GATT
GATT was a club, albeit a club that was increasingly popular. But GATT was not a treaty. The United States
(and other nations) joined GATT under its Protocol of Provisional Application. This meant that the provisions
of GATT were binding only insofar as they are not inconsistent with a nation’s existing legislation. With this
clause, the United States could spur trade liberalization or contravene the rules of GATT when politically or
economically necessary (US Tariff Commission, 1950, 19-21, 20 note 4).
From 1948 until 1993, GATT’s purview and membership grew dramatically. During this period, GATT
sponsored eight trade rounds where member nations, called contracting parties, agreed to mutually reduce
trade barriers. But trade liberalization under the GATT came with costs to some Americans. Important
industries in the United States such as textiles, television, steel and footwear suffered from foreign
competition and some workers lost jobs. However, most Americans benefited from this growth in world
trade; as consumers they got a cheaper and more diverse supply of goods, as producers, most found new
markets and growing employment. From 1948 to about 1980 this economic growth came at little cost to the
American economy as a whole or to American democracy (Aaronson, 1996, 133-134).
The Establishment of the WTO
By the late 1980s, a growing number of nations decided that GATT could better serve global trade expansion
if it became a formal international organization. In 1988, the US Congress, in the Omnibus Trade and
Competitiveness Act, explicitly called for more effective dispute settlement mechanisms. They pressed for
negotiations to formalize GATT and to make it a more powerful and comprehensive organization. The result
was the World Trade Organization, (WTO), which was established during the Uruguay Round (1986-1993) of
GATT negotiations and which subsumed GATT. The WTO provides a permanent arena for member
governments to address international trade issues and it oversees the implementation of the trade
agreements negotiated in the Uruguay Round of trade talks
The main functions of WTO are discussed below:
1. To implement rules and provisions related to trade policy review
mechanism.
2. To provide a platform to member countries to decide future
strategies related to trade and tariff.
3. To provide facilities for implementation, administration and
operation of multilateral and bilateral agreements of the world trade.
4. To administer the rules and processes related to dispute settlement.
5. To ensure the optimum use of world resources.
6. To assist international organizations such as, IMF and IBRD for
establishing coherence in Universal Economic Policy determination.
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.
It shall facilitate the implementation, administration and operation of
the WTO trade agreements, such as multilateral trade agreements,
plurilateral trade agreements.
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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.
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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
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(iii) 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:
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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.
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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.
HERE ARE THE FIVE BIGGEST CHALLENGES FACING THE
WTO:
RULES UNDERMINED
The unilateral tariffs threatened by the U.S. and China don’t
adhere to the WTO’s established procedures, and if triggered, will
inflame trade tensions that can’t be constrained by the trade
body.
STORY CONTINUES BELOW
The latest round of tariffs are “obviously not good for the WTO,”
said Patrick Low, a former chief economist at the institution. “If
the measures are implemented, the two biggest traders will have
thumbed their noses at the WTO. Politics will have trumped the
rule of law.”
REASONS TO GO ROGUE
The WTO is facing an influx of disputes from countries using
national security as a justification for tariffs. This exploits a
loophole in WTO law that permits its 164 members to take any
action they consider necessary to defend “essential security
interests.”
China blames U.S ‘anxiety disorder’ for trade battle, says negotiations
impossible
Trade officials are concerned that the WTO could be sidelined if
countries increasingly abuse the national-security exemption to
justify their trade restrictions. WTO Director General Roberto
Azevedo said it would be better for countries to address their
national security concerns at a political level, rather than testing
the limits of the WTO system.
“National security is something that is not technical,” Azevedo
said. “It is not something that will be solved by a dispute in the
WTO. That requires conversation at the highest political level.”
HEARINGS MAY BE PARALYZED
Since August 2017 the U.S. has blocked nominees to the WTO’s
appellate body — a key forum for mediating disputes — saying it
has overstepped its mandate.
“The WTO has not always worked as expected,” the U.S. Trade
Representative said in its annual report. “Instead of serving as a
negotiating forum where countries can develop new and better
rules, it has sometimes been dominated by a dispute settlement
system where activist ‘judges’ try to impose their own policy
preferences on member states.”
If the U.S. continues its hold, the appellate body will be paralyzed
in late 2019 because it won’t have the three panelists required to
sign off on rulings. Azevedo said the U.S. block could eliminate
the WTO’s role as a trade dispute forum and lead to a “domino
effect” of trade retaliation.
MARKET ECONOMY DISPUTE
China says the U.S. and the EU are violating WTO rules by
continuing to treat it as a non-market economy in anti-dumping
investigations.
The dispute has already compelled the EU to modify its basic
anti-dumping regulations and could ultimately force the U.S. to
modify the way it penalizes Chinese producers that ship cheap
products to the U.S. market.
The U.S. said it has no plans to treat China equally in
international anti-dumping investigations because Beijing has not
adopted market-economy principles. U.S. Trade Representative
Robert Lighthizer previously called it the “most serious litigation
that we have at the WTO.”
FAILED NEGOTIATIONS
It took two decades for the WTO to complete its first significant
trade accord and prospects for new deals among its 164
members are slim
