____________________________________________________________________________________________________

Subject ECONOMICS

Paper No and Title 13: International Economics

Module No and Title 30: GATT, Different rounds of GATT; Origin, Objectives
and Functions of WTO
Module Tag ECO_P13_M30

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
____________________________________________________________________________________________________

TABLE OF CONTENTS
1. Learning Outcomes
2. Introduction:-Background and origin of GATT
3. Background of GATT
4. Different rounds of GATT
5. WTO

5.1 Origin

5.2 Objective

5.3 Functions

6. Summary

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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1. Learning Outcomes
After studying this module, you shall be able to

 Understand the background and condition of the formation of multilateral trade

negotiation body GATT;
 The progress of international trade liberalisation in the form of different rounds of
GATT & later formation of WTO;
 Objectives and;
 Functions of WTO.

2. Introduction

250 years ago, the father of economics, Adam Smith wrote in his famous publication ‘An
inquiry into the nature and causes of the wealth of nations’ on the causes of international
trade. Since the great work of Adam Smith, economists have sought answers to a number
of questions relating to international trade theory and its application such as: Why do
countries trade with one another? How do countries determine and regulate the trade in
goods?

Since the work of pro- market classical economists’ like Adam Smith to on ongoing
current regime of trade liberalisation global leaders has pushed for the reform of
international trade regime and liberalisation of trade rules and regulation for the
promotion of international trade.

In the aftermath of World War II the need of international institutions in the area of
finance, trade and international affairs was greatly felt & later realized in the form of
UNO, IBRD, IMF and GATT. The formation of General Agreement on Tariffs & Trade
(GATT) in 1948 was milestone in the direction of trade liberalisation.

3. Background of the GATT

GATT or the General Agreement on Tariffs and Trade was set up on 30-10-47 by 23
founder member countries to deal with the issues on tariff restrictions on import and
export of goods by member countries under a multilateral umbrella. Post Second World
War, the United Kingdom, the United States, and other allied nations indulged in a
negotiations series to create postwar international economy rules. This resulted in the
ECONOMICS Paper 13: International Economics
Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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establishment of International Monetary Fund and the World Bank in July 1944, Bretton
Woods Conference and the signing of the General Agreement on Tariffs and Trade at an
international conference in Geneva in October 1947. It came into effect in 1st January
1948 with 23 founding members becoming the ‘Contracting Parties’. This was one of the
international institutions originally planned as International Trade Organisation (ITO)
along with the other two Bretton Wood Institutions, namely IMF and World Bank. The
Havana Charter, which promised to pave the way to ITO was rejected in 1948 because
US particularly felt that global framework of commerce and trade may come in the way
of its hegemony over global trade. GATT 1947 is now replaced by GATT 1994.
GATT 1947
The General Agreement on Tariffs and Trade of October 1947 was annexed to the Final
Act of the Second Session of the Preparatory Committee of the UN Conference on Trade
and Employment. It came into force in January 1948 as a provisional agreement and was
the “contract” that provided the international trade rules until the end of the Uruguay
Round in December 1993, when it became part of the WTO structure.
GATT 1994
GATT 1994 is one of the several Agreements establishing the WTO. It includes the
provisions of the GATT 1947 before the entry into force of the WTO Agreement and
protocols on tariff concessions, protocols of accession, and decisions on waivers, several
understandings and the Marrakesh Protocol to GATT 1994.
GATT Rounds
Since the formation and its replacement by WTO, the GATT provided the rules and
regulation for much of world trade during five decades, but throughout those 47 years, it
was a provisional agreement till 1994. The transition from GATT 1947 to GATT 1994
has undergone through eight round of multilateral trade negotiations among member
nations.

Objectives of GATT:

With the reduction of tariff barriers and removing inequity in international trade, the
GATT targets at:

1. International trade expansion,

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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2. Increasing world production which results in full employment in the participating

nations,

3. Developing and fully utilizing world resources, and

4. Improving standard of living of the communities on a global level.

4. GATT Rounds

The contracting parties as termed in GATT to member nations met at regular intervals to
negotiate agreements to reduce quotas, tariffs and trade restrictions and related
international matters during 1948 to 1994 of different rounds of GATT negotiations. The
GATT recognized that tariffs are the main impediments to the growth of international
trade therefore first five rounds, prior to Kennedy Round, were centered on the
negotiations on tariff reduction. The first round was at Geneva in 1947. The second at
Annecy in 1949 and the third was at Torquay in United Kingdom in 1950-51. The fourth
round of GATT was held in Geneva in 1955-56 and fifth once again at Geneva in 1960-
62 called Dillon round.

Let us throw some light on the contents and essence of each GATT round in brief:

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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Table 1: Issues in Uruguay Round of GATT Negotiation

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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Source: [Link] & WTO Database

Until the fifth round of GATT, member nations aimed to conversion of quantitative
restriction into tariffs & thereafter reduction of tariffs gradually. The reformed
negotiations under GATT called ‘Kennedy Round’ negotiation on tariff reduction up to
50 percent by industrialised nations on non-agriculture product agreed by Trade
Negotiation Committee of participating nations in 1964.

In March 1965, the Trade Negotiations Committee took up the procedures for
negotiations on agriculture. By September 1965 all developed nations tabled their offers.
On account of internal difficulties, the EEC, however, tabled their offers in 1966.
Similarly, a plan for the participation of the LDCs was also adopted by the Trade
Negotiations Committee in March 1965. The overall results in Kennedy Rounds were

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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very substantial and of a magnitude larger than any such multilateral negotiation in the
past. However, the developing countries remained unsatisfied by the Kennedy Round as
their trading problems did not receive the attention and priority they deserved. The tariff
negotiations in Kennedy Round were concentrated largely on products of major export
interest to the developed nations, to the neglect of the export needs of the developing
countries.
The Seventh Round of GATT negotiations were held at Tokyo during 1973-1979. The
major issues discussed were: removal of non-tariff barriers; reducing tariffs; and trade
liberalisation in agriculture sector. In Tokyo round of trade negotiation several agreement
relating to subsidies, countervailing duties, technical barriers, dairy products, customs
valuation, import licensing procedures, trade in civil aircrafts, Bovine meat and
government procurement were concluded.
The eight round of multilateral trade negotiations of the GATT participants commonly
known as ‘Uruguay Round’ was launched at Punta Del Este in Uruguay, Latin America,
in September 1986 in a special session and after eight years of comprehensive discussion
concluded on the 15th Dec 1993 at Geneva. A brief summary of ‘Uruguay Round’
negotiations is presented below in table 30.2.

In sum, the early years, the GATT trade rounds concentrated on reducing tariffs. Then,
the Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping Agreement.
The Tokyo Round during the seventies was the first major attempt to tackle non-tariffs
barriers and to improve the system. The eighth, the Uruguay Round of 1986-94, was the
latest and most extensive of all. It led to formation of the WTO and a new set of
agreements.
Year Place/Name Countries
1947 Geneva 23
1949 Annecy 13
1951 Torquay 38
1956 Geneva 26
1960-1961 Geneva (Dillon Round) 26
1964-1967 Geneva (Kennedy Round) 62
1973-1979 Geneva (Tokyo Round) 102
1986-1993 Geneva (Uruguay Round) 123

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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Table 2: GATT Trade Negotiation Rounds

Source:-[Link] & WTO Database

In the post-war era, under the disguise of GATT, both economist and politician are at war
in determining the future of the global economy. The GATT, in theory, only makes a tall
claim of treating all contracting parties as equal but in practice, however, the poor and
small countries are ignored and never allowed to succeed in asserting themselves.

5. WTO: Origin, Objectives & Functions

The WTO officially came into being in January of 1995 and led to the replacement of
General Agreement on Tariffs and Trade (GATT), which was there since 1948, post
Second World War. Prior to WTO, dynamism to initiate something similar to
International Trade Organization (ITO) occurred. However, ITO treaty was not given
approval by the U.S. and a few other countries and finally could not come into effect.
In 1980s, as the globalization spread with the expansion of trade and business, it became
obvious that GATT was not constructed to serve huge number of new arisen challenges
surrounding global trading. With this, event comprising biggest trade negotiating on
record initiated in 1986. It was called as Uruguay Round, occurred in Punta del Este,
Uruguay.

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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World Trade Organisation is a member driven organization where decisions are taken by
a process of negotiations amongst the member countries based on rules contained in the
Agreement establishing WTO.
Marrakesh Agreement
Marrakesh Agreement established the World Trade Organization on 15 April 1994,
signed by participants in the Uruguay Round (1986-1993) during the Ministerial
Conference in Marrakesh. All the WTO Agreements, including the GATS, TRIPS and
DSU, are integral parts of the Marrakesh Agreement.

5.1 Origin

WTO was established by 123 member countries that were contracting parties to GATT,
th st
on 15 April 1994 at Marrakesh and came into effect on 1 January 1995. It deals with
international trade in goods, trade in services and trade in intellectual property rights.
Meaning of WTO
WTO or the World Trade Organisation is a legal body consisting of 148 member nations
for multilateral trade agreements on goods and services including intellectual property
rights. It deals with the rules of trade between member nations at a global level. It enjoys
privileges and immunities similar to UNO, IMF and World Bank. The WTO came into
existence out of negotiations, and all the decisions in WTO is the result of negotiations.
The major part of negotiations is on the basis of the Uruguay Round and the Doha
Development Agenda. The previous organization was General Agreement on Tariff and
Trade or GATT.

5.2 Objective

The main objectives of World Trade Organisation are spelled out in the preamble to the
Marrakesh Agreement which are as follows:-

1. To make sure the tariff reduction and other trade barriers;

2. To remove inequities in international trade relations;
3. To facilitate higher standard of living, full employment, rising amount of real
income & effective demand and an increase in production and trade in goods and
services of the member nations.

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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4. To make positive effect, which ensures developing countries, especially the LDCs
secure a level of share in the growth of international trade that reflects the needs
of their economic development;
5. To facilitate the optimal use of the world’s resources for sustainable development
&
6. To promote an integrated, more viable and durable trading system incorporating
all the resolutions of the Uruguay rounds trade negotiations.

5.3 Functions

The major functions of the WTO are as follows:-

1. To lay down a substantive code of conduct aiming at reducing trade barriers

including TBs and NTBs; & elimination of discrimination in international trade
relations.
2. To provide the institutional framework for the administration of the substantive
code which encompasses a spectrum of norms governing the conduct of member
countries in global trade;
3. To provide an integrated structure of the administration, thus, to facilitate the
implementation, administration and fulfillment of the objective of the WTO
Agreement and other multilateral Trade Agreements;
4. To ensure the implementation of the substantive code and settle trade related
disputes;
5. To act as a forum for the negotiation of further trade liberalisation;
6. To cooperate with the Bretton woods institution (IMF & World Bank) and its
associates for establishing coherence in trade policy making.

Three Pillars of WTO

i. Most Favoured Nation

Most Favoured Nation is one of the essential ingredients of all the WTO agreements. It
means that equal treatment has to be given to all the member nations by the other member
nation in market access for any goods or services. For example if UK is allowing market
access in any particular field of services to USA it has to give similar market access to
India or to any other member country. In other words there cannot be any kind of
discrimination amongst members of WTO.

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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ii. National Treatment

National treatment broadly means that the member countries should give equal treatment
to domestic goods and services to those given to foreign goods and services. Similarly
there cannot be different treatment to the legal entities whether they are of domestic
origin or of foreign origin with certain limited exceptions. For example Article XVII on
GATS deal with the National Treatment and mandates that members shall not
discriminate against any other member in respect of supply of services and that it should
be given the same and equal treatment as for domestic suppliers of the same or similar
services.

iii. Market access

Market access is the most essential ingredient of the multilateral trade agreement under
WTO. All the various agreements whether on Agriculture or on Services under GATS
talk of market access. Market access means that each member country has to grant free
access to market on the principle of most favoured nation for supply of goods without
any kind of non-tariff barriers and subject to commitments for reduction of tariff on
imports with an ultimate target of zero duty regime. There are some safeguards in the
form of anti-dumping and countervailing duty with special provisions for developing
countries and LDCs for less than reciprocity. However certain limitations or restrictions
or regulations are allowed under GATS as per Article XVI on market access. Certain
exceptions are provided in the following Articles of GATT for balance of payment and
national security reasons as described below:

Article XII (GATT) Balance of Payment exception

Article XII of the GATT provides an exception to Article XI (which prohibits the use of
quantitative restrictions (QRs) for all countries, allowing them to apply QRs when faced
with balance-of-payments (BOP) difficulties to safeguard their external financial
position.

Article XXI (GATT) (national security exception)

Member countries are allowed to use exemptions to GATT obligations where essential
security interests are at stake. These may include disclosure of information, actions in
pursuance of obligations under the UN Charter, and “any action” considered necessary

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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for the protection of essential security interests. Security exceptions also exist in the
GATS (Article XIVbis) and the TRIPS Agreement (Article 73).

Quantitative restrictions (QRs)

Quantitative Restrictions or QR is a kind of protection or a non-tariff barrier for import or

export of goods. Although maintenance of quantitative restrictions (QRs) on imports is
not permitted as per Article XI of GATT, the government can, if the situation so
warrants, utilise the mechanism of raising the applied tariffs within the bound rates, if
such a gap exists and take measures such as anti-dumping action, safeguard actions and
imposition of countervailing duties.

There are about 10500 items under import-export list of which 8000 items were in QR
list before 1991. Today there are only about 500 items under QR on the ground of
environment, security etc., and rest all items are under open general licence (OGL). In
April 1997 there were 2700 items under QR list under Article XVIIIB of GATT 1994
which allowed it on account of balance of payment problems. However India lost a case
in WTO dispute settlement body and was bound to phase out QRs from April 2001.

Main agreements of WTO

Replacement of its predecessor GATT by a new multilateral trade institution paved the
way for the establishment of World Trade Organisation on 15 April 1994 was signed by
participants in the Uruguay Round (1986-1993) during the Ministerial Conference in
Marrakesh. The emergence of WTO is based on several rounds of trade negotiations and
different agreement agreed upon by member nations during decades of multilateral trade
negotiations. The agreements of WTO for trade related goods are General Agreement on
Tariff and Trade 1994, Agreement on Sanitary and Phyto Sanitary Measures, Agreement
on Textiles and Clothings, Agreement on Technical Barriers to Trade, Anti-dumping
Measures, Customs Valuation Methods, Pre-shipment Inspection, Rules of Origin, Import
Licensing. Other agreements include Trade-Related Aspects of Intellectual Property
Rights (TRIPS) which deals with intellectual copy rights comprising of trademarks,
copyrights, patents. Trade Related Investment Measures (TRIMs) serves measures in
investment which are related to trade. Agreement on Agriculture (AoA) deals with
support to domestically produced goods, competing in world market, access to market.
General Agreement on Trade in Services (GATS) functions in service related trade.
Technical Barriers to Trade Agreement (TBT) deals with the regulations, Testing,
standards, certification procedures and ensures that they do not create needless hurdles.
ECONOMICS Paper 13: International Economics
Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO
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The journey of World Trade Organisation since its formation has paved the way for
reduction of trade barrier and success in future will depend on balancing power between
developed and developing countries with positive discrimination in favour of LDCs while
promoting its prime objective trade liberalisation.

6. Summary

 GATT or the General Agreement on Tariffs and Trade was set up on 30-10-47 by
23 founder member countries to deal with the issues on tariff restrictions on
import and export of goods by member countries under a multilateral umbrella.
Post Second World War, the United Kingdom, the United States, and other allied
nations indulged in a negotiations series to create postwar international economy
rules.
 With the reduction of tariff barriers and removing inequity in international trade,
the GATT targets at: 1. International trade expansion, 2. Increasing world
production which results in full employment in the participating nations, 3.
Developing and fully utilizing world resources, and 4. Improving standard of
living of the communities on a global level.
 The WTO officially came into being in January of 1995 and led to the
replacement of General Agreement on Tariffs and Trade (GATT), which was
there since 1948, post Second World War. Prior to WTO, dynamism to initiate
something similar to International Trade Organization (ITO) occurred.
 WTO or the World Trade Organisation is a legal body consisting of 148 member
nations for multilateral trade agreements on goods and services including
intellectual property rights. It deals with the rules of trade between member
nations at a global level. It enjoys privileges and immunities similar to UNO, IMF
and World Bank.

ECONOMICS Paper 13: International Economics

Module 30: GATT, Different rounds of GATT; Origin, Objectives and
Functions of WTO