gatt & trims
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GATT & TRIMS
Koppula.chandrasekher
1st M.B.A-13491E0037
QIS COLLEGE OF Engineering & Technology
Venga mukala palem,ongole-523002,
Prakasam (Dt), A.P E-Mail@[email protected]
Introduction to GATT and WTO Achievements of GATT WTO over GATT WTO Powers Role of WTO India’s Role in WTO
THE TRIMS AGREEMENT• Structure• Content IMPLEMENTATION
• Notification• Disputes• Transition
INTRODUCTION TO GATT
(GATT) is a multilateral agreement regulating international trade. Its purpose is
the "substantial reduction of tariffs and other trade barriers and the elimination
of preferences, on a reciprocal and mutually advantageous basis. It was
negotiated during the UN Conference on Trade and Employment and was the
outcome of the failure of negotiating governments to create the International
Trade Organization (ITO). GATT was signed in 1947 and lasted until 1993,
when it was replaced by the World Trade Organization in 1995. The original
GATT text (GATT 1947) is still in effect under the WTO framework, subject to
the modifications of GATT 1994
GATT- GENERAL AGREEMENT ON TARIFF AND TRADE
The international conference of 1944 which recommended the establishment of IMF(International Monetary Fund) and World Bank and also recommended the establishment of ITO(International Trade Organisation) but did not materialize, but in the year 1948 GATT was established.
International trading system, since 1948 was at least in principles, guided by the rules and procedures agreed to the signatories to the GATT which was an agreement sign by the member nations, which where admitted on the basis of there willingness to accept the GATT disciplines.
The primary objectives;-of GATT was to expand international trade by liberalizing so as to bring about all round economic prosperity, the important objective are as follows as:-1)Raising standards of living.2)To control the tax structure.3) Ensuring full employment and large and steady growing volume of real income and effective demand.4) Developing full use of resources of the world.5)Expansion of production and international trade.6)Give the priority for multilateral agreements.
GATT has certain conventions and general principles governing international trade among countries that follows the GATT agreement:-
1) Any proposed change in the tariff or any type of commercial policy of a member country should not be undertaken without the consultation with the other parties to the agreement.
2) The countries that adhear to get work towards the reduction of tariff and other barriers to the international trade should be negotiated within the frame work of GATT.
BARRIERS
a) TARIFF b) NON TARIFF
(Change in monetary value) (Quality & Quantity of product and services)
EVALUATION OF GATT
When GATT was signed in the year 1947 only 23 nations were party to it. In the 1986, there were 117 were members. One of the principle achievement of GATT was the establishment of forum for continuing consultation.
GATT achieved considerable liberalization, few exception are as follow as:-
Agricultural trade was an exception to the liberalizations. Trade in agricultural became progressively more distorted by the support given to the farmers in agricultural sectors.
Another exception was textile: trade in textile was restricted by MFA. under MFA import of textile items, to number of developed countries was restricted by quota.
Developing countries with balance of payment problem have been generally exempted from liberalization.
The average level of tariff on manufactured products in industrial countries was brought down from 40% in 1947 to 3% in 1986.
The export of developing countries gained significantly less from the GATT agreement then did the export of developed countries
A BRİEF HİSTORY OF THE GATT
Beggar-thy-neighbour tariff policies of 1930s => WWII
Bretton Woods Conference at the end of the WWII, finance ministers from the Allied nations gathered to discuss creation of a new monetary system that would support postwar reconstruction, economic stability, and peace.
=> IBRD & IMF=> need for a third institution, ITO.
1940s: Representatives met to design a postwar trading system that would parallel the international monetary system. Draft a Charter for ITO, Negotiate the substance of an ITO agreement (rules governing
governing international trade and reductions in tariffs.
1947: 23 Members Today: 153 Members
GATT TRADE ROUNDSYear Place /
NameSubjects Covered Countries
1947 Geneva Tariffs 23
1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960 – 1961 Dillon Round(Geneva)
Tariffs 26
1964 – 1967 Kennedy Round(Tokyo )
Tariffs and Anti-Dumping Measures
62
1973 – 1979 Tokyo Round
Tariffs, Non-tariff Measures, Framework Agreements
102
1986 – 1994 Uruguay Round
Tariffs, Non-tariff Measures, Rules, Services, Intellectual Property, Dispute Settlement, Textiles, Agriculture, Creation of WTO
123
2001-2013 Doha Tariffs, non-tariff measures, agriculture, labor standards, environment, competition, investment, transparency, patents etc
159
TİMELİNE OF GATT & WTO -1-
1944: At the Bretton Woods Conference, which created the IBRD and IMF, there is talk of a third organisation, the ITO.
1947: As support for another international organisation wanes in the U. S. Congress, the General Agreement on Tariffs and Trade is created. The Gatt Treaty Creates a set of rules to govern trade among 23 member countries rather than a formal institution.
1950: Formal U.S. Withdrawal from the ITO concept as the U.S. Administration abandons efforts to seek congressional ratification of the ITO
TİMELİNE OF GATT & WTO -2-
1951 – 1986: Periodic negotiating rounds occur, with occasional discussions of reforms of GATT. In 1980s, serious problems with dispute resolutions arise.
The Uruguay Round, a new round of trade negotiations, is launched. This culminates in 1994 Treaty that establishes the WTO.
1995: The WTO is created at the end of the Uruguay Round, replacing GATT.
2009: The GATT consists of 153 members, accounting for approximately 97% of world trade.
1947 Geneva round (Switzerland)
Geneva Round:1947The first round took place in 1949 in Geneva, siwtzerland.23 counties took part in the round. The main focus of the talks was more tariff reductions, around 45,000 products.
Annecy Round: 1949The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of the talks was more tariff reductions, around 5000 in total.
The third round occurred in Turkey, England in 1950. Thirty-eight countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana Charter signified the establishment of the GATT as a governing world body
1949 Annecy round (France)
1950-1952
Turkey round (Brittan)
1955-1956(59)
Geneva round (Switzerland)
The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. $2.5 billion in tariffs were eliminated or
reduced.
1960-62
Geneva round (Switzerland)
The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC).
1964-67
Kennedy Round (Tokyo -Japan)
The sixth round of GATT multilateral trade negotiations, held from 1963 to 1967. It was named after U.S. President John F. Kennedy in recognition of his support for the reformulation of the United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave the President the widest-ever negotiating authority. 56% taxes reduced in that time. And 99 countries are participated.
1973 – 1979 Tokyo round
A first attempt for reforming the system, Progressive reduction of tariffs, average tariff on industrial
products became 4.7%, Discussion of fundamental problems: Agricultural product
trade, Safeguards (emergency import measures), A series of agreements and arrangements on non-tariff trade
barriers => Small number of GATT members subscribed to them,
Several Codes on Plurilateral Commitments (Eg. Government Procurement, Civil Aircraft, Diary Products).
1986 – 1994
Uruguay round
This was 8th round of multilateral trade organization which was held in September 1986. The first 6 round of MTN(Multi Lateral Trade Negotiation) concentrated almost exclusively on reducing tariffs while the 7th round which was the Tokyo round (1973-79). Moved on to tackle the non tariff barriers. The Uruguay round agreement broaden the scope of MTN by including new areas.1) General Agreement on Trade In Services (GATS).2) Trade Related Aspects Of Intellectual Property and services. (TRIPS)3) Trade Related Investment Measures (TRIMS)
UNSOLVED PROBLEMS OF GATT -1-
By the 1980s several problems had surfaced:
The dispute resolution mechanism of GATT was not effectively functioning. Longstanding disagreements among members regarding issues like government subsidies, regulations for FDI…
A number of commodities (agricultural products and textiles) were widely exempt from GATT disciplines.
Certain forms of administered trade protection (anti-dumping duties, VERs, counterveiling duties) were restricting trade and distorting trade patterns in many important sectors.
UNSOLVED PROBLEMS OF GATT -2-
Trade in services was expanding rapidly and GATT had no rules regarding trade in services.
Countries producing intellectual property were becoming increasingly frustrated by the lack of intellectual property protection in many developing nations.
Rules regarding trade related investment measures (eg. Domestic purchase requirements for plants built from FDI) were hotly disputed
FUNDAMENTAL PRİNCİPLES OF THE GATT/WTO SYSTEM
RECIPROCITY: A practice that occurs in GATT negotiating rounds, whereby one country offers to reduce a barrier to trade and a second country “reciprocates” by offering to reduce one of its own trade barriers. The practice of swapping tariff concessions,
facilitates the reduction of trade barriers.
NONDISCRIMINATION: (Equal treatment) If one GATT member offers a benefit or a tariff concession to another GATT member, it must offer the same tariff reduction to all GATT members.
NONDISCRIMINATION -1-
Most Favoured Nation Treatment: Grant someone a special favour, then have to do the same for all other WTO members. Each member treats all the other members as “most favoured trading partners”.
National Treatment: Imported or locally-produced goods should be treated equally – at least after the foreign goods have entered the market.
Freer Trade: Lowering trade barriers, gradually and through negotiation. Trade barriers concerned include customs duties and measures such as import bans or quotas, red tape, and exchange rate policies.
NONDISCRIMINATION -2-
Predictability through binding and transparency: Once lowered, promising not to raise trade barriers gives businesses a clearer view of their future opportunities. With stability and predictability, investment is encouraged, jobs are created, and consumers can fully enjoy the benefits of competition (variety, and lower prices).
Percentages of Tariffs Bound Before and After the 1986 – 1994 Talks
Before After
Developed Countries 78 99
Developing Countries 21 73
Transition Economies 73 98
IMPACT OF A TARİFF ON A SMALL COUNTRY
Import tariffs=Tax Raise the price that
consumers pay for a good,
Provide tax revenue to the government
Potential to create inefficiencies in consumption and production decisions,
Very small country will benefit by unilaterally lowering its tariffs, Because very small
countries are unable to affect the world prices
IMPACT OF A TARİFF ON A LARGE COUNTRY
Reciprocity becomes important when large countries are changing their trading policies, Because import demand will comprise largeshare of world wide
demand, prices are affected If a tariff is imposed
Quantity of Imports demanded will decrease Wold Price falls Terms of Trade Improves Cost of tariff is pushed on to foreign producers Country is better off
Consumers pay higher prices, but gov’t collect revenue, and import competing producers earn higher revenue
The use of tariff policy by the large country Beggar-thy-neighbour policy Importing Country better off Exporting Country worse off Inefficiencies in the world trading system
Level of production becomes too high in importing country, and level of production becomes too low in exporting country
INDIA’S ROLE IN WTO
Founder member - India is a founder member of the General Agreement on Tariffs and
Trade (GATT) 1947 and its successor, the World Trade Organization (WTO), which came
into effect on 1.1.95 after the conclusion of the Uruguay Round (UR) of Multilateral Trade
Negotiations.
Stability and Predictability - India's participation in an increasingly rule based
system in the governance of international trade is to ensure more stability and predictability,
which ultimately would lead to more trade and prosperity for itself and the 149 other
nations which now comprise the WTO.
MFN - India also automatically avails of MFN and national treatment for its exports to all
WTO members. According to the WTO Secretariat Report, along with the policy statement
by the Government of India, India is expected to snatch most of the business deals that are
presently catering the developed nations which includes major service based industries like
telecom, financial services, infrastructure services such as transport and power.
The increase in availability and reduction in tariffs has prompted many
developed nations to go for business with India especially in IT industry. If
the trend continues then by 2025, India is expected to cater to the software
and services demands of major giants of the business world. Analyzing the
present relationship with the promising economic growth of India, one can
be sure that India is going to enjoy a very candid and bright relationship
with WTO and associated member nations by 2025
“India has also played an important part in the
effective formulation of major trade policies”
T-O-T DRİVEN PRİSONER’S DİLEMMA
Two situations: Two parties can improve
their situations by acting cooperatively,
However, indivudual incentives they face lead them to act non-cooperatively.
The problem facing the countries at the end of WWII was that they knew they would collectively be better off under free trade. Though each country benefited from its own import tariff, it also suffered at the hand of its trading partner’s import tariffs.
GATT MECHANISM
A mechanism was needed by which countries could jointly commit to tariff reductions that would reduce the losses due to production and consumption distortions, and through gains in efficiency, make all countries, better off.
Practice of reciprocal tariff reductions provided the necessary mechanism for countries to commit to freer trade
In all countries, the reallocation of labour and capital away from protected import competing firms and toward export sectors would generate real efficiency gains => Export Oriented Growth Strategy !
POWER OF NON DİSCRİMİNATİON Convenience and practicality,
Setting the same tariff policy on imports from all countries ensures that resources are allocated to their most productive use,
On the import side, nondiscrimination ensures that countries purchase imports from the lowest-cost source country, (trade diversion is prevented)
Prevents re-reouting in order to circumvent high tariffs, in which exporter ships its goods to a third country repackages it, and then ships it to a final destination where it will qualify for the third country’s preferential tariff, sometimes substantial transformation becomes necessary that leads the firm to move a stage of production to the third country,
On export side, nondiscrimination protects exporting countries from bilateral opportunism. If one country were later to offer a lower tariff rate to a third country, this could erode the value of the original tariff concession to the first trading partner.
GATT WAS PRIORITY PROVIDED TO 15 MAIN PRINCIPLES.
Tariff barriers Non-tariff barriers Tropical products Subsidies Natural resource products Agricultural multilateral
agreements. Safe guard Employment opportunity Gatt Trips Trims
Gat’s principlesBilateral agreementCapital goods structure.
SUCCESS OF GATT
Regular meetings of GATT members are known as “negotiating rounds Primarily focus on further reductions in the in the
maximum tariffs that countries could impose on imports from other GATT members
Tariffs on manufactured products fell from a trade-weighted average of roughly 35% before the creation of GATT in 1947, to about 6.4% at the start of the Uruguay round in 1986.
The volume of trade among GATT members surged: In 2000 the volume of trade among WTO members stood at 25 times its 1950 volume.
TRIMS
Trade related investment measures refers to certain conditions or restrictions imposed by a government in respect of foreign investment of the country. The agreement on TRIMS provide that no contracting party shall apply any TRIM, which is in consistence with WTO, article.
Following TRIM are considered as in-consistence:-
1) Local content requirements.
2) Trade balancing requirement.
3) Foreign exchange balancing requirements.
4) Domestic sale requirements
EXAMPLES OF TRIMS Market access
Ownership or equity restrictions
Joint venture requirements
Performance Requirements Local content
schemes Export performance
requirements Foreign Exchange
balancing
THE TRIMS AGREEMENT•Structure•Content
LEGAL FRAMEWORK
The TRIMs agreement does not provide any new language
It focusses on two Articles that were identified in a previous case under the GATT Article III (National Treatment) Article XI (Quantitative Restrictions)
AIMS OF THE AGREEMENT
Desiringto promote the expansion and progressive
liberalisaiton of world trade and to facilitate investment, while ensuring competition
Take into accounttrade, development and financial needs of
developing countries, particularly least developed countries
Recognisingcertain investment measures can cause
trade-restrictive and distorting effects
STRUCTURE Nine Articles and an Annex Art I - clarifies that the agreement applies only to
trade in goods Art 2 - applies Articles III or XI and refers to the
Annex list Art 3-4 deal with general exceptions and Art
XVIIIb Art 5 Notification and transition periods Art 9 - Review
GATT ARTICLES
Article III (GATT) National treatment of imported product, unless
specified in other agreements Subjects the purchase or use by an enterprise of
imported products to less favourable conditions than the purchase or use of domestic products
Article XI (GATT) Prohibition of quantitative restrictions on imports
and exports Part of the general trend in textiles and
agriculture to phase out the use of quantitative restrictions
ILLUSTRATIVE LIST - PARA 1
Para 1 (a) covers local content TRIMs which require the purchase or use by an enterprise of products of domestic origin or domestic source.
Para 1(b) covers trade balancing TRIMs which limit the purchase or use of imported products by an enterprise to an amount related to the volume or value of local products that it exports.
ILUSTRATIVE LIST- PARA 2
2(a) deals with border measures that deal with trade balancing.
2(b) restrictions to trade that arise from foreign exchange access restrictions such as balancing requirements
2 (c) deals with measures that restrict exports.
NOTIFICATION
Governments of WTO members, or countries entitled to be members within 2 years after 1 January, 1995 shouold make notifications within 90 days after the date of their acceptance of the WTO agreement.
TRANSITION PERIODS
Members are obliged to eliminate TRIMs which have been notified. Such elimination is to take place within two years after the date of entry into force of the agreement for developed countries five years for developing seven years for LDC
STANDSTILL TRIMS introduced less than 180 days before
the agreement do not benefit from transition period.
Members are also not allowed to change measures that have been notified if these changes are inconsistent with the agreement.
The same TRIM can be applied to a new investment.
IMPLEMENTATION•Notification•Disputes•Transition
NOTIFICATION Argentina* Barbados Bolivia Chile* Colombia Costa Rica Cuba Cyprus Dominican Republic Ecuador Egypt* India Indonesia Malaysia*
Mexico* Nigeria Pakistan* Peru Philippines* Poland Romania* South Africa Thailand* Uganda Uruguay Venezuela
DISPUTES
Three disputes Indonesia vs EU, Japan, US Canada vs. Japan and EU Panama vs EU (Bananas)
INDONESIA
Automotive sector National car policy
required the manufacturer to have local content Lower sales tax Subsidy issue was also involved.
CANADA
Automotive sector - Canada-US Auto Pact Required a company to have local content
levels beyond the North American Free Trade Agreement in order to have a lower tariff rate
Result was the tariff was increased to MFN rate
IMPLEMENTATION DIFFICULTIES
Difficulties in identifying TRIMs that violate the agreement
Difficulties in identifying alternative policies to achieve the same objective
Difficulties in accounting for non-contingent outcomes such as the financial crisis in Asia and Latin America
Difficulties in meeting the transition period deadlines
DEVELOPMENT DIMENSION OF THE TRIMS AGREEMENT
Only developing countries notified TRIMS Most frequent sector was the automotive
industry The most frequent policy was local content
schemes
APPLYING FOR EXTENSIONS OF TRANSITION PERIODS
Chile Romania Egypt Argentina Colombia
Thailand Malaysia Philippines Pakistan
WHERE TO FROM HERE?
Developing countries are serious about not moving ahead on TRIMS until the agreement has been implemented
The focus is on how to proceed with the review.
INVESTMENT AND THE WTO
Options Leave the agreement as it is Extend the illustrative list Complement the TRIMs agreement with new
rules on investment that have features of BITs and NAFTA chapter 11.
STATUS QUO
There are two dispute panels have clarified precisely the role of TRIMs and GATT.
We have a clear specification of the consistency of policies in the annex list an the GATT
Guidance on transition periods
RENOVATION
Annex list is not exclusive of policies that are inconsistent with III:1 and XI:4
Seek to expand the list Export performance requirements
Require a clarification of “restrict” versus “distort” trade.
NEW ARCHITECTURE
Proposal to expand the role of provisions related to market access and operations of foreign affiliates.
Two models BITS NAFTA chapter 11
COMPONENTS Three components of an investment
architecture Market access
Pre and post establishment Operations
National treatment with respect to policies Dispute resolution
NAFTA type investor-state model Unworkable in the WTO context
STUDY
Goods Council has requested a joint UNCTAD/WTO Secretariat study on the “development effects of TRIMs”.
Joint with Trade Analysis Branch (UNCTAD) and Trade and Finance (WTO).
DEVELOPMENT EFFECTS
I Identify and define TRIMs II Historical experience with TRIMS III What is ‘development’?
Include employmentTechnology transferEstablishment and development of
industryGrowth
Neutrality of the study.
FDI AND POVERTY ALLEVIATION FDI and growth - parallels with trade
and growth literatureData is worse.
Composition of FDI flows labour-intensive (poor intensive) sectors
Not a huge amount of total flows, but important for developing countries
“Crowding out” domestic investment and domestic firms likely more important in the context of
large scale industriesAuto industry - seat covers, wiring
harnesses
EU-LDC NETWORKS
Networks Access to researchers and data
case studies are hugely important Economists are terrible at doing this kind of work.
Specialists have knowledge of past studies to contribute to step II
Developing a research agenda on development dimension of TRIMs
