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General Agreement on Tariffs and Trade (GATT)
The General Agreement on Tariffs and Trade (GATT) was a legal framework established to
reduce barriers to international trade by eliminating tariffs, subsidies, and quotas while
maintaining essential regulations. Signed on October 30, 1947, by 23 nations in Geneva, it
came into effect on January 1, 1948. GATT aimed to support global economic recovery after
the devastation of World War II by promoting trade liberalization and reconstruction. In
1995, GATT was replaced by the World Trade Organization (WTO).

GATT played a pivotal role in restoring global economic stability following World War II by
encouraging the reduction of trade barriers. Its preamble emphasized the importance of
"substantial reductions of tariffs and other trade barriers and the elimination of preferences on
a reciprocal and mutually advantageous basis."

GATT was eventually replaced by the WTO for several reasons:

• GATT was provisional and ad hoc, and its agreements were never formally ratified by
the parliaments of member countries.
• While GATT focused solely on trade in goods, the WTO expanded its scope to include
intellectual property and services.
• The WTO’s dispute resolution system is faster, with its rulings being binding and
unimpeded.
• Unlike GATT, the WTO operates on a strong legal foundation, with all agreements
being permanent and ratified by member countries’ parliaments.
• The WTO offers a more structured and institutionalized framework compared to
GATT, which lacked a formal institutional structure.

Functions of GATT

1. Most Favoured Nation (MFN) Treatment:

o The MFN principle is central to GATT and is outlined in Article One of the
1947 agreement. It requires each contracting party to offer all other members
the same favorable trade terms as those granted to the most favored nation.
2. Reciprocity:
o GATT, established after World War II, operates on the principle of "rights and
obligations," closely tied to the MFN concept. It emphasizes mutual benefits in
trade agreements between member nations.
3. Transparency:
o A transparent trade system is crucial for harmonizing import protection
methods and reducing trade barriers through negotiation. GATT limited the
use of quotas in specific sectors, such as agricultural imports, advocating for
tariff-based systems instead.
4. Tariff Binding and Reduction:
o In its early years, GATT focused on tariffs as the primary tool for trade
protection and negotiation, working to reduce tariffs to promote fair trade.

Objectives and Purpose of GATT

1. Reducing Trade Barriers:

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 o The primary goal of GATT was to lower barriers to international trade,
including tariffs, quotas, and other restrictions.
2. Regulating Trade to Avoid Protectionism:
o GATT aimed to eliminate costly and inefficient trade practices from the pre-
World War II protectionist era, such as trade quotas and controls.
3. Eliminating Trade Discrimination:
o GATT sought to remove discriminatory trade practices among member
countries, focusing on reducing harmful trade protectionism and promoting
fair competition globally.

Rounds of global trade talks under GATT:

Round Year(s) Location Number of Key Points
Countries
First April Geneva 23 Formation of GATT; exchanged tariff
Round 1947 concessions on 45,000 products worth
$10 billion.
Second 1949 Annecy, 13
Round France
Third 1959 Torquay, 38
Round England
Fourth 1955- Geneva 26
Round 1956
Fifth 1960- Geneva Named after US Treasury Secretary; first
Round 1962 proposal for the talks.
Sixth 1964- Formation of EEC; Trade Expansion Act
Round 1967 of 1962 allowed 50% tariff reductions.

Seventh 1973- 102 Tokyo Round; reduced tariffs, new

Round 1979 regulations to control non-tariff barriers
and export restrictions.
Eighth 1986- Punta Del Concluded by the end of 1990; Aurthur
Round 1993 Este, Uruguay Dunkel's draft final act known as the
Dunkel Draft Text.
Challenges Faced by GATT

1. Changing Nature of World Trade:

By 1980, global trade dynamics had evolved significantly, but GATT did not address
these changes, particularly the growing importance of trade in services between
nations.
2. Sovereignty and Domestic Laws:
GATT's requirements for synchronizing domestic laws with international trade
agreements reduced the sovereignty of nations. Countries had to align their internal
regulations with GATT rules to benefit from trade concessions, leading to disputes
when countries were unwilling or unable to comply.
3. Proliferation of Free Trade Agreements:
The rapid increase in bilateral and regional free trade agreements, such as RCEP
and NAFTA, raised concerns about trade diversion and the effectiveness of GATT in
managing global trade relations.

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WORLD TRADE ORGANISATION (WTO)
India was one of the twenty-three original signatories to the General Agreement on Tariffs
and Trade (GATT), and as such, it automatically became a member of the World Trade
Organization (WTO) when it replaced GATT on January 1, 1995, following the completion
of the Uruguay Round of negotiations in 1994.

The WTO's Dispute Settlement System (DSS), established in 1995, is designed to resolve
trade-related disputes between member nations. Since its inception, the DSS has handled over
500 complaints, using both political dialogue and adjudication to address conflicts. However,
the DSS is currently experiencing a significant crisis due to a US blockade, which could
potentially render the system inoperable by late 2019.

Addressing this crisis will likely require extensive institutional and structural reforms among
WTO member countries. In this context, evaluating India's experience with the DSS is
crucial. It is important to assess how reform proposals will impact India, especially from the
perspective of a developing country.

Major WTO Agreements & Implications for India

Agreement on Subsidies and Countervailing Measures (SCM)

• Definition of Subsidy:
The SCM Agreement defines a "subsidy" as a financial contribution from a
government or any public body within a member's territory that provides a benefit.
The agreement specifically addresses four types of subsidies:
o Enterprise-Specific Subsidies: Targeted at specific companies.
o Industry-Specific Subsidies: Directed at particular sectors.
o Regional Specificity: Focused on producers in certain areas.
o Prohibited Subsidies: Include those aimed at export products or goods using
domestic inputs.
• Types of Banned Subsidies:
o Export-Based Subsidies: Subsidies contingent on export performance.
o Indigenous Content-Based Subsidies: Subsidies that favor the use of domestic
inputs over imported goods.
• In addition to these, there are 'actionable subsidies,' which are not outright prohibited
but can be contested through 'countervailing actions' if they cause adverse effects.

General Agreement on Trade in Services (GATS)

• Inspiration and Objectives:

GATS was developed to establish a credible international trade framework, uphold
the principle of non-discrimination, enhance economic activity through clear policy
commitments, and promote progressive trade liberalization.
• Negotiation Approaches:
WTO service negotiations involve discussions on two main approaches: the positive
list method and the negative list method.
o Positive List Method: Members specify the services for which they plan to
eliminate tariff or non-tariff barriers. This method involves market opening

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 and providing national treatment to foreign service providers for the listed
services.
o Negative List Method: This approach pertains to services where trade
barriers remain in place. It involves removing barriers for all services except
those explicitly listed as exceptions.
• Western Preference vs. Indian Opposition:
Western countries advocate for a shift from the positive list method to the negative list
approach. India opposes this shift, as it could expose nearly the entire Indian service
sector to the influence of Western multinational corporations.

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

The TRIPS Agreement, established by the World Trade Organization (WTO), sets minimum
standards for various categories of intellectual property (IP) protection globally:

• Copyright:
This grants the legal right to control the reproduction and distribution of creative
works such as books, plays, films, photographs, and music. However, copyright
protection is limited to the expression of ideas, not the ideas themselves, methods,
procedures, or mathematical concepts.
• Geographical Indications:
These are signs that identify goods as originating from a specific territory, region, or
locality where a particular quality, reputation, or characteristic of the goods is
largely due to their geographical origin.
• Industrial Designs:
The agreement mandates protection for independently created industrial designs that
are new or original for at least 10 years.
• Integrated Circuit Layout-Designs:
This refers to the three-dimensional arrangement of the elements and their
interconnections within an integrated circuit, or the layout designed for an integrated
circuit intended for manufacture.
• Patents:
Members are required to make patents available for any inventions—whether
products or processes—across all technological fields, provided they meet the criteria
of novelty, inventiveness, and industrial applicability. Certain exceptions to this rule
are allowed.
• Trademarks:
Article 15 stipulates that any sign, or combination of signs, that can distinguish the
goods and services of one entity from those of others must be eligible for trademark
registration, as long as it is visually perceptible.

Trade-Related Investment Measures (TRIMS)

• Overview:
TRIMS, established during the Uruguay Round of negotiations, addresses measures
affecting trade in goods. It mandates that no member shall implement policies that
contravene GATT Article III (national treatment) or Article XI (quantitative
restrictions). Consequently, members are prohibited from enacting policies that
discriminate against foreign products or impose quantitative restrictions. The goal of
TRIMS is to dismantle trade barriers and promote transparent market access and the
integration of global markets.

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Agreement on Agriculture (AoA)

The AoA is based on three core pillars:

1. Domestic Support:
This encompasses subsidies like guaranteed minimum prices or input subsidies that
are direct and specific to a product. Domestic support is categorized into:
o Green Box:
These are subsidies that are minimally or non-distorting to the market. They
include income support payments, safety-net programs, environmental
program payments, and agricultural research and development subsidies.
Developing countries receive special treatment for food security-related
governmental stockholding schemes and subsidized food prices for the poor.
The US has utilized this category by decoupling subsidies from production
outputs and investing in agricultural research and development.
o Blue Box:
These subsidies are designed to limit production and include payments based
on factors such as acreage, yield, or number of livestock in a base year.
Governments can set 'target prices' if market prices fall below farm prices.
The EU has actively employed this method.
o Amber Box:
These are trade-distorting subsidies that need to be reduced. They are
categorized under domestic support that must be cut back according to a
formula known as the "Aggregate Measure of Support" (AMS). AMS refers to
government spending on agricultural production, excluding support in the
Green Box, Blue Box, and 'de minimis' categories.

Differences between GATT and WTO:

Aspect GATT WTO
Formation GATT was a multilateral agreement WTO is a permanent institution with a
and Structure formed to reduce tariffs, lacking a formal institutional framework and its own
formal institutional framework and secretariat.
having only an ad hoc secretariat.
Scope GATT covered only trade in goods. WTO covers goods, services, and aspects of
intellectual property.
Institutional GATT was a set of rules with no WTO is a global body with a permanent
Foundation institutional foundation. institution and secretariat.

Provisional GATT was an ad hoc provisional WTO has a full and permanent existence and
Nature agreement. goals.
Participants Nations participating in GATT were Members of WTO are called member states.
called contracting parties.
Power and GATT was less powerful with a slow WTO holds significant power, accounting
Efficiency and inefficient dispute resolution for nearly 96% of global GDP, with a faster
system. and more efficient dispute settlement system.
Agreement Initially selective, with the notion of Involves multilateral memberships and
Nature plurilateral agreements added later in commitments from the outset.
the 1980s.

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Domestic Domestic legislation could continue Domestic legislation must comply with
Legislation even if it violated GATT agreements. WTO agreements.
Membership GATT was signed by 23 nations. WTO has 164 member states working
collectively towards international trade.

Dispute GATT had a permanent appellate WTO has a faster dispute resolution system
Resolution body for dispute resolution, though it with specific time frames for settlement.
was less effective.

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