IEO - GATT

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General Agreement on Tariff & Trade

A REPORT ON the general agreement on tariffs & trade,Uruguay round with focus on environment & agriculture

G. H. PATEL P.G. INSTITUTE OF BUSINESS MANAGEMENT

SARDAR PATEL UNIVERSITY

VALLABH VIDYANAGAR

Subject: International environment organization

Submitted by:Purohit Hardik P. 11F16

Nadiyapara Nayan 11F23

Dave samir 11m34

MBA 2nd year (Div: A) 2011-13

Submitted to:Dr. Y. C. JOSHIAssociate professor

G.H. Patel PG Institute of Business Management

Sardar Patel University

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Preface

The General Agreement on Tariffs and Trade came into force on 1 January 1948. This reportcontains the complete text of the General Agreement together with special reference to Uruguay

Round. An Analytical Index, containing notes on the drafting, interpretation and application ofthe articles of the Agreement has been prepared.

The alleged conflict between the General Agreement on Tariffs and Trade (GATT) trade rulesand the protection of the environment by GATT members is examined. The principal objectiveof the GATT rules on non-tariff trade restrictions is to eliminate government interventions thatpromote the commercial interests of domestic producers and consumers in a way thatdiscriminates against foreign producers and consumers in either domestic or internationalmarkets. This objective fundamentally does not conflict with protecting GATT members'domestic environment or the global environment. The GATT should explicitly recognize theobjectives of environmental protection and natural resource conservation, either by anamendment to the GATT articles or by resolution of the GATT Council. GATT members, in the

interest of protecting their national and the global environment, should be free to imposerestrictions on imports or exports so long as the interventions conform to certain conditions.

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1. IntroductionToward the end of World War II representatives of the US and its allied forces endeavored towork out the arrangements for a new world order in the past war era. As a result of thesenegotiations, the US & its allies planned to establish three important international institutions toliberalize trade and payment. They were IMF, IBRD and ITO.

The General Agreement on Tariffs and Trade (GATT) was originally created by the BrettonWoods Conference as part of a larger plan for economic recovery after World War II. TheGATTs main purpose was to reduce barriers to international trade. This was achieved throughthe reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series ofdifferent agreements. The GATT was an agreement, not an organization. Originally, the GATTwas supposed to become a full international organization like the World Bank or IMF called theInternational Trade Organization. However, the agreement was not ratified, so the GATTremained simply an agreement. The functions of the GATT have been replaced by the WorldTrade Organization.

According to the Preamble of GATT, the objectives of the contracting parties include,

raising standards of living; ensuring full employment; a large and steadily growing volume of real income and effective demand; developing the full use of the resources of the world; Expanding the production and exchange of goods.

The Preamble also states the contracting parties belief that reciprocal and mutually

advantageous arrangements directed to the substantial reduction in tariffs and other barriers totrade and to the elimination of discriminatory treatment in international commerce wouldcontribute toward these goals. Importantly, free trade is not the stated objective of GATT.

The role of GATT in integrating developing countries into an open multilateral trading system isalso of major consequence. The increasing participation of developing countries in the GATTtrading system and the pragmatic support provided to them through the flexible application ofcertain rules helped developing countries to both expand and diversify their trade. It could nowbe said that a great number of these countries have already become full partners in the system ascan be witnessed by their active participation in the Uruguay Round. The task of helping tointegrate further the least-developed countries is one of the challenges that lie ahead in the WTO.

Similarly, the full integration of countries with economies in transition into the trading systemmust be achieved in order to strengthen economic interdependence as a basis for greaterprosperity and world peace. These negotiations were critical to ensure the future health of theworld economy and the trading system. The globalization of the world economy over the pastdecade has created a greater reliance than ever on an open multilateral trading system. Free tradehas become the backbone of economic prosperity and development throughout the world. Partlyas a result of this, there has been a shift in trade policy mechanisms from border measures tointernal policy measures, substantially affecting the management of trade relations. The Uruguay

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Round sought to establish a new balance in rights and obligations among trading nations as aresult of this phenomenon. We are gradually moving towards a global marketplace, and for that,we need a global system of rules for trade relations among partners in that market place.

The Indian economy has experienced a major transformation during the decade of the 1990s.Apart from the impact of various unilateral economic reforms undertaken since 1991, the

economy has had to reorient itself to the changing multilateral trade discipline within the newlywritten GATT/WTO framework. The unilateral trade policy measures have encompassedexchange-rate policy, foreign investment, external borrowing, import licensing, custom tariffsand export subsidies. The multilateral aspect of Indias trade policy refers to Indias WTO

commitments with regard to trade in goods and services, trade related investment measures, andintellectual property rights.

The multilateral trade liberalization under the auspices of the Uruguay Round Agreement and theforthcoming WTO negotiations is aimed at reducing tariff and non-tariff barriers on internationaltrade. The purpose of our study is to provide a computational analysis of the impact of suchchanges in trade barriers on the economic welfare, trade, and the intersectional allocation ofresources in India and its major trading partners.

1.1Objectives of the study

1. To study about the effect of Uruguay Round of GATT in Agriculture andEnvironment.

2. To study about the objectives of GATT.3. To study about the different provisions of GATT.4. To study about the achievements and problems of GATT.5. To study about the impacts or implications of GATT on India.

1.2Review of Literature1. GATT Uruguay Round Trade Agreement and the Environment: A need for Vigilance

David Blackwell (World Federalist of Canada Issues Action Briefing Paper No. 23, May1995)

David Blackwell covered the topics like introduction about GATT & WTO, provisions of theUruguay Round Agreement, concerns about environment in the Uruguay Round Agreement andfinally recommendations about the positive action on the environment.

2. The GATT Uruguay Round and the World Trade Organisations: Opportunities andImpacts for US Agriculture. (By Larrry D. Sanders, Oklahoma state University ofCalifornia Berkeley Mechel Paggi Food & Agriculture Organisation, UN Barry Goodwin,North Carolina State University)

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In the article they have given the information about what is GATT, the Uruguay RoundAgreement issues in the implementation etc. in detail. According to their research, the majoraccomplishment was in enlarging the scope of the negotiations to include many areas of trade notcovered in the previous eight rounds. These include barriers to trade in agriculture, textiles andservices, protection of intellectual property rights and international investment.

3. Agriculture and GATT: How the compromise was reached. By Joanna ORiordanIt talks about the information of GATT and the Uruguay Round Agreement in detail. It also theaim & background implications of GATT and the Uruguay Round Agreement from the USperspective and the EU perspective. It gives information about the comparison between US &EU.

1.3Research methodologySources of Data: In order to fulfill our objectives, we are using secondary sources for the

purpose of information and data collection.

Type of Research: Exploratory Research Design

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2. General Agreement on Tariffs and Trade (GATT)The important role played in the world economy by GATT (and now its successor, the WTO) iswidely accepted. Since its creation in 1947, GATT has grown in membership from an initial setof 23 countries to a roster that now exceeds 125 countries. The expanding GATT membershipreflects the success that this organization has had in facilitating tariff reductions. Through the 8rounds of trade-policy negotiations that have been sponsored by GATT, the average ad valoremtariff on industrial goods has fallen from over 40% to below 4%. In light of the significantimpact that GATT has had on the world economy, it is therefore important to assess the progressthat has been made toward providing a theoretical interpretation of GATT and its main features.

While the past success of GATT justifies in its own right a theoretical interpretation of its mainfeatures, this task is perhaps even more important when the future of this multilateral institutionis considered. A critical question in the coming years is whether the same set of principles onwhich post-war multilateral liberalization has been based can or should be applied under theWTO to a host of new trade-policy issues. These issues include the spread of preferential

trading agreements, the treatment of labor and environmental standards, the subsidization ofagricultural exports, the harmonization of competition policies, and the treatment of services,foreign direct investment and intellectual property. An understanding of why GATTs principleshave worked well in the more traditional arena of multilateral tariff liberalization for industrialgoods can lay the foundation for answers to this critical question.

There have been eight conferences, referred to as rounds or cycles of GATT, each of theserounds resulted in new trade agreements. The most recent round is referred to as the UruguayRound because it was launched at a conference in Punte del Este, Uruguay in 1986. Thesenegotiations concluded with the signing by more than one hundred countries of the UruguayRound "Final Act" in Marrakesh, Morocco in April 1994. The Uruguay Round Agreement hasbeen described as the largest, most comprehensive trade pact in history.

The United States had a number of objectives in entering into the Uruguay Round of tradenegotiations. These included broadening procedures relating to trade in agricultural products,extending GATT rules to trade in services never before covered by GATT, increasing protectionfor patents, copyrights, and trademarks, and an improved way for settling disputes among GATTparticipants.

Most of the objectives that the United States brought to the Uruguay Round were achieved.GATT was expanded to include services and new areas relating to the protection of patents andforeign investment. The Uruguay Round also cut tariffs worldwide by about one third; coveragefor agriculture, textiles, and clothing was increased. And a new World Trade Organization wascreated to administer the agreement, oversee dispute settlements, and review countries' trade

policies and practices.

Nations signing the agreement must have it approved by their governments before they can besubject to its terms. In the U.S. Congress consideration for the agreement is taking place underthe "fast track" procedure, meaning that the House and the Senate must vote up or down on thelegislation dealing with the agreement, with no opportunity to introduce or consideramendments.

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The General Agreement on Tariffs and Trade (GATT) was originally created by the BrettonWoods Conference as part of a larger plan for economic recovery after World War II. TheGATTs main purpose was to reduce barriers to international trade. This was achieved throughthe reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series ofdifferent agreements. The GATT was an agreement, not an organization. Originally, the GATT

was supposed to become a full international organization like the World Bank or IMF called theInternational Trade Organization. However, the agreement was not ratified, so the GATTremained simply an agreement. The functions of the GATT have been replaced by the WorldTrade Organization.

According to the Preamble of GATT, the objectives of the contracting parties include,

raising standards of living; ensuring full employment; a large and steadily growing volume of real income and effective demand; developing the full use of the resources of the world; Expanding the production and exchange of goods.

The Preamble also states the contracting parties belief that reciprocal and mutuallyadvantageous arrangements directed to the substantial reduction in tariffs and other barriers totrade and to the elimination of discriminatory treatment in international commerce would

contribute toward these goals. Importantly, free trade is not the stated objective of GATT.

The role of GATT in integrating developing countries into an open multilateral trading system isalso of major consequence. The increasing participation of developing countries in the GATTtrading system and the pragmatic support provided to them through the flexible application ofcertain rules helped developing countries to both expand and diversify their trade. It could nowbe said that a great number of these countries have already become full partners in the system ascan be witnessed by their active participation in the Uruguay Round. The task of helping to

integrate further the least-developed countries is one of the challenges that lies ahead in theWTO. Similarly, the full integration of countries with economies in transition into the tradingsystem must be achieved in order to strengthen economic interdependence as a basis for greaterprosperity and world peace. These negotiations were critical to ensure the future health of theworld economy and the trading system. The globalization of the world economy over the pastdecade has created a greater reliance than ever on an open multilateral trading system. Free tradehas become the backbone of economic prosperity and development throughout the world. Partlyas a result of this, there has been a shift in trade policy mechanisms from border measures tointernal policy measures, substantially affecting the management of trade relations. The UruguayRound sought to establish a new balance in rights and obligations among trading nations as aresult of this phenomenon. We are gradually moving towards a global marketplace, and for that,we need a global system of rules for trade relations among partners in that market place.

The challenges that we face are therefore enormous. The only way back from this globalizationin the world economy would be through depression and eventual chaos. We therefore have nochoice but to move forward. In doing so, however, we must be sure to preserve to the highestextent possible the spirit and tradition of the GATT, which to a large extent was the key to itssuccess.

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GATTs Round

Name Start Duration Countries Subjects covered Achievements

Geneva April 1946 7 months 23 TariffsSigning of GATT, 45,000 tarconcessions affecting $billion of trade

Currency April 1949 5 months 13 TariffsCountries exchanged som5,000 tariff concessions

Turkey September 1950 8 months 38 Tariffs

Countries exchanged som

8,700 tariff concessions, cuttithe 1948 tariff levels by 25%

Geneva II January 1956 5 months 26Tariffs, admission ofJapan

$2.5 billion in tariff reductions

Dillon September 1960 11 months 26 TariffsTariff concessions worth $4billion of world trade

Kennedy May 1964 37 months 62 Tariffs, Anti-dumping Tariff concessions worth $billion of world trade

Tokyo September 1973 74 months 102

Tariffs, non-tariffmeasures,"framework"agreements

Tariff reductions worth mothan $300 billion dollaachieved

Uruguay September 1986 87 months 123

Tariffs, non-tariff

measures, rules,services, intellectualproperty, disputesettlement, textiles,agriculture, creationof WTO, etc

The round led to the creation WTO, and extended the range

trade negotiations, leading to majreductions in tariffs (about 40%and agricultural subsidies, agreement to allow full accefortextiles and clothing frodeveloping countries, and extension of intellectual properrights.
http://en.wikipedia.org/wiki/Uruguay_roundhttp://en.wikipedia.org/wiki/Uruguay_roundhttp://en.wikipedia.org/wiki/Uruguay_round

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GATT and WTO:

In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories.One of the most significant changes was the creation of the World Trade Organization (WTO).The 75 existing GATT members and the European Communities became the founding membersof the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO in the

following two years (the last being Congo in 1997). Since the founding of the WTO, 21 newnon-GATT members have joined and 29 are currently negotiating membership. There are a totalof 157 member countries in the WTO, with Russia and Vanuatu being new members as of 2012.

Of the original GATT members, Syria and the SFR Yugoslavia has not rejoined the WTO.Since FR Yugoslavia, (renamed to Serbia and Montenegro and with membership negotiationslater split in two), is not recognized as a direct SFRY successor state; therefore, its application isconsidered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed toestablish a working party to examine the request of Syria for WTO membership. The contractingparties who founded the WTO ended official agreement of the "GATT 1947" terms on 31December 1995. Serbia and Montenegro are in the decision stage of the negotiations and areexpected to become the newest members of the WTO in 2012 or in near future.

Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional body. TheWTO expanded its scope from traded goods to include trade within the service sector andintellectual. Although it was designed to serve multilateral agreements, during several rounds ofGATT negotiations (particularly the Tokyo Round) plurilateral agreements created selectivetrading and caused fragmentation among members. WTO arrangements are generally amultilateral agreement settlement mechanism of GATT.

OBJECTIVES OF THE GATT

In general terms, the goals and objectives of a treaty have always been considered of specialrelevance given that they express the common wishes and aspirations of those who reach a

formal agreement at an international level. The aims and objectives of general agreement haveplayed a vital role as the only reference for limiting the reach and jurisdiction of such anOrganization. These objectives and goals not only limit its contents but also decide on thedirectives to follow during its development. The central objective of the general agreement istherefore progressive trade liberalization. The objectives of the general agreement are set forth inthe preamble, where the contracting parties recognize that ... their relations in the commercialand economic matters should be directed towards raising standards of living, ensuring fullemployment and a large and steadily growing volume of real income and effective demand, thefull utilization of global resources and increased production and trade of products and to theprogressive development of the economies of all contracting parties. This sentence of the

preamble of the GATT treaty, is sufficient in itself to demonstrate how ambitious the mission

that the general agreement has set. Let us examine in detail some of these objectives.

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3. The Uruguay RoundThe Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conductedwithin the framework of the General Agreement on Tariffs and Trade (GATT), spanning from1986 to 1994 and embracing 123 countries as "contracting parties". The Round transformed theGATT into the World Trade Organization. The Round came into effect in 1995 and has been

implemented over the period to 2000 (2004 in the case of developing country contracting parties)under the administrative direction of the newly created World Trade Organization (WTO).

The Uruguay Round Agreement on Agriculture, administered by the WTO, brings agriculturaltrade more fully under the GATT. It provides for converting quantitative restrictions to tariffsand for a phased reduction of tariffs. The agreement also imposes rules and disciplines onagricultural export subsidies, domestic subsidies, and sanitary and phytosanitary (SPS) measures.

The Uruguay Round Agreement holds out the prospect of enhanced of goods and servicesworldwide and perhaps greater access to investment capital and overseas markets by poorercountries. Despite the potential this olds for raised living standards, many deeply felt concernshave been expressed about the Agreement.

It took seven and a half years, almost twice the original schedule. By the end, 123 countries weretaking part. It covered almost all trade, from toothbrushes to pleasure boats, from banking totelecommunications, from the genes of wild rice to AIDS treatments. It was quite simply thelargest trade negotiation ever, and most probably the largest negotiation of any kind in history.

At times it seemed doomed to fail. But in the end, the Uruguay Round brought about the biggestreform of the worlds trading system since GATT was created at the end of the Second WorldWar. And yet, despite its troubled progress, the Uruguay Round did see some early results.Within only two years, participants had agreed on a package of cuts in import duties on tropicalproductswhich are mainly exported by developing countries. They had also revised the rulesfor settling disputes, with some measures implemented on the spot. And they called for regular

reports on GATT members trade policies, a move considered important for making traderegimes transparent around the world.

The seeds of the Uruguay Round were sown in November 1982 at a ministerial meeting ofGATT members in Geneva. Although the ministers intended to launch a major new negotiation,the conference stalled on agriculture and was widely regarded as a failure. In fact, the workprogramme that the ministers agreed formed the basis for what was to become the UruguayRound negotiating agenda.

Nevertheless, it took four more years of exploring, clarifying issues and painstaking consensus-building, before ministers agreed to launch the new round. They did so in September 1986, in

Punta del Este, Uruguay. They eventually accepted a negotiating agenda that covered virtuallyevery outstanding trade policy issue. The talks were going to extend the trading system intoseveral new areas, notably trade in services and intellectual property, and to reform trade in thesensitive sectors of agriculture and textiles. All the original GATT articles were up for review. Itwas the biggest negotiating mandate on trade ever agreed, and the ministers gave themselvesfour years to complete it.

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Two years later, in December 1988, ministers met again in Montreal, Canada, for what wassupposed to be an assessment of progress at the rounds half-way point. The purpose was toclarify the agenda for the remaining two years, but the talks ended in a deadlock that was notresolved until officials met more quietly in Geneva the following April.

Despite the difficulty, during the Montreal meeting, ministers did agree a package of earlyresults. These included some concessions on market access for tropical products aimed atassisting developing countries as well as a streamlined dispute settlement system, andthe Trade Policy Review Mechanism which provided for the first comprehensive, systematic andregular reviews of national trade policies and practices of GATT members. The round wassupposed to end when ministers met once more in Brussels, in December 1990. But theydisagreed on how to reform agricultural trade and decided to extend the talks. The UruguayRound entered its bleakest period.

Despite the poor political outlook, a considerable amount of technical work continued, leading tothe first draft of a final legal agreement. This draft Final Act was compiled by the then GATT

director-general, Arthur Dunkel, who chaired the negotiations at officials level. It was put on thetable in Geneva in December 1991. The text fulfilled every part of the Punta del Este mandate,with one exception it did not contain the participating countries lists of commitments forcutting import duties and opening their services markets. The draft became the basis for the finalagreement.

Over the following two years, the negotiations lurched between impending failure, to predictionsof imminent success. Several deadlines came and went. New points of major conflict emerged tojoin agriculture: services, market access, anti-dumping rules, and the proposed creation of a newinstitution. Differences between the United States and European Union became central to hopesfor a final, successful conclusion.

In November 1992, the US and EU settled most of their differences on agriculture in a dealknown informally as the Blair House accord. By July 1993 the Quad (US, EU, Japan andCanada) announced significant progress in negotiations on tariffs and related subjects (market

access). It took until 15 December 1993 for every issue to be finally resolved and fornegotiations on market access for goods and services to be concluded (although some finaltouches was completed in talks on market access a few weeks later). On 15 April 1994, the dealwas signed by ministers from most of the 123 participating governments at a meeting inMarrakesh, Morocco.

The delay had some merits. It allowed some negotiations to progress further than would havebeen possible in 1990: for example some aspects of services and intellectual property, and thecreation of the WTO itself. But the task had been immense, and negotiation-fatigue was felt intrade bureaucracies around the world. The difficulty of reaching agreement on a completepackage containing almost the entire range of current trade issues led some to conclude that anegotiation on this scale would never again be possible. Yet, the Uruguay Round agreementscontain timetables for new negotiations on a number of topics. And by 1996, some countrieswere openly calling for a new round early in the next century. The response was mixed; but theMarrakesh agreement did already include commitments to reopen negotiations on agriculture and

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services at the turn of the century. These began in early 2000 and were incorporated into theDoha Development Agenda in late 2001.

Impact on GATT

The WTO replaced GATT as an international organization, but the General Agreement stillexists as the WTOs umbrella treaty for trade in goods, updated as a result of the Uruguay Roundnegotiations. Trade lawyers distinguish between GATT 1994, the updated parts of GATT, andGATT 1947, the original agreement which is still the heart of GATT 1994. Confusing? For mostof us, its enough to refer simply to GATT.

Many of the Uruguay Round agreements set timetables for future work. Part of this built -inagenda started almost immediately. In some areas, it included new or further negotiations. Inother areas, it included assessments or reviews of the situation at specified times. Somenegotiations were quickly completed, notably in basic telecommunications, financial services.(Member governments also swiftly agreed a deal for freer trade in information technology

products, an issue outside the built-in agenda.)

The agenda originally built into the Uruguay Round agreements has seen additions andmodifications. A number of items are now part of the Doha Agenda, some of them updated.

There were well over 30 items in the original built-in agenda. This is a selection of highlights:

1996

Maritime services: market access negotiations to end (30 June 1996, suspended to 2000,now part of Doha Development Agenda)

Services and environment: deadline for working party report (ministerial conference,December 1996)

Government procurement of services: negotiations start1997

Basic telecoms: negotiations end (15 February) Financial services: negotiations end (30 December) Intellectual property, creating a multilateral system of notification and registration of

geographical indications for wines: negotiations start, now part of Doha Development

Agenda

1998

Textiles and clothing: new phase begins 1 January Services (emergency safeguards): results of negotiations on emergency safeguards to take

effect (by 1 January 1998, deadline now March 2004)

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Rules of origin: Work programme on harmonization of rules of origin to be completed(20 July 1998)

Government procurement: further negotiations start, for improving rules and procedures(by end of 1998)

Dispute settlement: full review of rules and procedures (to start by end of 1998)1999

Intellectual property: certain exceptions to patentability and protection of plant varieties:review starts

2000

Agriculture: negotiations start, now part of Doha Development Agenda Services: new round of negotiations start, now part of Doha Development Agenda Tariff bindings: review of definition of principle supplier having negotiating rights

under GATT Art 28 on modifying bindings

Intellectual property: first of two-yearly reviews of the implementation of the agreement2002

Textiles and clothing: new phase begins 1 January2005

Textiles and clothing: full integration into GATT and agreement expires 1 January

Implementation Issues

Although the Uruguay Round will result in some far-reaching improvements in the world'strading system, it left some issues and concerns unresolved. They include the following:

Effective enforcement. The relationship between the provisions of the Uruguay Round and other agreements

made before the Uruguay Round was completed, such as NAFTA;

Whether safeguard provisions will result in serious inequities in market access andindustry protection;

Whether safeguard provisions can be applied effectively when perishable commoditiesare dumped;

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Whether the U.S. government will aggressively pursue trade dispute settlement whenphyto-sanitary restrictions or trade issues conflict with other political or non-economicobjectives;

How the United States can protect itself if abuses occur under the developing nationexemptions that favor competitors over U.S. producers;

Whether U. S. rules on country of origin marking can be made consistent with GATTrules;

Whether agricultural intellectual property rights will be effectively protected; and What impact the agreement will have on the U.S. government budget and the U.S. trade

policy debate.

Enforcement. Under section 301 of the U.S. Trade Act of 1974, as amended, the U.S. TradeRepresentative (USTR) may take action to enforce U.S. trade agreement rights or eliminate tradepractices unfairly burdening U.S. commerce. The Uruguay Round sustains this use, subject todue restraint, to enforce a WTO decision that a U.S. trading partner is violating its commitments.There are no restriction on applying Section 301 procedures against countries that are not part ofthe WTO or in areas where there are no agreed WTO rules. A question arises, however, as towhether the United States can use the section 301 remedy to enforce existing bilateralagreements such as the canned fruit agreement or the wine accord with the EU.

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4. GATT and its impact on Agriculture:The WTOs Agriculture Agreement was negotiated in the 198694 Uruguay Round and is asignificant first step towards fairer competition and a less distorted sector. WTO membergovernments agreed to improve market access and reduce trade-distorting subsidies in

agriculture. In general, these commitments were phased in over a six years from 1995

The Agriculture Agreement: new rules and commitments

The objective of the Agriculture Agreement is to reform trade in the sector and to makepolicies more market-oriented. This would improve predictability and security for importing andexporting countries alike.

The new rules and commitments apply to:

market accessvarious trade restrictions confronting imports domestic support subsidies and other programmes, including those that raise or

guarantee farmgate prices and farmers incomes

export subsidies and other methods used to make exports artificially competitive.The agreement does allow governments to support their rural economies, but preferably throughpolicies that cause less distortion to trade. It also allows some flexibility in the way commitmentsare implemented. Developing countries do not have to cut their subsidies or lower their tariffs asmuch as developed countries, and they are given extra time to complete their obligations. Least-developed countries dont have to do this at all. Special provisions deal with the interests ofcountries that rely on imports for their food supplies, and the concerns of least-developedeconomies.

Peace provisions within the agreement aim to reduce the likelihood of disputes or challenges

on agricultural subsidies over a period of nine years, until the end of 2003.

Market access: tariffs only

The new rule for market access in agricultural products is tariffs only. Before the Uruguay

Round, some agricultural imports were restricted by quotas and other non-tariff measures. Thesehave been replaced by tariffs that provide more-or-less equivalent levels of protection if theprevious policy meant domestic prices were 75% higher than world prices, then the new tariffcould be around 75%. (Converting the quotas and other types of measures to tariffs in this waywas called tariffication.)

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Numerical targets for agriculture

The reductions in agricultural subsidies and protection agreed in the Uruguay Round. Only thefigures for cutting export subsidies appear in the agreement.

Developed

countries6 years: 1995-2000

Developing

countries10 years: 1995-2004

Tariffs

average cut for all agricultural products -36% -24%

minimum cut per product -15% -10%

Domestic support

total AMS cuts for sector (base period: 1986-88) -20% -13%

Exports

value of subsidies -36% -24%

subsidized quantities (base period: 1986-90) -21% -14%

Least developed countries do not have to make commitments to reduce tariffs or subsidies.

The base level for tariff cuts was the bound rate before 1 January 1995; or, for unbound tariffs,the actual rate charged in September 1986 when the Uruguay Round began.

The other figures were targets used to calculate countries legally-binding schedules ofcommitments.

The tariffication package contained more. It ensured that quantities imported before theagreement took effect could continue to be imported, and it guaranteed that some new quantitieswere charged duty rates that were not prohibitive. This was achieved by a system of tariff-quotas lower tariff rates for specified quantities, higher (sometimes much higher) rates forquantities that exceed the quota.

The newly committed tariffs and tariff quotas, covering all agricultural products, took effect in1995. Uruguay Round participants agreed that developed countries would cut the tariffs (thehigher out-of-quota rates in the case of tariff-quotas) by an average of 36%, in equal steps oversix years. Developing countries would make 24% cuts over 10 years. Several developingcountries also used the option of offering ceiling tariff rates in cases where duties were notbound (i.e. committed under GATT or WTO regulations) before the Uruguay Round. Least-developed countries do not have to cut their tariffs. (These figures do not actually appear in theAgriculture Agreement. Participants used them to prepare their schedules i.e. list ofcommitments. It is the commitments listed in the schedules that are legally binding.)

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For products whose non-tariff restrictions have been converted to tariffs, governments areallowed to take special emergency actions (special safeguards) in order to prevent swiftly

falling prices or surges in imports from hurting their farmers. But the agreement specifies whenand how those emergency actions can be introduced (for example, they cannot be used onimports within a tariff-quota).

Four countries used special treatment provisions to restrict imports of particularly sensitiveproducts (mainly rice) during the implementation period (to 2000 for developed countries, to2004 for developing nations), but subject to strictly defined conditions, including minimumaccess for overseas suppliers. The four were: Japan, Rep. of Korea, and the Philippines for rice;and Israel for sheepmeat, wholemilk powder and certain cheeses. Japan and Israel have nowgiven up this right, but Rep. of Korea and the Philippines have extended their special treatmentfor rice. A new member, Chinese Taipei, gave special treatment to rice in its first year ofmembership, 2002.

Domestic support

The main complaint about policies which support domestic prices, or subsidize production in

some other way, is that they encourage over-production. This squeezes out imports or leads toexport subsidies and low-priced dumping on world markets. The Agriculture Agreementdistinguishes between support programmes that stimulate production directly, and those that areconsidered to have no direct effect.

Domestic policies that do have a direct effect on production and trade have to be cut back. WTOmembers calculated how much support of this kind they were providing per year for theagricultural sector (using calculations known as total aggregate measurement of support or

Total AMS) in the base years of 1986-88. Developed countries agreed to reduce these figuresby 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10years. Least-developed countries do not need to make any cuts. (This category of domesticsupport is sometimes called the amber box, a reference to the amber colour of traffic lights,

which means slow down.)

Measures with minimal impact on trade can be used freely they are in a green box (greenas in traffic lights). They include government services such as research, disease control,infrastructure and food security. They also include payments made directly to farmers that do notstimulate production, such as certain forms of direct income support, assistance to help farmersrestructure agriculture, and direct payments under environmental and regional assistanceprogrammes.

Also permitted, are certain direct payments to farmers where the farmers are required to limitproduction (sometimes called blue box measures), certain government assistance programmes

to encourage agricultural and rural development in developing countries, and other support on a

small scale (de minimis) when compared with the total value of the product or productssupported (5% or less in the case of developed countries and 10% or less for developingcountries).

Export subsidies: limits on spending and quantities

The Agriculture Agreement prohibits export subsidies on agricultural products unless thesubsidies are specified in a members lists of commitments. Where they are listed, the agreement

requires WTO members to cut both the amount of money they spend on export subsidies and the

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quantities of exports that receive subsidies. Taking averages for 1986-90 as the base level,developed countries agreed to cut the value of export subsidies by 36% over the six years startingin 1995 (24% over 10 years for developing countries). Developed countries also agreed to reducethe quantities of subsidized exports by 21% over the six years (14% over 10 years for developingcountries). Least-developed countries do not need to make any cuts.

During the six-year implementation period, developing countries are allowed under certainconditions to use subsidies to reduce the costs of marketing and transporting exports.

The least-developed and those depending on food imports

Under the Agriculture Agreement, WTO members have to reduce their subsidized exports. Butsome importing countries depend on supplies of cheap, subsidized food from the majorindustrialized nations. They include some of the poorest countries, and although their farmingsectors might receive a boost from higher prices caused by reduced export subsidies, they mightneed temporary assistance to make the necessary adjustments to deal with higher priced imports,and eventually to export. A special ministerial decision sets out objectives, and certain measures,for the provision of food aid and aid for agricultural development. It also refers to the possibility

of assistance from the International Monetary Fund and the World Bank to finance commercialfood imports.

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5. GATT and its impact on EnvironmentOver the past decade, the GATT's dispute settlement process has adjudicated only five conflictsover trade restrictions in the interest of environmental protection alleged to be in violation ofGATT rules. Three of these cases had to do with fish products. The best known concerned the

U.S. ban on imports of yellow fin tuna from Mexico on the grounds that Mexican fishermenviolated the U.S. Marine Mammal Protection Act, which limits dolphin kills. The Mexicangovernment argued that the U.S. embargo on yellow fin tuna violated GATT rules. The UnitedStates countered that article III of the GATT permitting national treatment allowed the embargo,since the U.S. act applies to both U.S. and foreign fishing practices relating to dolphin catches.However, the GATT panel found in favor of Mexico because GATT rules do not permit amember to ban imports merely because the exporting country pursues environmental policiesdifferent from its own. The GATT secretariat report argued that permitting such actions wouldgreatly weaken, if not destroy, the GATT. Members might attempt to impose their own standardson other members, and this would lead to widespread retaliation with a consequent generalbreakdown of GATT rules. The GATT secretariat report (1992) includes a summary of the U.S.-

Mexico tuna-dolphin dispute.

The GATT panel decision led the U.S. environmental community to charge that adherence toGATT rules would render nations powerless to oppose crimes against the global commons. Ifnegotiated today, the GATT might well provide exceptions to the rules in the interest ofprotecting the global environment. For example, article XXI of the GATT provides a generalexception to "traffic in arms, ammunitions and implements of war and to such traffic in othergoods and materials as is carried on directly or indirectly for the purpose of supplying a militaryestablishment." Restricting exports of materials or equipment that would assist Cuba (a GATTmember) in making a nuclear bomb is not a violation of the GATT, but restricting trade inproducts using CFCs, which could cause great harm to global welfare, may be a violation. TheGATT also allows specific exemption to its rules for "the products of prison labor" (article XX),which has to do with how the products are made. The point is that the GATT recognizes someinternational objectives that override adherence to basic GATT rules. Conservationists believethat environmental protection also should take precedence over trade rules.

The GATT is not an agreement mandating free trade. It is mainly a system of trade rules--withmany exceptions--based on the premise that governments should not intervene to promote thecommercial interests of their producers or consumers in a manner that would discriminateagainst foreign producers or consumers in either domestic or international markets. Governmentintervention in this context includes not only import restrictions, but subsidies to domesticproducers and quotas or bans on exports in the interest of resource conservation.

Do circumstances exist under which rules against such discrimination would prevent GATTmembers from protecting their own or the global environment? A frequently cited case is that ofa GATT member imposing restrictions on imports produced under environmental standardssubstantially lower than domestic standards. The grounds for the restrictions were that thecountry's domestic producers face "unfair competition" from imports.

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Nevertheless, environmental groups have used this argument against both the GATT and theproposed NAFTA. Some environmentalists have justified using countervailing duties on importsproduced under low environmental standards on the grounds that not requiring producers tointernalize their pollution subsidizes these products Article XVI of the GATT does permitmembers to impose countervailing duties on imports to offset subsidies paid to foreign exporters.

However, the GATT secretariat finds that countervailing duties on imports for environmentalpurposes violates the GATT, since failure to internalize environmental costs is not an overtsubsidy.

The argument for treating non-internalized adverse environmental costs as a subsidy does have acertain logic to it. However, the argument for imposing countervailing duties on imports in allsuch cases basically is an argument for trade protection rather than for protecting theenvironment.

Every country produces many commodities having external impacts that are not internalized, orat least not to the degree they are in other countries. If the GATT permitted its members to

impose some form of compensatory import charge to offset every difference in monetary costsbetween domestic and foreign production, a viable multilateral trade agreement would beimpossible. Labor conditions--such as health, safety rules, and retirement benefits--differ greatlyamong countries. Countries at a lower stage of development are likely to have environmental andsafety standards less strict than those in developed countries. Trade and foreign investment tendto reduce these disparities, but an attempt to force conformity in environmental standards bymeans of trade discrimination does not appear to be an effective way to promote either trade orthe environment. The GATT secretariat report argues that allowing members to impose traderestrictions against other members because of their environmental practices would mean givingdeveloped countries the power to dictate environmental policies to developing countries.However, the rules should allow exceptions in cases where the practices pose significant harm tothe global environment and are subject to an international agreement or U.N. resolution. In suchcases, international consensus rather than differences between environmental standards inindividual countries would be the basis for trade restrictions. GATT members also should be freeto impose restrictions on imports produced under conditions creating trans-border pollution. Thisis in line with the fundamental right of nations to protect their own environment. Thus, a countryshould not be forced to buy copper from a smelter across the border that is polluting itsatmosphere. However, countries whose exports are affected by these restrictions should have theright to object if they believe that the alleged environmental damage cannot justify therestrictions but that the restrictions merely provide commercial protection to domestic producers.The GATT dispute mechanism should decide such cases.

Environmental organizations have charged that GATT rules prevent members from takingactions to conserve their natural resources by restricting exports or by paying farmers not toproduce crops in order to restore the soil. However, the GATT does permit members to makedirect payments to farmers for soil conservation so long as the payments are not related to theproduction of specific crops. Also, article XX permits members to impose quantitativerestrictions on exports in the interest of resource conservation so long as they proportionatelyrestrict domestic consumption. Thus, bans on exporting logs in the interest of conservationpresumably violates article XX of the GATT, unless domestic log consumers also face

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restrictions. In fact, Japan has complained that current U.S. restrictions on log exports violateGATT rules. The rationale for the GATT rule on exports of natural resource products is the sameas that used by Adam Smith (1775) when he opposed the British practice of restricting exports ofwool to foreign cloth and textile manufacturers. Such actions discriminate against foreignproducers by increasing their raw material prices relative to those paid by domestic producers.

Therefore, if the purpose of the U.S. curtailment of Northwest timber harvests is to conserve theresource and not to provide domestic lumber producers with a competitive advantage over Japan,the U.S. also should be willing to restrict domestic lumber consumption.

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6. CONCLUSIONSWhen highlighting the achievements of the GATT, the first aspect to be pointed out is the factthat, the system has managed to survive up until its recent substitution by the WTO. In itsregulatory role of international trade it has, at least in theory, controlled more than 80% of worldtrade and has also settled multiple economic conflicts by coercing those contracting parties

which wanted to adopt certain measures contrary to the established rules, through consulting andeven through tolerating conduct of dubious legality (such as GATTs position). A second andundeniable achievement has been the continuous expansion of international trade, which beganto take place from the moment that the arrangement was applied tariff reductions in thosemanufacturing sectors not considered as sensitive and with considerable access in these areasespecially from the incorporation in the Kennedy round, of the lineal system in substitution forthe product byproduct system. From then on and until the Uruguayround, such a system hasbeen used with notable success. The GATT is both a collection of agreements and negotiationscenter.

It might well reveal flaws that should be corrected. But I firmly believe that the GATT hasaltogether proved its great value for all trading countries, both developed, in developing orsocialist. As a code of agreed principles of international trade, live and in constant evolution, it isthe essential feature in which members operate and develop their trade and commercial relations.As a place of meeting, it gives way to solve trade problems as at when they arise, to prevent anyrelapse into protectionism that all nations would suffer greatly, and develop the internationaltrading system as given necessities. Finally, today, where countries require development ofimaginative measures to meet their needs of trade, the GATT is the effective tool with whichgovernments seek to make agreement on measures to meet these needs. The GATT remained

since the end of the Second World War as the only multilateral code governing internationaltrade and for more than 40 years, several changes were made in trade relations between thedifferent nations of the world. The GATT has, during this period, risen concrete positive actions;but in some areas, it remains to be done.

The argument here is that restrictions designed to protect the environment and rules against tradediscrimination do not necessarily conflict. The objective of environmental protection and naturalresource conservation should be recognized explicitly in the GATT, either by an amendment tothe articles or by a resolution of the GATT council. Such recognition does not sanction tradediscrimination so long as domestic and foreign producers and consumers are subject to the samerules. The GATT should contain a statement of the conditions under which trade intervention inthe interest of the environment and natural resource protection would be in accordance withGATT rules, and the dispute settlement process should observe these conditions.

GATT members should be free to impose restrictions on imports or exports in the interest ofprotecting their national and the global environment so long as the interventions conform to thefollowing conditions: (i) the restrictions do not have the intent or significant effect ofdiscriminating against foreign producers or consumers in favor of domestic ones. (ii) Therestrictions are in the interest of protecting the global environment, broadly interpreted to includethe global commons (oceans, atmosphere and space), and wildlife threatened by extinction,where these global concerns are widely shared by other nations-as indicated by internationalagreement or resolution--and do not simply reflect unique and parochial views of the individualcountry imposing the restriction. (iii) The restrictions do not force trading partners to adopt

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burdensome and unreasonable environmental protection standards that may be similar to those ofthe country imposing the restrictions but that have no global or transborder pollutionimplications.

Bibliography:

http://www.gatt.org/

http://www.wto.org/english/tratop_e/gatt_e/gatt_e.htm

http://www.wto.org/english/news_e/news10_e/gc_04may10_e.htm

http://www.wto.org/trade_topics
http://www.gatt.org/http://www.wto.org/english/tratop_e/gatt_e/gatt_e.htmhttp://www.wto.org/english/news_e/news10_e/gc_04may10_e.htmhttp://www.wto.org/english/tratop_e/tratop_e.htmhttp://www.wto.org/english/tratop_e/tratop_e.htmhttp://www.wto.org/english/news_e/news10_e/gc_04may10_e.htmhttp://www.wto.org/english/tratop_e/gatt_e/gatt_e.htmhttp://www.gatt.org/

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