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Effect Of GATT On Trade Liberalization

The General Agreement on Tariffs and Trade was established by The council for trade in goods to accelerate the economy of its signatory members by reducing various trade barriers imposed in order to protect municipal producers, as after the second world war the economic conditions of various countries became worse, it not only affected the nations physically but also devastated them financially. Later GATT was replaced by World Trade Organization.

This agreement focused on reconstruction and liberalization of trade for the purpose of boosting the economy of the affected nations. General Agreement On Tariffs And Trade was signed on 30th October 1947 and came into effect on 1st January 1948.

Initially it focused on elimination or reducing of quotas, Tariffs and subsidies which hinders the international trade between the nations, alongside it also preserved some significant regulations which are required in order to maintain healthy and fruitful trade relations. There were series of conferences held at different locations such as Switzerland, France, England, Japan etc. not only these conferences came with new and effective policies but also with each conference the number of participants also increased.

Once a system involving only 23 countries focusing only on reducing tariffs now circumscribes 128 member nations dealing with virtually all manner of global commerce, including trade in services, textiles, agriculture, Intellectual property and lot more.

Principles of the GATT:
General Agreement On Tariffs and Trade is a multilateral trade agreement focusing on expansion of International trade and negotiating in case of discrepancies. Conflict of opinion can arise between different nations with regard to various policies of the agreement, few nations must see some of the clauses as discriminatory so in order to resolve the same, a forum for discussions is provided that allows for disciplined resolution of trade dispute based on the founding principles of the GATT.

These principles are as follow:
  • National Treatment:
    According to this principle there should be no discrimination between the foreign goods and the domestic goods. Once the foreign goods enters the domestic market they should be given the same treatment as given to locally produced goods. It does not applies to goods only but also in case of services, intellectual property etc. For example country A is importing products from two countries i.e. country B and C respectively, so country A cannot treat the products from both the countries less favourably than its own like domestic product.
  • Most Favoured nation principle (MFN):
    According to this principle the country cannot discriminate between their trading partners i.e. it cannot accord one nation with special favours such as reduced custom duties and others not. All the member under this agreement must be given equal treatment. For example if country A is importing like products from country B and C then it shall be under the obligation to treat the like products from both the countries equally without any discrimination.

    Although it provides with some exceptions for instance it can provide the developing countries with the special access to their markets or can raise barriers in case it feels that a particular product is traded unfairly by any specific countries.
Furthermore, GATT also led to the formation of various regional trading groups, the non members of the groups are also given equal treatment and are not discriminated against. For example: NAFTA , EU, ASIAN). This agreement also focused on preventing various unfair practices by providing remedies such as anti-dumping and countervailing duties.

Relationship between international trade and world economy.
Incorporation into the world economy has demonstrated a strong means for nations to advance financial development, improvement, and reduction of poverty. Beginning around 1947, when the General Agreement on Tariffs and Trade (GATT) was made, the world had undergone eights rounds of trade liberalization as well as unilateral and regional liberalization which has provided with great benefits to the world trade system. These eight rounds of trade liberalization led to the development of World Trade Organization to deal with increasing multilateral trade agreements.

This process of integration provided with couple of benefits to the developing countries, in some nations poverty reduced drastically and in other nations income have risen dramatically. With phases the exports of the developing countries started increasing and greatly contributed to world trade economy.

Whereas it can be observed that many countries benefited by the progress, on the other hand the progress was uneven for some of the countries. For example Asia by Liberalising its economy and providing opportunities and special treatment attracted foreign direct investment which helped in the growth of their economy like we can see how countries like India and China substantially moved towards globalization, but if we talk about Latin America or Africa they still struggling to deal with variety of economic problems.

One of the basic reason for their decline is to restrict their integration in the world economy by not lowering their trade barriers, their weak management, their isolated policies and their bend towards strict protectionism.

Benefits of Trade Liberalization
  1. Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years.
  2. Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channelled to narrow privileged interests, that trade protection provides. Moreover, the increased growth that results from freer trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole.
  3. There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not.
  4. In spite of the fact that there are benefits from further developed admittance to other nations' business sectors, nations benefit most from changing their own business sectors. The principle benefits for modern nations would come from the advancement of their rural business sectors. Non-modern countries would gain about in much the same way from headway of gathering and cultivating. The get-together of low-pay countries, nevertheless, would gain most from cultivating movement in current countries because of the more important relative meaning of agriculture in their economies.

GATT Exceptions

There are a few circumstances wherein nations are permitted to disregard GATT non-discrimination standards and past responsibilities like duty ties. These address permissible exemptions that, while executed by the rules, are GATT endorsed or GATT legitimate. The main special cases are Trade Remedies and free trade area allowances.

Trade Remedies

An important class of exceptions is known as trade remedies. These are laws that enable domestic industries to request increases in import tariffs that are above the bound rates and are applied in a discriminatory fashion. They are called remedies because they are intended to correct for unfair trade practices and unexpected changes in trade patterns that are damaging to those industries that compete with imports.

These remedies are in the GATT largely because these procedures were already a part of the laws of the United States and other allied countries when the GATT was first conceived. Since application of these laws would clearly violate the basic GATT principles of non-discrimination, exceptions were written into the original agreement, and these remain today.
  1. Antidumping

    Antidumping laws provide protection to domestic import-competing firms that can show that foreign imported products are being "dumped" in the domestic market. Since dumping is often considered an unfair trade practice, antidumping is known as an unfair trade law. Dumping is defined in several different ways. In general, dumping means selling a product at an unfair, or less than reasonable, price.

    More specifically, dumping is defined as:
    1. Sales in a foreign market at a price less than in the home market
    2. sales in a foreign market at a price that is less than average production costs, or
    3. if sales in the home market do not exist, sales in one foreign market at a price that is less than the price charged in another foreign market.
    The percentage by which the actual price must be raised to reach the fair or reasonable price is called the dumping margin. For example, if a firm sells its product in its home market for Rs16 but sells it in a foreign market for Rs12, then the dumping margin is 25 percent since a 25 percent increase in the Rs12 price will raise it to Rs16.

    Protection in the form of an antidumping (AD) duty (i.e., a tariff on imports) can be provided if two conditions are satisfied:
    • The government must show that dumping, as defined above, is actually occurring.
    • The government must show that the import-competing firms are suffering from, or are threatened with, material injury as a result of the dumped imports. Injury might involve a reduction in revenues, a loss of profit, declining employment, or other indicators of diminished well-being.
  2. Anti-subsidy

    Anti-subsidy laws provide protection to domestic import-competing firms that can show that foreign imported products are being directly subsidized by the foreign government. Since foreign subsidies are considered an unfair trade practice, anti-subsidy is considered an unfair trade law. The subsidies must be ones that are targeted at the export of a particular product.

    These are known as specific subsidies. In contrast, generally available subsidies, those that apply to both export firms and domestic firms equally, are not actionable under this provision. The percentage of the subsidy provided by the government is known as the subsidy margin.

Import-competing firms have two recourses in the face of a foreign government subsidy:

  • They can appeal directly to the WTO using the dispute settlement procedure. They can petition their own government under their domestic anti-subsidy laws.

In either case, they must demonstrate two things:
  1. that a subsidy is being provided by the foreign government and
  2. that the resulting imports have caused injury to the import-competing firms.
If both conditions are satisfied, then a country may implement a countervailing duty (CVD)�that is, a tariff on imports set equal to the subsidy margin.

Free Trade Areas

Another normal circumstance requires an exemption for the standards of the GATT/WTO. Numerous nations have chosen to follow various ways toward trade liberalization. The multilateral methodology depicts the course of the GATT, by which numerous nations all the while lessen their exchange boundaries, yet not to nothing.

The elective methodology is alluded to as regionalism, by which two to a few nations consent to lessen their duties and different boundaries to zero-yet just among themselves. This is known as a regional approach since most times the streamlined commerce accomplices are close by, or at any rate are huge exchanging accomplices (however this isn't generally the situation).

In principle, a free trade agreement means free trade will be implemented on all products traded between the countries. In practice, free trade areas often fall short. First, they are rarely implemented immediately; instead, they are put into place over a time horizon of ten, fifteen, or even twenty or more years. Thus many free trade areas (FTAs) today are really in transition to freer trade. Second, FTAs sometimes exempt some products from liberalization. This occurs because of strong political pressure by some domestic industries. If a substantial number of products are exempted, the area is known as a preferential trade arrangement, or a PTA.

An FTA violates the GATT/WTO principle of most-favoured nation because MFN requires countries to offer their most liberal trade policy to all GATT/WTO members. When an FTA is formed, the most liberal policy will become a zero tariff, or free trade. However, the original GATT carved out an exception to this rule by including Article 24.

Article 24 allows countries to pair up and form free trade areas as long as the FTA moves countries significantly close to free trade and as long as countries notify the GATT/WTO of each new agreement. The simple logic is that an FTA is in the spirit of the GATT since it does involve trade liberalization.

Can GATT's Principles Be Applied to 'New' Trade Policy Issues?

GATT is certainly not perfect, but most observers agree that its principles have worked remarkably well to liberalize world trade. Can these principles also be applied to the variety of new issues before the WTO? A number of these issues, such as agreements on labor and environmental standards, would extend GATT's reach well beyond traditional trade policy matters, and as such appear to encroach on traditional limits of national sovereignty.

This raises fundamental questions about the structure of international economic relations among sovereign states. Therefore, an important analytical question concerns the minimal range of policies over which international negotiations must proceed if global efficiency is to be achieved.

In recent work I have started to investigate such inquiries by exploring how homegrown work norms may be taken care of in the GATT/WTO. I think about a few ways to deal with the treatment of homegrown work guidelines inside an economic alliance. First I show that the "harmless disregard" of work principles inside an economic accord will bring about wasteful decisions for both exchange hindrances and work guidelines, much as work interests and social activists have asserted. In any case, I likewise show that immediate exchanges over work guidelines are not expected to arrive at productive results.

All things considered, I portray GATT decide changes that on a basic level could permit state run administrations to accomplish effective strategy results while proceeding to haggle over levies alone, subsequently protecting a level of public sway over customarily homegrown arrangement decisions. The necessary rule changes would broaden the rationale of correspondence as presently contained in GATT to the decision of homegrown work guidelines.

Yet, there is a significant qualification between the GATT rule transforms I recommend and the progressions that have been proposed in ongoing WTO conversations - in particular, the proper consideration of a "social condition" that would allow limitations to be put on imports from nations not consenting to a predefined rundown of least norms. These proposed changes would permit state run administrations to bring import limitations up in light of the feeble work principles of their exchanging accomplices.

Conversely, the progressions recommended by my examination would rather permit legislatures to bring import limitations up in return for fixing their own work guidelines. This reorientation, connecting the allowable degree of import insurance in GATT to one's own work guidelines as opposed to the work norms of one's exchanging accomplices, is the paper's focal directive for the use of GATT's standards to the new exchange strategy issues.

The international movement towards open markets prompted by the General Agreement On Tariffs And Trade(GATT) has its premise that trade liberalization will benefit all those who are concerned. Each country will be able to exploit its position of comparative advantage, once a free and fair trade regime has been implemented. After the Second World War, world trade has been growing continuously due to a number of factors.

In particular, the liberalization of trade restrictions and advent of WTO(which is an outcome of GATT) in recent times have expanded the trade between the international communities. The World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade(GATT), have contributed to global economic welfare in many and varied ways.

They range over the WTO's five areas of competence, which are to Establish international trade rules and disciplines, Negotiate reductions in policy-induced distortions to the free flow of goods and services between Members (including when non-members seek to accede), Settle trade-related disputes between members, Monitor, record notifications and disseminate information on trade and trade-related policies of Members and Coordinate with other international organizations on trade-related issues, including aid for trade.

There is also a consensus that GATT trade negotiations have contributed to the economic welfare gains that have resulted from trade policy reforms since the late 1940s, and could contribute further if the Doha round of negotiations can be brought to a successful trade-liberalizing conclusion. The challenge is thus still before the economics profession to better identify how the GATT/WTO has contributed to trade-related policy reforms and to use that knowledge to more precisely estimate how much that contribution is worth in terms of national and global economic welfare.

Award Winning Article Is Written By: Mr.Anmol Kumar Ghai
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Authentication No: JL41207886359-9-0722

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