Evolution of GATT as trading institution and transition of GATT to WTO
General Agreement on Tariffs and Trade (GATT) was a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”
It was first discussed during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on 30 October 1947, and took effect on 1 January 1948. It remained in effect until the signature by 123 nations in Marrakesh on 14 April 1994, of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on 1 January 1995. The WTO is a successor to GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.
Objectives of GATT:
By reducing tariff barriers and eliminating discrimination in international trade, the GATT aims at:
(i) Expansion of international trade.
(ii) Increase of world production by ensuring full employment in the participating nations.
(iii) Development and full utilization of world resources, and
(iv) Raising standard of living of the world community as a whole.
However, the GATT do not provide directives for attaining these objectives. These are to be indirectly achieved by the GATT through the promotion of free (unrestricted) and multilateral international trade.
As such, the rules adopted by GATT are based on the following fundamental principles:
(i) Trade should be conducted in a non-discriminatory way.
(ii) The use of quantitative restrictions should be condemned.
(iii) Disagreements should be resolved through consultations.
In short, members of GATT agree to reduce trade barriers and to eliminate discrimination in international trade so that multilateral and free trade may be promoted, leading to wider dimensions of world trade and prosperity.
GATT permits such restrictions only for:
(i) Safeguarding exchange reserves when a country has balance of payments difficulties.
(ii) Restricting imports that would harm domestic price supports and production control programmes of a country.
GATT also lays down that state trading should be non-discriminatory. However, the formation of customs unions or free trade areas are allowed by the General Agreement provided their purpose is to facilitate trade between the constituent territories and not to raise barriers to the trade of other member nations.
(iii) Underdeveloped countries to further their economic development under procedures approved by GATT.
Transition of GATT to WTO
The main questioning on the reasons that led to the replacement of the GATT to WTO of is considered as one most important questions on this topic? Is the change of the GATT simply a change of names and thus replace the GATT of 1947 with the GATT of 1994? Or is there any substantial ground for this change relating to the failure of the GATT in achieving its main objectives? And if there are reasons behind this change is faded with the birth of the World Trade Organization?
In fact, the birth of the World Trade Organization by replacing the old organization of the GATT was not merely a new game, but it was a necessity that was required by the stage of the nineties of the last century, especially since the GATT failed to achieve its goals. The weaknesses of the GATT was behind its failure, including the existence of legal problems, particularly in the areas of agriculture and textiles. For example, it can be noted that the United States was not able to convince Japan and China within the framework of the GATT to open its markets to U.S. goods. In addition, the GATT failed to cover trade in services and intellectual property rights, and the absence of an international mechanism to resolve disputes in international trade.
Notwithstanding the above, the GATT has made over 47 years a great success in promoting and ensuring a large part of the liberalization of world trade, and helped reductions in customs duties and ensured the growth of trade and production, it has made a lot of achievements and contributions in the field of liberation of some sectors of the international trade and growth, but it has suffered limited influence on some key aspects. There are many reasons through which the failure of the GATT agreement can be justified, such as the GATT by itself was only the set of rules and multilateral agreements and has no constituent bases, it was only interested in trade in goods without paying attention to services and intellectual property rights, the role of the commission of disputes of the GATT was slow in resolving disputes and it was being subjected to a degree of disruption. One of the main reasons behind the collapse of the GATT was that the organization was in favor of the industrial countries, and lost confidence among the developing countries.
Since the beginning the GATT has suffered from serious problems, for this it has been for many times close to failure, and at the end eventually converted to the WTO. Therefore, it can be said that the organization of trade organization is a new version of the GATT, which has exhausted its purposes and was no longer capable intermediate of consequences on global economic conditions or to achieve the interests of industrial countries. The establishment of the WTO was so important as there was a real necessity for the emergence of a new mechanism to accommodate changes in the international arena, this organization was an old idea that came to light in order to announce the start of a new phase of financial globalization, which is subject both to the developing world south to the control of new industrial nations of the North.
The Difference Between the GATT and the WTO:
The GATT “ the General Agreement on Tariffs and Trade” has been established after the Second World War in 1947 and entered into force in 1948  , it has come as a result of the decision of great states to set up the foundations for a new world order. In fact, the idea of new world order required the establishment of two main axes, the first has a political nature known as the United Nations and the second has an economic nature that was the GATT.
The GATT has held many successful rounds on different areas of economic interests, the Kennedy round, which resulted in an agreement to combat dumping, but failed to agree on agricultural issues at the first attempt to negotiate non-tariff measures. The other agreements of non-tariff also were rejected in the United States, this round also failed to reach an agreement on anti-dumping and estimate Customs, because the 1962 law of Special trade expansion has no provisions as regard to non-tariff measures and the rejection of the U.S. Congress to pass the legislation for the agreements. The Tokyo round has been considered as a serious attempt to expand and improve the system of GATT, it has drafted the first set of non-tariff for the management of support and countervailing duties, government procurement, customs valuation, import licensing and levels of anti-dumping duties, civil aviation and the products of dairy and meat.
Finally, the most important round was the Uruguay Round, which led to the establishment of the WTO. This round is considered significant because it has reached a positive outcome on the abolition of quantitative restrictions on imports, not only to regulate trade in goods, but also included trade in services and intellectual property rights, and produced new mechanisms related to settling commercial disputes, and has lasted for more than seven years.
In spite of the successes achieved by the GATT in terms of liberalization of international trade, enhancement of the world productivity and reduce tariffs, it was unable to achieve the interests of developing countries and to cope with international changes. In these circumstances the birth of the World Trade Organization came to complete the process of GATT and perform what the latter failed to achieve.
The Impact of WTO on the Global Economy:
The establishment of the World Trade Organization has changed the features of the global economy by linking the international and commercial relations and the interests of the countries. With the birth of this organization, it can be said that the set up of the modern global economic system has been completed, which is characterized by the dominance of the principles and mechanisms of the capitalist system.
The States belonging to this organization seek to benefit from trade liberalization and the movement of international capital. The birth of this organization has been preceded by difficult negotiations which proved the contradictions that exist among the major industrialized countries, which search for new markets of goods and services, especially those produced by developing countries. The developing countries also seek to protect their economies from the fierce competition and feed its treasury with the proceeds of taxes and customs duties on the imported goods. Such countries considered the organization as a new device to pass the policies of the dominant superpower states.
The Organization has devoted an asymmetric relationship between the industrialized North, where the parties of Trinity, which are the pillars of the global economy (North America, Europe, Japan) produce about 87% of global imports and more than 94% of global exports of materials and manufactured goods, while the south, which still most of its countries suffer from chronic problems such as poverty, unemployment, suffocating foreign debt, and political instability. However, the aggravation of the situation is dire, especially after it seemed clear that the growth and stability of developing countries is a prerequisite for the stability of the global economy.
The organization aims to strengthen the global economy through liberalization of trade from all restrictions, and raising the level of real national income of the member states, and increasing the demand on the economic resources and its optimal exploitation, expanding and facilitating access to international markets, assistance in resolving disputes between states and automation of trade policies and cooperation with other international institutions to achieve harmony between trade and financial policies and cash. The international community has witnessed a growing interest shifts the main characterized of the global economy, having accelerated the pace in an unprecedented manner during the nineties of the twentieth century. The World Trade Organization is considered as a tool and means which has its importance in organizing and promoting the international trade and thus contributes to the globalization of the economy.