The General Agreement on Tariffs and Trade (GATT)


The General Agreement on Trade and Tariff (GATT) was set up on October 30, 1947 in Geneva with 23 countries as its founder members, and India was one of them. It was originally set up as a temporary arrangement to bring about trade liberalisation. India has always been an active champion of multilateral trade negotiations. GATT later became an important and permanent set-up to attend to all trade issues among member countries. Its membership also got enlarged to practically all the members of the United Nations, except the communist countries and East European countries.

Objectives of GATT

The broad aim of GATT has been to reduce the trade restrictions put up by individual nations in pursuit of their narrow national interests. The goal was to achieve through multilateral negotiations, settling of all trade disputes through a set of rules and regulations evolved by GATT for its members.

The other objective was to aim at tariff concessions for exports and imports among the countries, with a view to aim at developing the full use of the resources of the world and expanding trade. GATT always permitted exception to its general rules, which require the eventual elimination of all import restrictions. It was always subject to safeguards intended to protect legitimate interests of other trading nations. The most important exceptions given by GATT were the special protection given to agriculture by most nations and allow many import restrictions to protect the farmers. Their rules also made import restrictions to protect the farmers. Their rules also made exceptions in the case of countries, which were in `balance of payments’ difficulties.

Work done by the GATT

From 1947 to 1967, GATT sponsored six rounds of multilateral trade negotiations mainly with a view to bring down the trade barriers by persuading countries to bring down their import levies with a view to greater exchange of goods and more trade flow. The sixth round brought the weighted average tariff of major trading nations to be reduced by 2% on raw materials and 7.7% on industrial products.

GATT played a prominent role in the settlement of trade disputes between two countries. GATT played a useful role between 1947 and 1973. But in the seventies there were many changes, which occurred in the world economy. The fixed system exchange rate was moving towards a floating system of exchange parity. The oil prices quadrupled in 1973, and threatened to increase further. There was a worldwide economic recession in 1974-75. Many of the developing countries had diversified their export base, and were becoming competitors to developed countries.

In 1974, the next round of multilateral negotiations were commenced by GATT, and it was concluded in 1979 at Tokyo, and was referred to as `Tokyo round of negotiations.’ Here tariffs were lowered by 27% to an average level of 5%. Certain non-tariff barrier agreements and codes were also agreed to.

An eighth round of trade negotiations under the auspices of GATT was launched in the mid eighties. This was known as Uruguay Round. Apart from the usual exercise to bring down the trade barriers, it also attempted to draft trading rules to cover four major sectors, not previously regulated. These were agriculture, services, investment, and intellectual property rights (patents, trademarks copyrights etc). It was also decided that an institutional framework was to be given to GATT, and thus was born World Trade Organisation (WTO which was to replace GATT as an apex trade policy body.

The discussions, many times very vociferous, continued for eight long years. Many of the developing countries put forward their view strongly to protect their economies, and in the Intellectual Property Rights discussion India played a prominent part and changing many of the original stringent changeover for the developing countries. It also protected the age old traditions of the farmers to have the right to their own seed protection and various other clauses which may have a bearing on our agriculture.

The discussions dragged on and ultimately a deadline was given that it should be completed at a conference in Morocco and the new organisation – WTO – should come into existence on 1st January 1995. Accordingly all the countries who are members of the GATT signed the WTO agreement and lodged the instrument of ratification on January 1, 1995.