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The General Agreement on Tariffs and Trade (typically abbreviated GATT) 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 formed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995.
The Bretton Woods Conference had introduced the idea for an organization to regulate trade as part of a larger plan for economic recovery after World War II. As governments negotiated the ITO, 15 negotiating states began parallel negotiations for the GATT as a way to attain early tariff reductions.
General Agreement on Tariffs and Trade (GATT) Outcome of the failure of negotiating governments to create the International Trade Organization (ITO) Negotiated during the UN Conference on Trade and Employment Formed in 1947 and transformed to World Trade Organization (WTO) in 1995 3
Part of economic recovery after World War II, Bretton Woods Conference suggested an organization to regulate trade Parallel to the Governments negotiating the ITO, 15 negotiating states began negotiating for the GATT as a way to attain early tariff reductions The ITO failed in 1950 and then GATT agreement was introduced 4
GATTs main objective Reduction of barriers to international trade Achieved through reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of agreements It was a treaty, not an organization A small secretariat occupied what is today the Centre William Rappard in Geneva, Switzerland 5
Inception Efforts to negotiate international trade agreements began in 1927 at the League of Nations but were unsuccessful. Precursor organization to GATT, ITO, was first proposed in February 1945 by the United Nations Economic and Social Council (UNESCO). Owing to the United States failing to implement the ITO, GATT was the only organization left. On 1 January, 1948 the agreement was signed by 23 countries: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, Chi na, Cuba, the Czechoslovak Republic, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, the United Kingdom, and the United States. According to GATTs own estimates, the negotiations created 123 agreements that covered 45,000 tariff items that related to approximately one-half of world trade or $10 billion in trade. 6
The General Agreement on Tariffs and Trade (GATT) was first signed in 1947. Was designed To provide an international forum That encouraged free trade between member states By regulating and reducing tariffs on traded goods Providing a common mechanism for resolving trade disputes. 7
TRADE BARRIERS Tariff and Non-Tariff Barriers While free-trade maximizes world welfare, most nations impose some trade restrictions that benefit special groups in the nation. The most important type of trade restriction historically is the tariff. This is a tax or duty on the imports or exports. When a small nation imposes an import tariff, the domestic price of the importable commodity rises by the full amount of the tariff for individuals in nation. As a result, domestic production of the importable commodity expands while domestic consumption and imports fall. However, the nation as a whole faces the unchanged world price since the nation itself collects the tariff. 9
Tariffs Tariffs can be ad-Valorem, specific, or compound. Ad-Valorem tariff is expressed as a fixed percentage of the value of the traded commodity. Specific tariff is expressed as a fixed sum per physical unit of the traded commodity. A compound tariff is a combination of an Ad Valorem and a specific tariff. 10
Trade Restrictions /Trade Barriers An import tariff is a duty on the imported commodity, while an export tariff is a duty on the exported commodity. Export tariffs are prohibited by the U.S. Constitution but are often applied by developing countries on their traditional exports (such as Ghana on it’s cocoa and Brazil on it’s coffee) to get better prices and revenues. Developing nations rely heavy on export tariff to raise revenues because of their ease of collection. On the other hand, industrial countries invariably impose tariffs or other trade restrictions to protect some(usually labor-intensive)industry, while using mostly income taxes to raise revenues. 11
Trade Barriers (Contd) According to Stolper-Samuelson theorem , an increase in the relative price of a commodity (for example, as a result of a tariff ) raises the return or earnings of the factor used intensively in it’s production. For example, if a capital-abundant nation imposes an import tariff on the labor intensive commodity, wages in the nation will rise. However, since the nation’s benefit comes at the expense of other nations, latter are likely to retaliate, so that in the end all nations usually lose. 12
Trade Barriers (Contd) Two arguments are that protection is needed to reduce domestic unemployment and a deficit balance of payments. A more valid argument for protection is the infant-industry argument. However, what trade protection can do, direct subsidies and taxes can do better in overcoming purely domestic distortions.The same is true for industries important for national defense.The closest we come to a valid economic argument for protection is the optimal tariff (which,however, invites retaliation). Trade protection in the United States is usually given to low- wage workers and to large, well organized industries producing producing consumer products. 13
Non-Tariff Barriers International trade also hampered by numerous Technical, administrative, and other regulations. These include safety regulations for automobile and electrical equipment, health regulations for the hygienic Production and packaging of imported food products, and labeling requirements showing origin and contents. 14
Non Tariff Barrier [Subsidies] National government sometimes grant subsidies to domestic producers to help improve their trade position. Such devices are indirect form of protection provided to domestic businesses, whether they may be import competing producers or exporters. Two types of subsidies can be distinguished: a domestic subsidy , which is sometimes granted to producers of import-competing goods,and an export subsidy, which goes to producers of goods that are to be sold overseas. 15
Other Non Tariff Barriers Government Procurement Policies: Because government agencies are large buyers of goods and services, they are attractive customers for foreign suppliers. Most governments however, favor domestic suppliers over foreign ones in the procurement materials and products. E.g, Government often extend preferences to domestic suppliers in the form of buy-national policies campaigns. 16
Impact of trade barriers Advanced industrial nations committed themselves after World War II to removing barriers to the free flow of goods, services,and capital between nations This goal was enshrined in the General Agreement on Trade and Tariffs [GATT] Under the umbrella of GATT, eight rounds of negotiations among member states(now numbering 146) have worked to lower barriers to the free flow of goods and services The most recent round of negotiations, known as the Uruguay Round, was completed in Dec,1993.The Uruguay round further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization (WTO)to police the international trading system 17
Impact of trade barriers In the late 2001, the WTO launched a new round of talks [Doha,Qatar] aimed at further liberalizing the global trade and investment framework. The agenda included cutting tariffs on industrial goods, services,and agricultural products; phasing out subsidies to agricultural producers; reducing barriers to cross border investments; and limiting the antidumping laws. The rich nations spend around $300 billion a year in subsidies to support their farm sectors. The worlds poorer nations have the most to gain from any reductions in agricultural tariffs and subsidies. 18
Successes Continual reductions in tariffs helped spur very high rates of world trade growth during the 1950s and 1960s — around 8% a year on average Trade growth consistently out-paced production growth The rush of new members during the Uruguay Round demonstrated recognition of multilateral trading system as the anchor for development and an instrument of economic and trade reform. 20
GATT’s success in reducing tariffs to a low level, with a series of economic recessions 1970-80’s drove governments to devise other forms of protection for sectors facing increased foreign competition High rates of unemployment and constant factory closures led governments in Western Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade Both these changes undermined GATT’s credibility and effectiveness. 22
The problem was not just a deteriorating trade policy environment. By the early 1980s the General Agreement was clearly no longer as relevant to the realities of world trade as it had been in the 1940s World trade had become far more complex and important than 40 years before The globalization of the world economy was underway Trade in services — not covered by GATT rules Ever increasing international investments 23
Factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. That effort resulted in the Uruguay Round, the Marrakesh Declaration, and the creation of the WTO. 24
World Trade Organization Location :- Geneva, Switzerland Established: 1 January 1995 Created by : Uruguay Round negotiations (1986-94) Membership :153 countries (on 23 July 2008) Budget : 185 million Swiss francs for 2008 2007 Secretariat Staff : 625 Head : Director-General, Pascal Lamy28
Objectives The WTO reiterates the objectives of GATT . Raising standard of living and income . Introduce sustainable development. Taking positive steps to ensure that developing countries.29
Functions of WTOAdministering and Implementing the multilateral and plurilateral trade agreements.Acting as a forum for multilateral trade negotiations .Seeking to resolve trade disputes.Overseeing national trade policies.Cooperating with other international institutions. Maintaining trade related database.Acting as a watchdog of international trade . Technical assistance and training for developing countries.30
The WTO Structure Ministerial conference Director General SecretariatDispute Settlement Body General Council Trade Policy Review Body31
The WTO Structure Trade relatedCommittee Committee Committee Council for Council for IntellectualOn Budget On T & D On BoP Service Goods Property Rights council 32
The WTO Principles TransparencyEnvironment MFN Protection TreatmentCompetition On BoP National Principles Treatment Of Treatment WTO For LDCsRule Based Free Trading Trade System Principle Dismantling Trade Barriers 34