATT had been found wanting. For
instance, in agriculture, loopholes in the multilateral system were heavily exploited,
and efforts at liberalizing agricultural trade met with little success. In the textiles and
clothing sector, an exception to GATT’s normal disciplines was negotiated in the
1960s and early 1970s, leading to the Multifibre Arrangement. Even GATT’s
institutional structure and its dispute settlement system were causing concern.

26 VIVEKANAD COLLEGE FOR BBA

 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, the Marrakesh Declaration, and the creation of the WTO.

27 VIVEKANAD COLLEGE FOR BBA