The Difference between the General Agreement on Tariffs and World Trade Organization - Essay Example

International Business Name Institution Name Course Name and Code Date Table of Contents Introduction 3 General Agreement on Tariffs and Trade (GATT) 3 Main Accomplishments of GATT 4 Difference between GATT and World Trade Organization 6 Conclusion 7 References 8 Introduction Numerous trade and engagement instrument exits, which are aimed at improving business negotiation and understanding. The paper discusses the General Agreement on Tariffs and Trade (GATT) through reviewing the history and some of the accomplishments. The paper also discusses the achievements during the period and highlight shortcomings of GATT. The last section of the paper discusses the difference between GATT and World Trade Organization. General Agreement on Tariffs and Trade (GATT) GATT was an agreement that set multilateral trade agreements that were aimed at reducing tariff duties and abolition of quotas among the contracting nations. In 1947, an agreement was concluded by 23 countries was an interim arrangement with the aim of forming a United Nation agency to take the assigned duties (Hudec, 2010, p. 28). However, the formation was not successful, and GATT was improved through subsequent negotiations. The formation and implementation of GATT duties expanded the world trade and liberalized the economy. World Trade Organization (WTO) replaced GATT in 1995 and before the replacement; GATT had 125 nations as signatories and was responsible for more than 90% of world trade. The principle of GATT was trade without discrimination whereby the signatories opened her markets to each other. GATT had a schedule of tariff concessions for each contracting nation, and also, tariff rates agreed among the contracting nations (Holdgaard, 2008, p. 276). Another important fundamental was abolishing import quotas through encouraging tariffs as a protection strategy. Other operational duties of GATT were requiring contracting nations to negotiate for tariff adjustments and uniform customs regulations. The agreement also contained a clause the required contracting nations to vary the content of the agreement if the local/domestic producers suffered regarding losses (Hudec, 2010, p. 29). GATT held numerous multilateral trade conferences such as the Annecy France, Tokyo Round, Kennedy Round and Uruguay Round to improve the content of the agreement and concessions. The Uruguay Round was the most important because it negotiated numerous trade liberalization agreements. Some of the agreements include slashing tariffs on industrial goods, agreements on service trade and reduced agricultural subsidies. During the same meeting, the World Trade Organization was created to regulate and monitor international trade. Main Accomplishments of GATT By the time that GATT was operating effectively, it had more than 100 countries and generated between 85% and 90% of world trade. During the numerous negotiations, many agreements were signed. The Kennedy Round addressed many requirements of tariffs and expansion of international trade. The expansion of trade of developing countries was aimed at improving the developing countries economic development (Rai, 2011, p. 47). The developing countries are complained due to the skewed nature of engagement, trade and control of the business and during the Kennedy Round, these problems were addressed. In the Round, elimination or reduction of barriers and tariffs to trade were addressed (Rai, 2011, p. 180). The adoption of Part IV of the GATT encouraged reciprocity between developing and developed countries in trade negations. However, the passage of Long-Term Arrangement Regarding International Trade in Cotton Textiles reduced the efficiency of Part IV because the developing countries were unable to export cotton for three years. Discussions and negotiations were done on primary products and agriculture in which the developing countries benefited when it came to non-agricultural products tariff. Hence, the Kennedy Round was important in improving world trade. In the Tokyo Round that brought together more than 102 countries reviewed tariffs and regulations (Rai, 2011, p. 25). The Round table resulted in new regulations and reduced tariffs that were aimed at managing the voluntary export restrictions and proliferation of non-tariff barriers. The concessions that were made were estimated at more than $190 billion. During the Uruguay Round, negotiations were in new areas such as agriculture, textiles, intellectual property, capital, and services. It also included multilateral trade negotiations, which was a preserve of developing countries initially. In previous engagements, agriculture was not included but during the Uruguay Round, Cairns Group, which was made of fourteen medium sized agricultural exports countries, refused to sign a new deal until ratifications were done on agriculture (Kerr & Gaisford, 2007, p. 497). Numerous agreements on agriculture were then concluded. Some of the agreements include harmonizing phytosanitary and sanitary measures between member nations, eliminate certain export subsidies, reduce domestic support on quotas and subsidies, and improve access to agricultural products market. Indirectly, GATT has played an important role in international peace. Since the established of GATT, no major wars have been fought or world wars (Hudec, 2010, p. 28). It is presumed that increase in trade promotes peace. In addition, the frequent meetings during the discussions enable member countries to discuss and present their different views, which limit chances of war (Holdgaard, 2008, p. 276). Moreover, GATT laid the foundation for World Trade Organization. The aim of World Trade Organization is to address the shortcomings in the GATT frame of operations. Difference between GATT and World Trade Organization GATT was an important framework but had numerous weaknesses. GATT lacked enforcement power because it was a provisional agreement by the contracting powers (Kerr & Gaisford, 2007, p. 497). The decisions and negotiations were optional, and some members did not implement or create an environment to ratify outcome of the negotiations. However, the WTO is a binding permanent agreement between the member states (Stoll & Schorkopf, 2006). Any decision passed and agreed upon should be implemented since the binding aspect is important to the effectiveness of the decision making process and future negotiations. The targeted of GATT was a trade in goods. The limitation was GATT framework did not enable discussion on other business requirements and did not also address the changing business environment and the requirements of member states (Rai, 2011, p. 180). For example, advancement in technology resulted in numerous intellectual property rights, but the GATT framework did not have measures to include in the discussions. The WTO expanded the nature of trade and also includes service industry. Hence, WTO expanded its working capacities to intellectual property, international investments and trade in services. Implementation and enforcement of agreements are important, but GATT did not have the capacity or resources to enforce the legislations or agreements. Disputes were also common during the period because GATT did not have provisions to address trade disputes (Kerr & Gaisford, 2007, p. 497). These shortcomings were addressed in the establishment of WTO in which a dispute settlement body was established, and disputes were resolved immediately. Even though the WTO model is appropriate; the WTO has weaknesses especially when it comes to marine requirements and engagement of some of the members. Nevertheless, WTO is a better model compared with the GATT framework. Conclusion GATT was an agreement that brought together member states to discuss and negotiate on matters trade. Ratification of tariffs and trade barriers were done through participation in numerous Round agreements. During each of the Round negotiations, certain agreements were achieved. For example, encouragement of reciprocity when it comes to trade agreements; considering the needs of the developing countries such as the inclusion of agricultural trade requirements. The concessions, reduction in trade quotas and subsidies were achieved through the period of GATT. In addition, member states increased, prevented the occurrence of any world war since its inception, and created a foundation for the WTO. The difference between GATT and WTO is that GATT was a provisional agreement while WTO is a binding agreement. GATT discussed matters trade in goods while WTO expands and includes intellectual property rights, international investments, and trade in services. In addition, GATT lacked enforcement measure and also did not address trade disputes while the WTO has strategies through the establishment of dispute settlement body, which resolved quickly any dispute. References Holdgaard, R. (2008). External relations law of the European Community: legal reasoning and legal discourses (Vol. 57). New York: Kluwer Law International. Hudec, R. E. (2010). Developing countries in the GATT legal system. London: Cambridge University Press. Kerr, W. A., & Gaisford, J. D. (Eds.). (2007). Handbook on international trade policy. Washington, DC: Edward Elgar Publishing. Rai, S. (2011). Recognition and regulation of safeguard measures under GATT/WTO. London: Routledge. Schnell, T. (2004). The Emergence of the GATT-What do realists and neoliberal institutionalists say? London: GRIN Verlag. Stoll, P. T., & Schorkopf, F. (2006). WTO: world economic order, world trade law (Vol. 1). London: Martinus Nijhoff Publishers. Read More