LESSON NO.

04

Lesson No.

The General Agreement on

Tariffs and Trade (GATT)

International Economics: Theory and Policy

by Flt Lt Iftikhar Ahmed

The General Agreement on

Tariffs and Trade (GATT)

LEARNING OBJECTIVES
1. Learn the basic principles underpinning the
GATT.
2. Identify the special provisions and allowable
exceptions to the basic principles of the GATT.

International Trade

By :

Flt Lt Iftikhar Ahmed

Tariffs

GATT was meant to be just one part of a

much broader agreement to establish an
International Trade Organization (ITO)
The ITO was conceived during the Bretton
Woods conference New Hampshire in 1944
Complementary to the International Monetary
Fund (IMF) and the World Bank
The ITO never came into existence

International Trade

By :

Flt Lt Iftikhar Ahmed

 The primary way in which countries either

liberalize trade or protect their economies.

Complete elimination of tariffs and other
barriers to trade mean free trade.
There are two basic ways in which tariffs may
be levied:

i. Specific Tariffs
ii. Ad valorem Tariffs.

International Trade

By :

Flt Lt Iftikhar Ahmed

 A Specific

Tariff is levied as a fixed charge

per unit of imports. e.g. Govt levies a Rs. 0.51
specific tariff on every wristwatch imported into Pak.

An

Ad valorem Tariff is levied as a fixed

percentage of the value of the commodity
imported. e.g. a 2.5 % ad valorem tariff on imported
automobiles.

Occasionally,

both tariffs are levied on the

same product simultaneously. This is known
as a two-part tariff.

International Trade

By :

Flt Lt Iftikhar Ahmed

 Different tariffs are generally applied to

different commodities, countries have a tariff

schedule.
Some Govts rarely apply the same tariff to all
goods and services imported into the country.
The United Arab Emirates sets a 5 % tariff on almost all
items,
While Bolivia levies tariffs either at 0 %, 2.5 %, 5 %, 7.5
%, or 10 %.

International Trade

By :

Flt Lt Iftikhar Ahmed

Measuring Protectionism:
Average Tariff Rates

One

method used to measure the degree of

protectionism within an economy is the
average tariff rate.
Problem with this method arises if a country
has most of its trade in a few categories with
zero tariffs but has high tariffs in many
categories. In this case, the average tariff
may overstate the degree of protection in the
economy.

International Trade

By :

Flt Lt Iftikhar Ahmed

Trade-weighted Average Tariff

This problem can be avoided, to a certain

extent, if one calculates the trade weighted

average tariff.
The simple way to calculate a trade-weighted
average tariff rate is to divide the total tariff
revenue by the total value of imports.
the best way to overstate the degree of
protection is to use the average tariff rate on
dutiable imports.

International Trade

By :

Flt Lt Iftikhar Ahmed