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International Trade Organization

International Trade Organization

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Page 1: International Trade Organization

International Trade Organization

Page 2: International Trade Organization

• The Bretton Woods Conference of 1944 recognized the need for a comparable international institution for trade (the later proposed International Trade Organization, ITO) to complement the International Monetary Fund and the World Bank. Probably because Bretton Woods was attended only by representatives of finance ministries and not by representatives of trade ministries, an agreement covering trade was not negotiated there.

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• In early December 1945, the United States invited its war-time allies to enter into negotiations to conclude a multilateral agreement for the reciprocal reduction of tariffs on trade in goods. In July 1945 the United States Congress had granted President Harry S. Truman the authority to negotiate and conclude such an agreement. At the proposal of the United States, the United Nations Economic and Social Committee adopted a resolution, in February 1946, calling for a conference to draft a charter for an International Trade Organization (ITO).

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• A Preparatory Committee was established in February 1946, and met for the first time in London in October 1946 to work on the charter of an international organization for trade; the work was continued from April to November 1947. At the same time, the negotiations on the General Agreement on Tariffs and Trade (GATT) in Geneva advanced well and by October 1947 an agreement was reached: on October 30, 1947 eight of the twenty-three countries that had negotiated the GATT signed the "Protocol of Provisional Application of the General Agreement on Tariffs and Trade“.

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• Seven rounds of negotiations occurred under GATT before the eighth round—the Uruguay Round—concluded in 1994 with the establishment of the World Trade Organisation (WTO) as the GATT's replacement. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them.

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General Agreement on Tariffs and Trade

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• 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.

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GATT ???

• Was the outcome of the failure of negotiating governments to create the ITO

• The Bretton Woods Conference 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

• Once the ITO failed in 1950, only the GATT agreement was left. A Treaty, not an Organization

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• GATT the predecessor of the WTO, was born in 1948 as result of the international desire to liberalize trade. It was set up on October 30,1947 in Geneva with 23countries as its founder members.

• India was the founder members of GATT along with World Bank,IMF and WTO.

• The primary actions of organization were to freeze and reduce tariff levels on various commodities.

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• It was originally set up as a temporary arrangements to bring about trade liberalization.

• It later became an important and permanent set-up to attend to all trade issue among the members countries.

• GATT played a prominent role in settlement of trade disputes between 2 countries

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• Free trade has been the motto of GATT.• During the next nearly half a century 1948-1994

many nations successively joined the agreements .There were 8 rounds of GATT trade negotiations in this period. Bringing forth significant reductions in tariff and non-tariff barriers to trade

• GATT was created to be part of the international trade organization(ITO),however ITO failed to be created so GATT was left as an independent organization. In 1944 GATT was taken over by WTO

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OBJECTIVES

• Raising standard of living• Ensuring full employment & a large &

steadilygrowing volume of real income & effective demand

• Developing full use of the resources of the world

• Expansion of production & international trade

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FUNCTIONS OF GATT

• 1.Trade negotiations under GATT• 2.Safeguards•  3.Trade negotiations among developing

countries• 4.Solves Trade Disputes

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• The GATT has organized seven trade negotiations on so far. They are: 1947 (Geneva),1949 (Anney, France), 1951 (Torquay, England),1956 (Geneva), 1960-61 (Geneva, Dillon Round),1964-67 (Geneva, Kennedy Round) and 1973-79(Geneva, Tokyo Round).

• As a result of these negotiations, the tariff rates on thousands of items entered into world trade were reduced. The developed countries achieved a 50%reduction in many industrial products.

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Safeguards

• The agreement also provides proper safeguards for the domestic industry and trade.

• Article XIX of the General Agreement permits a member country to impose restrictions on imports or suspend tariff concessions on products if they are imported in excessive quantities and are causing or threatening to cause serious injury to competing domestic producers.

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TRADE NEGOTIATIONS AMONGDEVELOPING COUNTRIES

• In an effort to increase the trade among developing nations, the• eighteen of GATT members joined in an agreement in 1973, providing

for an exchange of mutually advantageous tariff and trade concessions.

• These eighteen members are (countries) Bangladesh, Brazil, Chile,• Egypt, India, Israel, S.Korea, Mexico, Pakistan, Paraguay, Peru,• Philippines, Romania, Spain, Tunisia, Turkey, Uruguay and

Yugoslavia. The agreement is known as• Protocol relating to trade negotiations among developing countries • All developing countries whether or not they are members of GATT

are allowed to join it. The participants negotiated for concessions on about500 tariffs heading including agricultural, manufactured foods and raw material.

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SOLVES TRADE DISPUTES

• The GATT has been successful in the accomplishment of its objectives. It contains an enabling clause that reconciles the principle of granting special and differential treatment to the developing countries.

• It also solves trade disputes among members’ countries impartially, amicably and quickly by identify the measures to solve the problems of balance of payment without upsetting international trade.

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Principles of GATT

• 1.Trade without discrimination: A country granting advantages(tariffs,subsidies) to one nonGATT party must grant the same advantage to other member countries in export and import duties and changes.

• Exceptions:incase of regional trading arrangements and the developing nations.

• 2.Protection through tariffs: Protection to home industries can be provided only through customs tariffs and not through any other.

• Exceptions: Developing nation where development need more imports.

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• 3.A stable Basis of Trade:- Stable and predictable basis for trade is provided under rules- Contracting countries should obey levels of tariffs-No one country can change the tariffs

• 4.Consultation:member countries should consult one another in the matter of trade and trade problems or they can call onGATT for settlement . The GATT council has set up panels of independent experts to examine the trade disputes between member states. . The members on the panel are chosen among countries which have no direct interest in the disputes being investigated. The panel is generally interested in making mutual and amicable settlement between the two parties.

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PHASES

• Divided into 3 phases:

First:• From 1947 until the Torquay Round• Largely concerned which commodities would be covered by the agreement• Freezing existing tariff levels

Second:• From 1959 to 1979• Focused on reducing tariffs

Third:• Consists only of the Uruguay Round from 1986 to 1994• It extended the agreement to new areas such as intellectual property, services,

capital, and agriculture• Final outcome was creation of WTO

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.1. Geneva Round (1947)

• Time- April 1947 –October1947• Duration  –7 months• Countries  – 23Negotiations in this and the

succeeding 4 Rounds were on a bilateral basis -:―product-by-product, request-offer

• members completed 123 negotiations and established 20schedules containing thetariff reductions which became an integral part of GATT

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• The Agreement covered some 45,000 tariff concessions and about$10 billion in trade.

• First Round was successful since the US was ..•  – enthusiastic for free trade•  – was willing to cut its tariffs on imports from

Europe•  – did not put pressure on European countries

to abandon their trade restrictions

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2. Annecy Round (1949)

• Time- April 1949 – August1949• Duration – 5 months• Countries – Accession of ten more country (From 23

to 33 )Denmark, Finland, Sweden, Greece, Nicaragua, Uruguay Haiti, Liberia, Dominican Republic, Italy,

• All Members negotiated an additional 13,000 tariff reductions from last round.

• If a member votes against accession it does not need to extend trade policy concessions to this country

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3. Torquay Round (1950/51)

• Time- September 1950 – April1951• Duration – 8 months• Countries – Accession of five more countries

(33+5 = 38)Austria, Germany, Turkey, Philippines, Peru

• Participants completed some 500 negotiations• Additional tariff reductions emerging from these

negotiations were modest: Negotiations were not considered to be a success

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• Major problem of this Round is Dispute between the US and theUK no bilateral tariff cuts on US — UK trade

• Contracting parties exchanged some 8,700 tariff reductions of about 25% in relation to the 1948 level.

• During the Torquay Round, the US indicated that the IT Charter would not be re-submitted to the US Congress: End of ITO.

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4. Geneva Round (1955/56)

• Time- January 1956 –May 1956• Duration –5 months From 1951 to 1955, GATT

membership increased by only one country on net, with the withdrawal of Libya being balanced by the accession of Japan

• The momentum toward lower tariffs was lost• Important factor behind the passivity during this period:

Growing protectionism in the US (Feeling that the US had given away concessions, while European countries were reluctant in eliminating their trade barriers)

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• Low-tariff countries were frustrated by their inability to bargain effectively with high-tariff countries.

• Fourth Round produced similarly not sufficient results ($2.5 billion worth of tariff reductions)

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5. Dillon Round (1960-62)

• Time- September 1960 –July 1962• Duration – 11 months Average tariff rates differed

sharply within the European Economic Community (EEC), ranging from 6% for Germany to19% for Italy.

• The Round was divided into two phases:•  – First phase was concerned for negotiations with

European Economic Community (EEC) member states for the creation of a single schedule of concessions for the EEC based on its Common External Tariff (CET

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•  Second phase was a further general round of tariff negotiations

• Round resulted in 4,400 tariff concessions covering $4.9 billion of trade.

• Last round of negotiations which were undertaken on a bilateral basis

• As a result of Dillon Round, tariff rates on manufactured goods came down sharply (e.g. common external tariff of the EEC fell to10.4% in 1968)

• Agricultural and textile sectors were still not considered

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6. Kennedy Round (1964-67)

• Time- May 1964 –June1967• Duration – 37 months• Countries  – 66• A very ambitious round. It had 4 major goals:• To slash tariffs by half with minimum number

of exceptions.• To break down farm trade restrictions.• To strip off non tariff regulations.• To aid developing nations

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• The participating countries presented 80% of world trade.• Round named after President John F Kennedy who died the year

before the round.• It aimed to increase trade between the US and

theEuropeanEconomic Commission(EEC).• An Anti-Dumping code was agreed upon, however US never

agreed upon it so it had little practical implicationsAmericanSelling Price

• had also been eliminated. • A short lived• International Wheat Agreement•  was intended to stabilize world wheat prices.

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• Large reductions ingrains and chemical products.• Reduction of tariff in tropical products, primary material

sand manufactured goods of interest to the less developed countries.

• Food aid programme totaling 4.5 million tons a year for developing countries.

• As a result of Kennedy Round, the Common External Tariff of the European Community fell to 6.6%.

• Kennedy round agreement was signed on June 30, 1967 ;last day of the US negotiating authority under the Trade Expansion Act

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7. Tokyo Round (1973-79)

• Time - September 1973  – November1979• Duration– 74 months• Countries – 102• Discouraging economic climate during Tokyo Round :• Oil crisis (1973);World-wide―stagflation(Crisis)•  – Proliferation of non-tariff  barriers during the early

1970s.•  – Strained trade relations between the US, the EC and

Japan

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Main agreements & declarations of TokyoRound

• Agreement on Govt. Procurement• Agreement onAnti-dumping Code• Agreement on Customs Valuation Code• Agreement on Import Licensing procedures• Agreement on Subsidies Code,• Agreement onTrade in Civil Aircraft

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• Declaration on Trade measures taken for Balance of payment purposes,

• International Dairy Agreement• International Bovine meat Agreement,• Safeguard Action for development purposes.

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8. Uruguay Round (1986-94)

• Time- September 1986 –December1993• Duration – 87 months• Countries – 123• Period following the Tokyo Round•  – World-wide recession•  – Trade conflicts between three major trading blocs: US,

EC,Japan•  – US-EC trade disputes centered on agricultural issues

(ECbecame exporter)•  – US wanted Japan to open its domestic market for US

exports

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• – EC wanted to limit Japanese export growth• GATT ministerial meeting (1982): Attempt to meet problems left by the

Tokyo Round failed in• ―Resurgence of  protectionism• US reacted to protectionist pressure and considered the initiation of a

new round of negotiations• Japan favored a new GATT round: Multilateral negotiations were

preferred to bilateral pressure from the US and the EC• Other countries were mostly in favor of new round:•  – Smaller industrial countries wished to curtail the tendency of the• big Three‘to ignore GATT principles•  – Agricultural-exporting countries were concerned about US producer

subsidies and EC export subsidies

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• Developing countries wanted to secure greater tariff preferences

• A committee was established to determine the objectives of a new round of negotiations to be launched in 1986

• There was little agreement between the• big three‘• Initiative was taken by G9 group of mid-sized

industrial nations andG10 group of developing countries led by India and Brazil

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Year Name Sub Covered Countries Achievements

1947 Geneva Tariffs 23 Signing of GATT,45,000 tariff concessions affecting$10 billion of trade

1949 Annecy Tariffs 13 Countries exchanged some 5,000 tariff concessions

1950 Torquay Tariffs 38 Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%

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1956

Geneva Tariffs, admission of Japan

23 $2.5 billion in tariff reductions

1960 Dillon Tariffs 26 Tariff concessions worth $4.9 billion of world trade

1964 Kennedy Tariffs,anti-dumping 66 Tariff concessions worth $40 billion of world trade

1973 Tokyo tariff, non-tariff measures, "framework"

102 Tariff reductions worth more than $300 billion dollars achieved

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1986 Uruguay Tariffs, non-tariff measures, rules,services,intellectualproperty, disputesettlement,textiles,agriculture,creation of WTO,etc

123 The creation of WTO,and extended the range of trade negotiations,leading to major reductions in tariffs &agricultural subsidies,to allow full access fortextilesfromdeveloping countries,and an extension of intellectual property rights.

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URUGUAY ROUND

• Uruguay round of multilateral trade negotiations was initiated in September 1986 and concluded on the 15thSeptember, 1993.

• Mr. Arthur Dunkel, the Director General of GATT submitted a proposal on the 20th December,1991 popularly known as DunkelProposal which lead trade liberalization in many areas like:

• Trade Related Investment Measures(TRIMs)• Trade Related Intellectual Property Rights(TRIPs)other

services, textiles, clothing and agriculture subsidies, Market.

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Market

• Arthur Dunkel suggested that the Government control in marketing activities and operation will have to be less.

• The member governments will have to abolish the public distribution system

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AGRICULTURE

• The member Governments are suggested to reduce the subsidy on fertilizer's, seeds, and other inputs and eliminate the administered pricing in respect to agriculture sector.

• Arthur Dunkel was in favor of reducing the price variation of agricultural products of domestic market and international markets.

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TRADE RELATEDINTELLECTUAL PROPERTY RIGHTS (TRIPS)

• Dunkel proposal regarding trade relatedintellectual property rights (TRIPs) in respect of Business and commerce include

• Protection of patents• Copy rights• Design• Trade Marks• Trade Secrets

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• Earlier process patents were granted to food, medicines, drugs and clinical products but proposed TRIPS agreement provides patents in all the areas like, food, medicines, drugs and clinical products, computer programming, integrated circuit design, trade secrets etc. Also given more important to Copyright and Trademark.

• Protection will be available for 20 years for patents and copyrights, computer programming and data compilations will be protected for at least 50 years. Trade marks would be protected for at least seven yearsand semi-conductor layout design would be protected for nearly 10 years.

• A council on TRIPs would supervise operation of the agreement along with GATT and the General Agreement on Trade in Services.

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QUOTA ABOLITION IN TEXTILE

• GATT members abolished quotas on trade in textiles and clothing. Consequently, prices started declining and the major buyers are narrowing their sources. Large Asian countries with vertically integrated industries are becoming the world‘s leading suppliers

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AGREEMENT ON TRADE RELATEDINVESTMENT MEASURES(TRIMS)

• These are rules that apply to the domestic regulations a country applies to foreign investors, often as part of an industrial policy.

• The agreement was agreed upon by all members of the World Trade Organization.(The WTO wasn't established at that time, it was his predecessor, the GATT (General Agreement on Trade and Tariffs). The WTO came about in 1994-1995

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• Trade Related Investment Measures(TRIMs) is one of the four principle legal agreements of the WTO.

• TRIMs are rules that restrict preference of domestic firms and thereby enable international firms to operate more easily within foreign markets.

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GENERAL AGREEMENT ON TRADE INSERVICES(GATS)

•  It is a treaty of the World Trade Organization(WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations.

• The treaty was created to extend the multilateral trading system to service sector,in the same way the General Agreement onTariffs and Trade (GATT) provides such asystem for merchandise trade.

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• Before the WTO's Uruguay Round negotiations, public services such as healthcare, postal services, education, etc.were not included in international trade agreements. Most such services have traditionally been classed as domestic activities, difficult to trade across borders.

• But after the existence GATS, foreign participation has increased. For example educational services have been "exported "for as long as universities have been open to international students.