The International Trade Agreements Concept

The reasons for the formation of GATT and achievements

GATT is an international trade agreement that is formed to come up with mechanisms to regulate trade and reduce trade barriers. In essence, GATT is a multilateral agreement that established and provided mechanisms through which trade barriers that existed at the time could be reduced whereas tariffs remain stabilized. Moreover, GATT provided grounds through which consultations on issues related to trade could be held. As an institution that specializes in trade issues, GATT had its own economic and technical difficulties. These technical and economic problems provide features that distinguish the trade agreement from others such as the WTO.

GATT was formed because of trade problems many countries were facing during the economic depression of the 1930s and World War Two. It was during these periods when many countries found it necessary to protect their economies using high tariffs, quantitative limitations on import trade, and tight exchange controls. During and after the Second World War, many countries realized that these trade restrictions could negatively affect trade if not immediately addressed. In conjunction with the formation of Bretton Wood institutions such as the international monetary fund and the Global Financial Institution, different administrations thought of establishing associations that would help in the regulation of commerce by doing away with many business obstacles. Therefore, GATT was formed to set standards that were intended to liberalize trade particularly to reduce tariffs as a major barrier.

Throughout until 1995, GATT remained the only multilateral trade agreement that governed international commerce. In fact, GATT was formed to provide solutions to the problem facing trade during difficult periods of war and economic downturn. The organization was formed on the principle of non-discrimination and was aimed at attaining high standards in free and fair trade of goods and services amongst the member states. The main objective of GATT was to find a way through which trade could progressively be liberalized among countries or states. The aim of liberalizing trade was to provide access to all productions, which was critical in raising the living standard. Doing away with trade barriers including tariff and non-tariff enables producers in all member states to export freely thus allowing even distribution. On the other hand, GATT may assist clients in contributing their desires to all the existing global souks. In essence, this unrestrained exports and imports resulted in the raising of living standards of the member country citizens. However, these good intentions only benefited developed or countries with an increased capacity for exports and imports.

Whether GATT achieved these noble objectives is a matter of debate. However, the removal of trade barriers especially tariffs was attained. The first GATT round of talks resulted in the removal of over forty-five thousand bilateral tariffs. This covered over twenty percent of the world trade. The second round of talks ended up with the removal of an additional five thousand bilateral tariffs. The third fourth, fifth, and sixth-round resulted in further reduction of tariffs and establishment of new regulations that led to trade liberalizations. As indicated, the regulations only favored the developed countries, and majorly touched on agricultural products. However, each round of talks had its own shortcomings leading to another round of talks. In essence, the resolutions provided by each round of talks were inadequate in terms of implementation and changes that took place in world trade. Nevertheless, the major objective of reducing trade barriers or trade liberalization was attained.

Global economic conditions and anti-trade policies despite the presence of GATT during the mid-70s, the success, and failures of Tokyo rounds of negotiations

The early GATT rounds of trade negotiations concentrated on the reduction of tariffs and other non-tariff trade barriers. In fact, all these negotiations succeeded despite a few failures that occurred due to changes in international commerce and negligence prevailing in agreements signed by developed countries. The sixth round of negotiation known as the Kennedy rounds expanded the mandate of the GATT and established a new agreement called the anti-dumping agreement. However, numerous changes occurred in world trade as well as economic conditions since the end of the sixth round of negotiation. During the early seventies, immediately after the closure of the sixth round of trade negotiations, the world economy was under recession. The recession was caused by the oil crisis, stagflation in the US economy, as well as rising trade demands. The economic problems led to the disruption of other negotiations leading to the improvement in the prior systems. Due to unfavorable economic conditions, many countries resorted to protectionist policies despite conditions set by trade negotiations to safeguard their economies against recession.

The Tokyo round of negotiation was the first attempt to improve the system amid economic problems being experienced during this time. In essence, the Tokyo round of negotiation was initiated to reform the trade systems set in prior negotiations. Tokyo rounds also focused majorly on the progressive reduction of tariffs as well as non-tariff trade barriers. Indeed, Tokyo’s rounds of negotiation ended up cutting almost a third of the custom duties in the world market equivalent to a 4.70 percent total reduction in tariffs on manufactured goods. The total reduction of tariffs was spread throughout the eight-year period of the negotiation. Also included was the harmonization of other trade barriers bringing down all commercial barriers proportionally below the set lowest target. Further, a new agreement controlling non-tariff trade barriers came up from the negotiations. These were critical in the liberalization of trade during these economic tough times.

On the other hand, the Tokyo round of negotiations failed to recognize the fundamental problems facing agricultural production. Trade-in agriculture continued to face high tariffs and subsidies that ended up causing imbalanced trade in agricultural products. Moreover, the Tokyo rounds of negotiations failed to provide novel agreements to safeguard immediate increases in imports. In fact, the negotiations failed to provide measures against the restrictions on quantitative trade. Tokyo round of negotiation besides failed to provide mechanisms through which agreements could be strengthened and enforced as well as ways through which disputes could be managed. The negotiation failed to discuss long-standing and all-encompassing bilateral barter agreements amongst the GATT member countries.

Literature asserts that the Tokyo rounds of negotiation failed to interpret some of the rules set in other negotiations particularly those rules that favored developing economies. As a result, most of its agreements were ascribed to by few developed economies. These agreements were called codes since they were honored by a few member countries. Amongst the regulations there materialized to be the practical commercial obstacles, the appraisal of customs, the state purchases, as well as the processes undertaken to license imports. Nevertheless, these codes were later amended and carried forward into the next round of negotiation known as the Uruguay round. The codes concerning practical obstacles to trade, customs appraisal, anti-dumping, and import licensing are currently multilateral agreements under the backing of WTO.

LDCs and free trade agreements

Ever since the inception of GATT as the world’s major organization controlling and fostering free trade, developing economies have been encouraged to focus on free trade as the only way through which their economies can be developed. However, many developing countries have realized that the ideology surrounding free trade and the removal of trade barriers only benefits the developed economies. From the inception of GATT, developing countries in Asia and Latin America have been privy to some of the policies being proposed and forced into the world trade agreement. As a result, many developing economies have come up with bilateral trade agreements or free trade areas to counter some of the imbalances created by world trade agreements.

The major argument by LDCs is that though trade barriers are being removed, the developed countries are capable of providing subsidies to their farmers and manufacturers leading to unfair competition among small enterprises and industries. Consequently, many small enterprises in developing countries end up collapsing leading to increased imports, unemployment, and a negative balance of trade. The unfair competition among industries has been the born of contention among the negotiating parties, LDCS, and developed economies, in any world trade agreement ever since the inception of GATT.

Every round of negotiation focuses on preferential treatment of LDCs. However, such preferential treatments have not been fruitful. As a result, many developing countries have formed their own preferential trade agreements that contain favorable policies unique to their own problems. So far, the last negotiation under the patronage of WTO has not been successful and many developing economies are still privy to implementing some of the measures provided in the major world trade agreements.