HISTORICAL EVOLUTION OF GATT

The bretton woods conference held in 1944 was starting point for new world order.

The world economy would be organised around three institutions

1) International monetary fund (IMF)

2) International bank for reconstruction and development also called world bank( IBRD)

3) International trade organisation (ITO)

The IMF was designed to take care short term problems in connection with international liquidity.

IBRD would help to channel,international investments along desire lines.

ITO deals with real side of trading relations

After endorsement by the executive branch of U.S and U.K the proposals of ITO underwent discussion at international conference of trade and employment in London 1946

53 nations signed resulting charter for an ITO which would go into effect upon its ratification by member nations .

ITO never came into existence as the U.S senate had not ratified it.

London conference on trade and employment urged that extensive tariff negotitions be inaugurated.

23 nations participated resulted in an extensive set of bilateral trade concessions which were then extended to all participants incorporated in GATT 1947.

Some countries would require parliamentary action in order to accept many general clauses of GATT

Instead “protocol of provisional application” (PPA) was signed in late 1946 by the 22 original members of GATT and protocol became effective on jan1,1948 only through this protocol GATT is applied.

OBJECTIVES OF THE GATT1947

The preamble of GATT mentions the following as its important objectives:

Raising the standard of living

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Ensuring the free employment and a large steady growing volume of real income and effective demand

Better utilisation of the resources of the world

Expansion of production and international trade

GATT-Fundamental Principles The rule or convention of GATT requires that :

Any proposed changes in the tariff,or other types of commercial policy of a member country,should not be undertaken without consultation with other parties to the agreement.

The countries that adhere to GATT should work towards reduction of tariffs and other barriers to international trade,which should be negotiated within the framework of GATT.

GATT – Key Principles

Non-discrimination

Reciprocity

Enforceable Commitments

Transparency

Safety Valves

GATT Principles: Non-Discrimination

Key rules--MFN and National Treatment Principles.

Most-Favoured Nation(MFN), embodied in Art. I:

A product made in one member country cannot be treated less favourably than a like product originating in any other country

Three areas of application under WTO: goods (GATT), services (GATS) and intellectual property (TRIPs)

National Treatment, in Art. III having once passed the border, foreign goods cannot be treated less favourably than similar domestic goods in terms of

(i) internal (indirect) taxation and

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(ii)non-tax policies (e.g. regulations)

GATT Principles: Reciprocity

Rationale from the political economy literature:

Costs of liberalisation concentrated => loosing industries organised

Benefits (although in the aggregate usually greater than costs) dispersed è lesser incentives for consumers to defend expected welfare gains

Potential reciprocal sector-specific gains may thus help sell trade liberalisation politically

To negotiate,a country has to gain more than from unilateral liberalisation.

GATT Principles: Enforceable Commitments

Liberalisation commitments useless if not enforceable.

Agreed-upon tariff commitments are enumerated in lists termed Schedules of Concessions (Art. II)

Tariff ceilings are established

Members concerned cannot raise tariffs above bound levels without negotiating compensation with the principal suppliers of the product concerned

If another government’s actions are perceived to have the effect of nullifying or impairing committed market access => dispute settlement procedure.

Elements of this procedure

Panel of impartial experts determines whether a contested measure violates GATT/WTO or not

Since GATT/WTO is an intergovernmental agreement, private parties do not have legal standing before its dispute settlement body, only governments have the right to bring cases.

Existence of dispute settlement procedure precludes use of unilateral retaliation

GATT Principles: Transparency

Access to information on the trade regime of signatories

Internal transparency : requirement to publish national trade regulations

External transparency : multilateral surveillance facilitated by periodic country reports prepared by GATT/WTO Secretariat (and discussed by its Council) so-called Trade Policy Review (TPR) mechanism

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Benefits of transparency, e.g. publishing TPRs and other reports

Reduces pressure on the dispute settlement system measures can first be discussed by the appropriate GATT/WTO body before filing an appeal

Strengthens GATT/WTO legitimacy by informing civil society what is going on in multilateral trade policy and what are the key implications

According to studies in the 1990s, reduces trade-policy uncertainty

Might otherwise result in low investment and growth rates and shift to non-tradable

Reduces risk premium paid in capital markets for likely trade regime/policy reversals.

GATT Principles: Safety Valves

Government can restrict trade in specific circumstances.There are three types of provisions/articles (exceptions in GATT/WTO):

To attain noneconomic objectives: protect public health, national security or industries so seriously injured by import competition that social/political problems arise

To ensure “fair competition” often in conflict with market access as its instruments are duties

Countervailing duties on imports that have been subsidised

Antidumping duties on imports that have been dumped, i.e. sold at a price below the one charged in the home market

To attain economic objectives

if serious balance-of-payments difficulties

or to support an infant industry

IMPACT ON DEVELOPING COUNTRIES

Ever since World war2 the developing countries have been expressing their dissatisfaction with the pattern of world trade.This increased during 1960s.

The developing countries demanded for provision of differential treatment to ensure that the world trading system responds to the particular needs of the developing countries.

Since 1970,the agreements designed to promote these facilities were referred to as “differential”treatment.

Developing Countries:

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India,China,Brazil,Egypt,Hongkong,Kenya,Korea,Iran,Iraq,Malaysia,Mexico,Pakistan,Burma,Peru,Singapore,South Africa,SriLanka,Thailand,etc..,

To improve trading following privileges were made:

The right to renegotiate tariff buildings so as to raise tariffs on products it desire to produce(infant industries)

The privilege to use quantitative restrictions in balance-of-payments difficulties.

A privilege to use any measure necessary to promote a particular industry.

Continual reductions in tariffs helped spur very high rates of world trade growth during the 1950s and 1960s — around 8% a year on average

Trade growth consistently out-paced production growth

The rush of new members during the Uruguay Round demonstrated recognition of multilateral trading system as the anchor for development and an instrument of economic and trade reform.

GATT’s success in reducing tariffs to a low level,with a series of economic recessions 1970-80’s 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 early 1980s the General Agreement was clearly no longer as relevant to the realities of world trade as it had been in the 1940s

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

Ever increasing international investments

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

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WORLD TRADE ORGANISATION

Introduction:

The setting up of WTO was agreed to by 125 countries on april 15,1994 at a conference in Marrakesh which concluded the strennous Uruguay round of GATT negotiations after more than 7 years of hard bargaining.

The new World Trade Organisation which replaces the general agreement on Tariff and Trade(GATT),had come into effect from january 1,1995 with the support of atleast 85 founding members,including India.

WTO has 153 members,representing more than 95% of total world trade.

The WTO is governed by a ministerial conference,meeting every 2 years.

A general council which implements the conference’s policy decisions and is responsible for day to day administration.

Director-general,who is appointed by the ministerial conference.

The WTO’s headquarters is at Geneva,Switzerland.

OBJECTIVES:

To help developing countries benefit fully from global trading system.

To set & enforce rules for International trade.

To increase the transparency of decision making process.

To facilitate trade without any discrimination.

To resolve trade disputes.

To provide forum for negotiating & monitoring the international trade.

To cooperate with other major international economic institutions involved in global economic management.

The main overall objective of WTO is to promote and ensure the international trade in member countries with the mantra of liberalization, privatization and globalization.

SCOPE:

The WTO shall provide the common institutional framework for the conduct of trade relations among its members in matters related to the agreements and associated legal instruments included in the Annexes.

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The agreements and associated legal instruments of the Multilateral Trade Agreements are binding on all members.

The agreements and associated legal instruments of the Plurilateral Trade Agreements are also a part of this agreement for those members that have accepted them and are binding on them.

The general agreement on Tariff & Trade,1994 is legally distinct from the general agreement on Tariff & Trade dated 30 october 1947.

FUNCTIONS OF WORLD TRADE ORGANISATION

The WTO shall facilitate the implementation, administration and operation,and further the objectives of this agreement and of the Multilateral Trade Agreements and shall also provide the framework for the implementation, administration and operation of the Plurilateral Trade Agreements.

The WTO shall provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the agreements of GATT. The WTO may also provide a forum for further negotiations among its Members concerning their Multilateral trade relations, and a framework for the implementation of the results of such negotiations, as may be decided by the Ministerial Conference.

The WTO shall administer the understanding on Rules and Procedures Governing the Settlement of Disputes.

The WTO shall administer the Trade Policy Review Mechanism (TPRM).

The WTO shall co-operate as appropriate, with the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) and its affiliated agencies to achieve greater coherence in global economic policy-making.

STRUCTURE OF WORLD TRADE ORGANISATION

The Ministerial Conference:

There shall be a Ministerial Conference composed of representatives of all the Members, which shall meet atleast once every two years. It shall carry out the functions of the WTO and take actions necessary to this effect.

It shall have the authority to take decisions on all matters under any of the Multilateral Trade Agreements, if so requested by a Member, in accordance with the specific requirements for decision- making in this Agreement of WTO and in the relevant Multilateral Trade Agreements.

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The General Council:

There shall be a General Council composed of representatives of all the Members, which shall meet as appropriate. In the intervals between meetings of the Ministerial Conference, its functions shall be conducted by the General Council. The General Council shall also carry out the functions assigned to it by this agreement.

The Dispute settlement Body:

The General Council shall convene as appropriate to discharge the responsibilities of the Dispute Settlement Body provided for in the Dispute Settlement Understanding. The Dispute Settlement Body may have its own chairman and shall establish such rules of procedure as it deems necessary for the fulfilment of those responsibilities.

The Trade Policy Review Body:

The General Council shall convene as appropriate to discharge the responsibilities of the Trade Policy Review Body provided for in the TPRM. The Trade Policy Review Body may have its own chairman and shall establish such rules of procedure as it deems necessary for the fulfilment of those responsibilities.

The Council for Trade in Goods, The Council for Trade in services and The Council for Trade-Related Aspects of Intellectual Property Rights (Council for TRIPS):

They shall operate under the general guidance of the General Council. These Councils shall carry out the functions assigned to them by their respective agreements and by the General Council.

They shall establish their respective rules of procedure subject to the approval of the General Council. Membership in these Councils shall be open to representatives of all Members. These Councils shall meet as necessary to carry out their functions

Subsidiary Bodies:

The Council for Trade in Goods, the Council for Trade in Services and the Council for TRIPS shall establish subsidiary bodies as required. These subsidiary bodies shall establish their respective rules of procedure subject to the approval of their respective Councils.

The committee on Trade and Development, The Committee on Balance of Payments Restrictions and The Committee on Budget, Finance and Administration:

The Ministerial Conference shall establish these Committees which shall carry out the functions assigned to them by the Agreement and by the Multilateral Trade Agreements, and any additional functions assigned to them by the General Council, and may establish such additional Committees with such functions as it may deem appropriate.

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As part of its functions, the Committee on Trade and Development shall periodically review the special provisions in the Multilateral trade Agreements in favour of the Least-developed country Members and report to the General Council for appropriate action. Membership to these Committees shall be open to representatives of all Members.

Bodies provided for under the Plurilateral Trade Agreements:

They shall carry out the functions assigned to them under those agreements and shall operate within the institutional framework of the WTO. These bodies shall keep the General Council informed of their activities on a regular basis.

STATUS OF THE WORLD TRADE ORGANISATION

The WTO shall have legal personality, and shall be accorded by each of its Members such legal capacity as may be necessary for the exercise of its functions.

The WTO shall be accorded by each of its Members such privileges and immunities as are necessary for the exercise of its functions.

The officials of the WTO and the representatives of the Members shall similarly be accorded by each of its Members such privileges and immunities as are necessary for the independent exercise of their functions in connection with the WTO.

The privileges and immunities to be accorded by a Member to the WTO its officials, and the representatives of its Members shall be similar to the privileges and immunities stipulated in the Convention on the Privileges and Immunities of the Specialised Agencies, approved by the General Assembly of the United Nations on 21 November,1947.

The WTO may conclude a headquarters agreement.

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DISPUTE SETTELMENT IN WORLD TRADE ORGANISATION

A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.

The Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) makes decisions on trade disputes between governments that are adjudicated by the Organization.

Other then the dispute settelment body ,WTO contains independent and quasi-judicial institutions that are the Panels, the Appellate Body and Arbitrators

Dispute Settlement Body (DSB) –(article 2 of the DSU)

Comprises a chairman (head of the permanent mission of one of the Member countries appointed by consensus among the Members of WTO) and representatives of all WTO Members (government representatives, usually diplomats who belong to ministries of trade or foreign affairs).

In their capacity as government officials, the representatives receive instructions from their governments on the positions they must adopt and the statements they must make within the DSB, hence the latter is considered a political body.

The DSB is responsible for the application of the DSU, in other words it oversees the entire dispute settlement procedure. It has the authority to set up panels, adopt panel and Appellate Body reports, monitor the application of recommendations and authorize retaliatory measures when a Member fails to comply with rulings.

The DSB usually meets once a month, and the Director-General may convene extraordinary meetings at the request of Members. The staff of the WTO Secretariat provide administrative support to the DSB.

As a general rule, the DSB makes decisions by consensus. However, when the DSB sets up panels, adopts reports or authorizes retaliation, the decision is automatically considered to be adopted, unless there is a consensus to the contrary (a negative consensus).

Director-General and Secretariat of WTO:

The Director-General of WTO participates in the Dispute Settlement Body (DSB) in the following ways:

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The Director-General may, acting in an ex officio capacity, offer good offices, conciliation or mediation with the view to assisting Members to settle a dispute (article 5.6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)), especially in cases involving a less developed country.

If there is no agreement on the panelists, at the request of either party, the Director-General, in consultation with the Chairman of the DSB and the Chairman of the relevant Council or Committee, shall convene DSB meetings and determine the composition of the panel (article 8.7).

The Director-General appoints an Arbitrator to determine a reasonable period of time if the parties are unable to agree on a period of time or the appointment of an Arbitrator (article 21.3 c).

The Director-General shall examine proposed retaliatory measures in cases of non-implementation (article 22.6).

Within the Dispute Settlement Body (DSB), the Secretariat can act in the following ways (article 27).

Reports to the Director-General; provides assistance in respect of dispute settlement to Members at their request; organizes special training courses and provides additional legal advice and assistance to developing country Members; provides assistance to parties in the formation of panels; and helps established panels and provides administrative support to the DSB.

Panels - articles 6, 7 and 8 of the DSU:

Panels are quasi-judicial bodies responsible for settling differences between Members in the first instance.

They comprise three, and in exceptional cases five, experts specially selected for each case (there is no permanent panel, but rather a different one is set up for each case). WTO Members regularly put forward names to be included in the list kept by the Secretariat.

People appointed to a panel provide their services independently, in an individual capacity, and not as a representative of any government or organization.

Appellate Body - article 17 of the DSU:

Unlike the panels, the Appellate Body is a standing body made up of seven members appointed by the DSB by consensus and for a period of four years, with a maximum of two terms.

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The Appellate Body examines the legal aspects of panel reports (rather than studying evidence or facts), and represents the second and final instance of the legal process.

Arbitrators - article 25 of the DSU:

Arbitration is an alternative means of dispute settlement to panels and the Appellate Body.

Arbitrators can thus be called on to resolve certain issues at various stages of the dispute settlement process (when there is no agreement on determining the reasonable period of time or on the level of retaliation). Arbitral awards are not subject to appeal and may be enforced by the DSB.

Experts - article 13 and appendix 4 of the DSU:

Panels may seek the opinions of experts in dealing with technical or scientific issues, such as when the case relates to the Agreement on the Application of Sanitary and Phytosanitary Measures, Agreement on Technical Barriers to Trade, or the Agreement on Subsidies and Countervailing Measures.

Groups of experts act under the authority of the panel, and provide the latter with their opinion. These groups carry out a purely consultative role.

The final decision on legal issues and fact-finding, based on expert opinion, remains with the panel.

DISPUTE SETTELMENT PROCEDURE

Main stages involved are:

CONSULTATIONS

PANEL

APPEAL

ADOPTION

IMPLEMENTATION

Pre-litigation stage

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Consultations: A filing of a “Request for Consultations” is the official beginning of the dispute within WTO and brings the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) into play.

Consultations provide parties with the opportunity to debate the issue and find a satisfactory solution without resorting to litigation. The party complained against must reply to the request within 10 days after the date of its receipt and shall enter into consultations in good faith within a period of no more than 30 days after the date of receipt of the request.

If the Member does not comply with this time frame, then the Member that requested the holding of consultations may proceed directly to the litigation stage and request the establishment of a panel. If the consultations fail to settle a dispute within 60 days after the date of receipt of the request for consultations, the complaining party may request the establishment of a panel (article 4.7).

However, governments are in permanent contact, and agreement may be reached at any stage of the process (article 4). Along with good offices, conciliation and mediation,

consultations are the main non-judicial or diplomatic instrument in the WTO dispute settlement system

Litigation stage

1st stage (panel): If the consultations fail to settle a dispute, the complaining party may request establishment of a panel by the Dispute Settlement Body (DSB). The panel must be established within 45 days of the request.

Once established, the panel must produce a report for the DSB within six to nine months.

This report must include an objective assessment of the facts of the case and an examination of the measures in dispute, using the relevant provisions of the appropriate legal instruments.

2nd stage (optional recourse to the Appellate Body): The Appellate Body examines the legal aspects of the challenge and may uphold, modify or reverse the legal findings and conclusions of the panel (article 17.13).

According to the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)

parties may adopt three positions in relation to reports:

Implementation: it is insisted that the party failing to fulfil its obligations comply with the recommendations of the panel or Appellate Body. When it is impossible to do so immediately, the DSB may establish a reasonable period of time for implementation.

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Payment of compensation: when the offending party exceeds the reasonable period of time without implementing the recommendations or determinations, the complainant may ask for compensation. The offending party may also offer compensation.

Retaliatory measures: when the offending party fails to comply with recommendations and refuses to offer compensation, the affected party may request DSB authorization to introduce retaliatory measures against the offending country.

In principle, these measures must be applicable in the same sectors in which the panel has established the existence of an offence.

Only if this were considered impossible could the application of retaliatory measures in other sectors of the same agreement be authorized.

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IMPACT ON GLOBALISTION GLOBALISATION

The term Globalisation is defined as integration of economies and societies through cross country flows of information, ideas, technologies, goods, services, capital, finance, people.

In short terms globalization refers to increasing global connectivity, integration and interdependence in the economic, social, technological, cultural, political, and ecological spheres.

At present the term globalisation used in limited sense of

economic integration leaving all cultural , Social , political

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dimensions.

The economic integration occurs through three channels:

a. Trades in goods and services

b. Movement of capital

c. Flow of finance by influencing market integration effciency and industrial organisation.

• TRADE IN GOODS AND SERVICES:

International trade ensures allocating different resources and that has to be consistent.

We all know from economic point of view that restrictive trade barriers on emerging economies which impedes growth

Emerging economies can reap the benefits of international trade if only all the resources are utilized in full potential

This is where the importance of reducing the tariff and non-tariff barriers crop up.

MOVEMENT OF CAPITAL:

The production base of a developing economy gets enhanced

due to capital flows across countries

The mobility of capital only enabled savings for the entire

globe and exhibited high investment potential.

A country's economic growth doesn't, however, get barred by domestic savings. Foreign capital inflow play an important role in the development of an economy

Developing countries would definitely prefer foreign direct

investment because portfolio investment doesn't have a direct

impact on the productive capacity expansion.

FINANCIAL FLOW:

The growth in capital and mobility of the foreign exchange

markets enabled better transfer of resources cross borders and

by large the global foreign exchange markets improved.

It is mandatory to go in for the expansion of foreign exchange

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markets and thus facilitate international transfer of capital.

Impact of Globalisation on Manufacturing Industry:

• Manufacturing companies, both domestic and global, are expanding their Indian production capacities and establishing new plants.

• Indian companies are also becoming global, with manufactured goods exports growing in excess of 20 percent annually in recent years.

• The growth of manufacturing has resulted in India emerging as one of the fastest growing markets for automation systems, enterprise solutions and integration service providers.

Impact of Globalisation on Employment

An analysis of the impact of globalization on

employment in India will bring out a number of factors .

They are:

a. Market liberalisation policies and employment:

The wake of globalisation which leads to intiation of open market policies.

There was significant rise in the customer base and it slowly gave rise to the consumer market where the market changes were dependant on the demand supply chain.

b. Growth of new segments in the market :

In the recent years, a number of industry segments such as information technology, agro products, personal and beauty care, health care and other sectors have come into the market.

Experts say that the introduction of a wide range of sectors have led to the favorable growth of the economy in the country.

c. Improvement in standard of living:

The favorable economic growth has led to the development of infrastructure, health care facilities and services, per capita income and other factors which have really led to the high growth rate.

India Tasks and Challenges

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India seeks to protect its food and livelihood security by having sufficient flexibility for domestic policy measures.

Protect domestic products from surge in imports

Substantial reduction in expert subsidies and domestic support to agriculture in developed countries for greater market access

Negotiation on trade in services are crucial to India.

India should not be seen as a spoiler in negotiations

India should give constructive leadership to protect the interests of developing and least developed countries

India vigorously pursue liberalization of trade in services

CHALLENGES:

The government will have to find a way of addressing anomalous situation of allowing import of some products which are reserved for production in the small scale sector.

India has to work creatively and make developments in leading edge technologies being developed all over the world.

India should bring about universal literacy

India needs a very elaborate national science policy which should address area of health.

India should reach the international standards in the quality of both industrial and agricultural products

India should properly plan and utilise its cheap and abundant human and natural resources.

India should open up its economy to foreign investment without the detriment of native investment

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