TOPIC INFO (UGC NET)
TOPIC INFO – UGC NET (Economics)
SUB-TOPIC INFO – International Economics (UNIT 5)
CONTENT TYPE – Detailed Notes
What’s Inside the Chapter? (After Subscription)
1. General Agreement on Tariffs and Trade (GATT)
1.1. History
1.2. Purpose
1.3. Benefits
2. World Trade Organisation (WTO)
2.1. Background
2.2. Organizational Structure and Voting
2.3. Main Functions of the WTO
2.4. Components of WTO
2.5. WTO-An appraisal
3. Regional Trade Blocs
3.1. Introduction
3.2. Types of Trade Blocs
3.3. Benefits of Trade Blocs
3.4. Reasons Behind the Recent Upsurge in PTAS
3.5. Welfare Impact of PTAS
3.6. Trade Creation and Trade Diversion
3.7. Major Regional Trade Blocs
3.8. Static and Dynamic Effects of Regional Blocs
3.9. Regionalism and Multilateralism
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DETAILED NOTES UGC NET (ECONOMICS)
GATT, WTO and Regional Trade Blocks; Trade Policy Issues
UGC NET ECONOMICS
International Economics (UNIT 5)
LANGUAGE
Table of Contents
General Agreement on Tariffs and Trade (GATT)
The General Agreement on Tariffs and Trade (GATT) is a legal agreement between numerous countries with the goal of promoting international trade by lowering or eliminating trade obstacles like tariffs and quotas. It is a crucial topic in the Economy syllabus for the UPSC Examination. The article below briefs the General Agreement on Tariffs and Trade (GATT) on the exam point of view followed by detailed explanations.
- The General Agreement on Tariffs and Trade (GATT), was a legal agreement that aimed to reduce trade barriers by abolishing or reducing quotas, tariffs, and subsidies while retaining considerable restrictions.
- This was signed on October 30, 1947, by 23 countries.
- The GATT was created to help the world economy recover after WWII by rebuilding and liberalising global trade.
History
- The General Agreement on Tariffs and Trade (GATT) dates back to the 1944 Bretton Woods Conference, which established the International Monetary Fund (IMF) and the World Bank, as well as laid the groundwork for the post-World War II financial system.
- The conference delegates also proposed the creation of a complementary institution known as the International Trade Organisation (ITO), which they saw as the system’s third leg.
- The UN Conference on Trade and Employment in Havana, Cuba, in 1948 completed a draft charter for the ITO, known as the Havana Charter, that would have established broad laws covering trade, investment, services, and business and employment practices.
- Meanwhile, the GATT, signed by 23 countries in Geneva in 1947, entered into force on January 1, 1948, with the following goals: to phase out the use of import quotas and reduce tariffs on merchandise trade.
- From 1948 to 1995, the GATT was the only multilateral instrument (not an institution) governing international trade. In 1995, WTO evolved from GATT.
- Despite its structural flaws, the GATT was able to function as a de facto international body, sponsoring eight rounds of multilateral trade negotiations.
Purpose
- The GATT was created to establish regulations to eliminate or limit the most costly and inefficient characteristics of the prewar protectionist period, notably quantitative trade barriers like trade controls and quotas.
- The pact also established a system for resolving international commercial disputes, as well as a framework for multilateral tariff reduction negotiations.
- In the postwar years, the GATT was seen as a significant success.
Benefits
- It regulates the contracting parties in order to fulfil the agreement’s goals of lowering tariffs and other trade obstacles and achieving international trade liberalisation.
- It provides more opportunities to increase exports and earnings.
- As a result of solid and clear trading standards, also leads to better planning and execution of investment and trade activities.
World Trade Organisation (WTO)
Background
- The General Agreement on Tariffs and Trade (GATT) was established on 1 January 1948 after the end of the Second World War.
- It was a multilateral instrument aimed at liberalizing world trade in order to promote economic growth, development and global welfare.
- The significant rounds of GATT included the First Round at Geneva (1947), the Kennedy Round (1964–1967), the Tokyo Round (1973–1979) and the Uruguay Round (1986–1994).
- The Final Act of the Uruguay Round, establishing the WTO regime, was signed on 15 April 1994 at the Ministerial Meeting in Marrakesh, Morocco.
- With the signing of the Marrakesh Agreement, the World Trade Organization (WTO) came into existence on 1 January 1995.
- The World Trade Organization is primarily an organization for the liberalization of international trade and also serves as a forum for governments to negotiate trade agreements.
- Member-states facing trade barriers can negotiate within the WTO framework to have them removed or reduced, thereby facilitating trade liberalization.
- However, the WTO is not solely about liberalization, as in certain cases its rules allow the maintenance of trade barriers to protect consumer rights or prevent the spread of diseases.
- The WTO’s rules mainly consist of agreements negotiated and signed by member-states, which act as legally binding contracts governing international trade and commerce.
- These agreements bind governments to keep their trade policies within agreed limits, ensuring stability and predictability.
- Although negotiated by governments, the WTO also seeks to assist private producers of goods and services, exporters, and importers in conducting their business smoothly.
- Simultaneously, it encourages governments to meet their social and environmental commitments.
- According to the official WTO website, a major purpose of the organization is to help trade flow as freely as possible, while avoiding undesirable side-effects, as free trade is crucial for economic development and well-being.
- This objective involves both removing obstacles to trade and ensuring transparency and predictability in global trade rules so that individuals, companies and governments are confident that sudden policy changes will not occur.
- Another key objective of the WTO is the resolution of conflicting interests among trading nations through its Dispute Settlement Mechanism (DSM).
- The DSM operates through neutral procedures based on an agreed legal foundation, ensuring that disputes are settled multilaterally rather than unilaterally.
- WTO members have agreed to use this multilateral dispute settlement system, to abide by agreed procedures, and to respect judgments.
- Unlike GATT, the WTO has an elaborate dispute settlement mechanism with a definite time frame, and the Dispute Settlement Body (DSB) is responsible for resolving trade disputes.
- The WTO currently has 153 members.
- The 123 states that participated in the Uruguay Round of GATT became founder-members in 1995, and thirty additional countries joined later.
- All WTO members have joined through a process of negotiation, reflecting a balance of rights and obligations.
- Membership provides privileges and security under global trade rules, while requiring commitments to open markets and comply with WTO rules, which are finalized during accession negotiations.
- WTO membership is obtained through a lengthy accession process involving multiple rounds of negotiations between the applicant country, existing members, and WTO bodies.
- For legal purposes, the European Union (EU) is officially known as the European Communities within the WTO framework.
- The EU is a WTO member in its own right, alongside its twenty-seven individual member-states, making twenty-eight members in total.
- In addition to full members, the WTO has thirty observers, including Afghanistan, Algeria, Andorra, Azerbaijan, Bahamas, Belarus, Bhutan, Bosnia and Herzegovina, Comoros, Equatorial Guinea, Ethiopia, Holy See (Vatican), Iran, Iraq, Kazakhstan, Lao Democratic Republic, Lebanon, Liberia, Libya, Montenegro, Russian Federation, Samoa, Sao Tome and Principe, Serbia, Seychelles, Sudan, Tajikistan, Uzbekistan, Vanuatu and Yemen.
- According to WTO rules, all observers, except the Holy See, must begin accession negotiations for full membership within five years of becoming observers.