GATT AS AN INTERNATIONAL ORGANIZATION: A CRITICAL ANALYSIS

Introduction

The General Agreement on Tariffs and Trade (GATT) was an international free-trade agreement. It was signed by 23 nations, including Canada, in 1947 and went into force on January 1, 1948. It was developed during eight rounds of negotiations, culminating in the formation of the World Trade Organization (WTO). It replaced the GATT on January 1, 1995. The GATT was largely concerned with goods trade. Its goal was to liberalise trade between member countries by decreasing tariffs and abolishing barriers. Each GATT member was meant to open its markets to other GATT members equally, thus eradicating trade discrimination. The GATT-negotiated agreements reduced average tariffs on industrial items from 40% in 1947 to less than 5% now (1993). It was a forerunner of economic globalization[1].

The General Agreement on Tariffs and Commerce was a global convention that set worldwide trade norms. The preamble to the GATT can be linked to its goals[2], which are as follows:

1. To raise people's standard of living.

2. To provide full employment as well as a large and steadily rising quantity of real income and effective demand.

3. Making the best possible use of the world's resources.

4. Expand overall industrial capacity and international trade.

GATT Principles

GATT developed the following principles to achieve the aforementioned objectives.

1. Elimination of Discrimination

International trade should be conducted on an equal footing. No member country shall discriminate among GATT members in the conduct of international trade. The "Most Favoured Nation" (MFN) principle was founded on this basis. According to this, "every nation shall be treated in the same manner as the most favoured nation." All contractual parties should regard others as most advantageous when establishing and administering import and export taxes and levies. Without regard for political expediency, quantitative limits should be implemented.

Exceptions to the non-discrimination principle: There must be some exceptions to this fundamental rule. The establishment of free trade zones or custom unions is not opposed. This type of integration should make it easier for the component sectors to trade uniformly. They should not erect trade barriers for third parties. Members of the GATT are allowed to enact anti-dumping and anti-export subsidy measures. Such penalties, however, should be reserved for the most severe violators.

2. Only Tariffs Provide Protection.

GATT regulations prohibit quantitative restrictions. To protect local industry, only custom duties should be employed. Less restrictive trade restrictions should be implemented.

Countries having a negative balance of payments situation are excluded from this principle. This exception extends to poorer countries as well. Import restrictions on agricultural and fishery items may be enforced if local output is similarly restricted.

3. A Stable Trading Foundation

GATT's goal is to foster a stable and predictable trade environment. It binds the contracting nations' tariff levels together. Tariff binding inhibits unilateral tariff rises, although bonded rate renegotiation remains a possibility. The necessity to pay for any rise inhibits a return to higher rates.

4. Consultation

Member countries should consult with one another on trade concerns and challenges. Members who think their GATT rights have been infringed can file a fair settlement petition. The GATT council has formed panels of independent experts. Members of the panel are chosen from countries having no direct stake in the issues under consideration. They look into business conflicts amongst members, and try to reach a settlement that is mutually beneficial for all involved parties.[3].

Criticism

The General Agreement on Tariffs and Trade (GATT) facilitated the orderly development of international trade. It established a forum for continued dialogue. It even brought diplomatic squabbles to the table at the conference. GATT might lead to major trade liberalisation. Despite this, severe weaknesses in GATT became evident. They are described in full below[4].

1. GATT is, in essence, a preliminary agreement. Even if it violated a GATT agreement, the GATT system allowed for the continuation of present domestic legislation. GATT developed an international commercial code of conduct. There was, however, no enforcement mechanism to ensure that contractual parties obeyed GATT standards. As a result, GATT had less of an impact on the orderly rise of international trade.

2. GATT could only offer limited benefits to developing nations. Trade liberalisation has mostly benefited developed countries. Non-tariff barriers to manufactured goods of importance to developed countries (textiles, garments, footwear, and so on) have been increasing. Developed countries profited from a more flexible trade environment, but growing non-tariff barriers impeded developing countries' exports. The industrialised world strengthened protectionism, while the developing world liberalised. Less developed countries were unable to adequately bargain and gained nothing from GATT.

3. GATT adheres to the principle of commodity-based bargaining. Developing countries, who largely export raw materials, were unable to successfully bargain with wealthier countries. As a result, commodity-based discussions have hurt the interests of developing countries. Developed countries stand to gain greatly due to their better bargaining power. Furthermore, commodity-based discussions led to prolonged deliberations during the several rounds of GATT negotiations.

4. Article XXIV of the GATT authorised the establishment of free trade zones and customs unions. The formation of significant regional economic blocs such as the European Union, North American Free Trade Agreement, Association of South East Asian Nations, and others undermined the core notion of GATT.

5. GATT lacked both legal and international legitimacy. GATT is simply a set of agreed-upon norms and procedures. As a result, GATT's clout diminished. The dispute settlement process was slow and ineffective. Its judgement might be easily reversed.

6. Members of GATT have diverse political and economic interests. As a result, achieving an agreement was difficult, because of the membership's heterogeneity, defining overarching norms proved difficult.[5].

CONCLUSION

To begin, it is probably best to state unequivocally that the General Agreement on Tariffs and Trade (GATT) was two things: (1) an international agreement that set out the rules for conducting international trade; and (2) an international organisation that was later established to support the agreement. The text of the agreement might be compared to law, and the organisation could be compared to a mixture of parliament and the courts.

The attempt to establish a full-fledged international trade agency in the 1940s was a failure, as the organization's history shows. However, the drafters of the GATT rules and disciplines decided that the new rules and disciplines should be applied, although provisionally. Then there was a need for government officials to meet in order to discuss the agreement and hold trade discussions with other countries. These required secretarial help, resulting in the development of an ad hoc organisation that has lasted for nearly a half-century.

The multinational organisation GATT no longer exists. In its stead, the World Trade Organization (WTO) has taken over. The most important distinctions between GATT and WTO are as follows-

1. The GATT was an ad hoc and transient agreement. The General Agreement, which was never accepted by the parliaments of the member nations, and had no provisions for the formation of an organisation.

2. The World Trade Organization (WTO) and its agreements are permanent. WTO members have adopted the agreements that govern the organisation, and the agreements themselves explain how the WTO will work. It has a solid legal foundation as an international organisation since the agreements that regulate it have been adopted by members.

3. There are "members" of the World Trade Organization (WTO). The GATT included "contracting parties," emphasising the fact that the treaty was, in fact, a legal instrument.

4. The General Agreement on Tariffs and Commerce (GATT) addressed international goods trade. The World Trade Organization (WTO) also governs intellectual property and services.

5. The World Trade Organization's dispute settlement method is more efficient and automated than the prior GATT-based approach. Its rulings are binding and cannot be reversed.

Despite the fact that the GATT agreement is still in force, it is no longer the fundamental set of rules controlling international trade. Furthermore, it has been updated.

In a word, the World Trade Organization (WTO) is not just a continuation of the GATT, but it is a lot more than that. As a consequence, while the GATT is no longer living, it is still alive! Despite the fact that the GATT as an international organisation no longer exists, the GATT agreement does. The original text is now known as "GATT 1947" and the improved version is known as "GATT 1994[6]."

~Authored by Avani Jajot

REFERENCES [1] Britannica, T. Editors of Encyclopaedia (2019, November 22). General Agreement on Tariffs and Trade. Encyclopaedia Britannica. https://www.britannica.com/topic/General-Agreement-on-Tariffs-and-Trade [2]Christina Majaski, General Agreement on Tariffs and Trade (GATT), https://www.investopedia.com/terms/g/gatt.asp [3] GATT | Objectives & Principles, https://accountlearning.com/gatt-objectives-principles/ [4] Disadvantages or Limitations of GATT, https://accountlearning.com/disadvantages-or-limitations-of-gatt/ [5] World Trade Organization. "On the Effects of GATT/WTO Membership on Trade," Page 5. Accessed July. 1, 2022. [6] Kimberly Amadeo, What Was the GATT?, https://www.thebalance.com/gatt-purpose-history-pros-cons-3305578