Four main rules of GATT(General Agreement on Tariffs and Trade)by Eva Balukovand Simona kov

The GATT (which stands for General Agreement on Tariffs and Trade) provided the rules for much of world trade from 1947 to 1994 until it was replaced by WTO (World Trade Organisation) in 1995. It was one of the three Bretton Woods organizations developed after World War II. GATT helped establish a strong and prosperous multilateral trading system that became more and more liberal through rounds of trade negotiations. The goal of GATT founders was to liberalize world trade, specifically by reducing protective tariffs. The first round of negotiations impacted one fifth of world trade; there were 23 founding members. The eighth and last round -- the Uruguay Round of 1986-94 -- led to the creation of the World Trade Organization (WTO) and a new set of trade agreements. This trading system is built on four basic rules.

First rule: Protecting the domestic industry by tariffs onlyThe first GATT's rule allows using the tariffs to protect domestic producers in case that they're used in valid cases only and are kept at low levels. The rule against the use of quantitative restrictions has been strengthened in the Uruguay Round.While GATT stands for liberal trade, it recognizes that countries may wish to protect their industries from foreign competition. An important exception permits countries that are in balance-of-payments (BOP) difficulties to restrict imports in order to safeguard their external financial position. This exception provides greater flexibility to developing countries than is available to developed countries to use quantitative restrictions on imports if these restrictions are necessary to forestall a serious decline in their monetary reserves. The GATT 1994 Agreements included:

1) Agriculture Agreement2) Agreement on the Application of Sanitary and Phytosanitary Measures3) Agreement on Technical Barriers to Trade4) Agreement on Subsidies and Countervailing Measures5) Anti-Dumping and Safeguard Measures Agreements6) Agreement on Trade-Related Investment Measures7) Agreement on Textiles and ClothingSecond rule: Tariffs should be reduced and bound against further increases

The second rule provides for the reduction and elimination of tariffs and other barriers to trade through multilateral negotiations. The tariffs so reduced should be bound against further increases. Binding against further increases:The rates of tariffs agreed in Understanding on the negotiations as well as the other commitments assumed by countries are listed in schedules of concessions. Each WTO member country has a separate schedule and is under an obligation not to impose tariffs or other duties or charges which are in excess of those set forth in its schedule. It is also obliged not to take measures such as the imposition of quantitative restrictions which would reduce the value of the tariff concessions. The rates of tariffs listed in the schedule are known as bound rates of tariffs.Principle governing the exchange of concessions in negotiations:The basic principle governing the exchange is the principle of reciprocity and mutual advantage. A country requesting improved access to the market of other countries, through tariff reductions or the removal of other barriers such as quantitative restrictions, must be ready to make concessions in tariffs and other areas that those countries consider to be advantageous and of reciprocal or equivalent value to the concessions they are making. The rule of full reciprocity does not, however, apply to negotiations between developed and developing countries. Developing countries are required to make concessions in the form of tariff reductions on the basis of relative reciprocity, which takes into account the fact that, because of their lower level of economic development and their trade and financial needs, they may not be able to make concessions on the same basis as developed countries. The rule, however, recognizes that developing countries are not all at the same level of development; some of them have reached higher stages of growth while others are at various stages of development. The developing countries that have reached higher stages of development are required to make larger contributions and concessions in the form of tariff reductions and bindings than those at lower rungs of economic growth.Greater contributions from developing countries in the Uruguay Round:In the Uruguay Round, almost all developing countries have agreed to make concessions by reducing tariffs on a percentage basis. During the Uruguay Round, two factors were responsible for the greater willingness of developing countries to make concessions and to accept through negotiations higher obligations. First, a significant number of these countries had made considerable progress in their economic development. The second factor, closely related to the first, was the dramatic shift which had taken place in the trade policies of almost all developing countries. Previously, when they had followed import substitution policies, built high tariff walls and insulated domestic production from foreign competition, it was difficult for them to offer concessions in the form of tariff reductions.These countries are now following policies promoting export growth and are reducing tariffs and eliminating the plethora of licensing and other systems they had maintained to restrict imports. These open and liberal trade policies enabled them in the Uruguay Round not only to take credit for their unilateral tariff reductions by binding them but also to improve their bargaining position in negotiations with their developed country partners.

Third rule: Trade according to the most-favoured-nation clause

The third basic GATT rule is known as most-favoured-nation (MFN) treatment. This principle provides that trade must not be discriminatory. In simple terms, the principle means that if a member country grants to another country any tariff or other benefit to any product, it must immediately and unconditionally extend it to the like products of other countries. The obligation to extend such MFN treatment applies not only to imports but also to exports. Thus, if a country levies duties on exports of a product to one destination, it must apply it at the same rate to exports to all destinations.It is so important that it is the first article of the GATT, which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO.Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners whether rich or poor, weak or strong.

Fourth rule: National treatmentNational treatment is a principle in international law vital to many treaty regimes. It essentially means treating foreigners and locals equally. Under national treatment, if a state grants a particular right, benefit or privilege to its own citizens, it must also grant those advantages to the citizens of other states while they are in that country. In the context of international agreements, a state must provide equal treatment to those citizens of other states that are participating in the agreement. Imported and locally-produced goods should be treated equally at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of national treatment is also found in all the three main WTO agreements, although the principle is handled slightly differently in each of these. National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

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