General Agreement on Tariffs and Trade (GATT)
Background
Trade among nations has a rich history, including India’s relations with Arab and European nations. The two World Wars and the 1930s Depression disrupted global trade, leading to trade restrictions and economic setbacks.
Bretton Woods Conference (1944)
This conference led to the creation of:
- IMF – Established 1945, operational from 1947
- IBRD – Started 1946
- ITO – Proposed but not implemented
Formation of GATT
With the ITO unestablished, 23 countries signed the GATT on October 30, 1947. It came into effect on January 1, 1948, as a provisional but impactful international trade agreement with headquarters in Geneva, Switzerland.
Objectives of GATT
- 1. To provide equal opportunity to all member countries in international market for trading purposes without any favour.
- 2. To minimize tariffs, elimination of discriminate & other restrictions for ensuring mutual benefits and to eliminate favours from international trade.
- 3. To provide amicable solutions to the dispute related to international trade by giving cooperation and advice to member countries.
- 4. To increase effective demand for real income growth and goods.
- 5. To ensure a better standards of living in the world as a whole.
MFN Clause: Any benefit given to one member was extended to all members automatically.
Uruguay Round & Dunkel Proposals
The 8th round of GATT talks (1986) included controversial topics like agriculture. Director General Arthur Dunkel’s proposals were finalized in 1993 and signed by 77 countries in April 1994.
Key Areas Covered:
- Market Access
- Agreement on Agriculture (AOA)
- Textiles
- Trade Related Investment Measures (TRIMS)
- Trade Related Intellectual Property Rights (TRIPS)
- Trade in Services
- Institutional Matters
World Trade Organization (WTO)
Formation
WTO was formed on January 1, 1995, replacing GATT. It started with 77 members and had 164 members as of July 2016.
Key Differences Between GATT and WTO
| Feature | GATT | WTO |
|---|---|---|
| Status | Provisional | Permanent |
| Dispute Settlement | Slow & dilatory | Fast & automatic |
| Membership | Contracting Parties | Member Countries |
| Relation with UNO | Not part | Independent |
| Agreements | Temporary | Permanent & Binding |
| Approach | Flexible | Rule-based & Time-bound |
| Coverage | Narrow | Wider (includes IPR) |
Objectives of WTO
- Reduce trade barriers
- End trade discrimination
- Promote sustainable resource use
- Build strong, multilateral trading systems
- Achieve full employment and demand growth
- Improve living standards and production
Functions of WTO
- Platform for trade negotiations
- Administer trade agreements
- Resolve disputes
- Coordinate with IMF and IBRD
Structure of WTO
- Ministerial Conference (MC): Supreme authority; meets every 2 years
- General Council (GC): Executes decisions; also functions as:
- Dispute Settlement Body (DSB)
- Trade Policy Review Body (TPRB)
- Three Councils under GC:
- Trade in Goods
- Trade in Services
- TRIPS
- Committees:
- Trade and Development (CTD)
- Balance of Payments Restrictions (CBOPR)
- Budget, Finance & Administration (CBFA)
- Secretariat: Led by Director-General, assisted by 4 deputies, appointed for 4 years
WTO Provisions and Key Agreements
The World Trade Organization (WTO) includes several essential agreements that govern international trade and investment. The major agreements are:
- Agreement on Agriculture (AoA)
- Trade-Related Investment Measures (TRIMS)
- Trade-Related Aspects of Intellectual Property Rights (TRIPS)
- Technical Barriers to Trade (TBT)
- Sanitary and Phytosanitary Measures (SPS)
- Subsidies and Countervailing Measures (SCM)
- Agreement on Textiles and Clothing
Agreement on Agriculture (AoA)
The AoA holds particular importance for developing nations as it seeks to bring agricultural trade in line with other commodities. The objective is to create a fair and transparent system for global agricultural trade. The AoA is built upon three core areas:
- Market Access: All non-tariff barriers such as quotas must be converted into tariffs. Member countries must ensure tariffs remain below the bound rates agreed upon. Developed nations are required to cut tariffs by a minimum of 15% (with a 36% average reduction) over six years. For developing nations, the minimum cut is 10% (with a 24% average) over ten years. Moreover, minimum access quotas are mandated—developed nations must increase access from 3% to 5% of their domestic consumption, while developing nations must increase from 1% to 4%.
- Domestic Support: This involves subsidies and incentives provided to producers. Developed countries are required to reduce these supports by 20% over six years, and developing countries by 13.3% over ten years. Certain non-trade distorting supports—known as "Green Box" measures—are exempt. These include funding for research, rural infrastructure, food security, and environmental conservation.
Subsidy Categories:
- Amber Box: These are highly trade-distorting supports and are subject to reduction commitments.
- Blue Box: These involve limited production but are considered less trade-distorting.
- Green Box: These are non-trade-distorting supports such as decoupled payments, environmental schemes, and general services.
- De Minimis: Supports that are trade-distorting but minimal—below 5% of production value—and thus exempt.
- Export Subsidies: Developed countries are expected to reduce export subsidies by 36% in value and 21% in volume over six years. Developing nations must reduce them by 24% in value and 14% in volume over a ten-year span.
Disparities and Criticisms of AoA
- Although developing nations were promised special treatment, implementation has been lacking.
- Green Box measures tend to favor developed countries' existing support systems.
- Nearly 87.5% of Green Box subsidies are claimed by developed countries.
- Only developed nations operate Blue Box programs aimed at production limitation.
- Despite exemptions, Aggregate Measurement of Support (AMS) in developed countries remains high (ranging from 29% to 48% of output value).
- Developed countries provide 80% of total export subsidies.
- Reduction targets are slow and insufficient to ensure genuine liberalization of trade.
- Tariff escalation on processed goods by developed countries continues to block effective market access for developing nations.
Impacts of the Agreement on Agriculture (AoA) on Indian Agriculture
The Agreement on Agriculture (AoA) under the World Trade Organization (WTO) has significantly influenced the agricultural landscape in India. It has had wide-ranging effects on domestic agricultural strategies, food security initiatives, and the livelihoods of farmers across the country.
Major Impacts of AoA on Indian Agriculture
Under the AoA, developing nations are allowed to offer trade-distorting support up to only 10% of their agricultural output value. India's MSP mechanism, which provides assured prices for staple crops such as wheat and rice, is frequently examined under this rule. The issue is further complicated by the use of outdated base prices (from 1986–88) for calculating subsidies, which does not reflect current economic realities and may exaggerate the level of support being given.
India maintains a large Public Distribution System (PDS) to ensure food security by procuring and storing food grains. However, the WTO’s subsidy regulations make it harder to run such programs without breaching trade rules. Although the temporary "peace clause" currently shields such measures, India has consistently pushed for a long-term solution that would legitimize food security-related stockholding permanently.
Farmers in developed countries often benefit from high levels of subsidies, which allow them to sell agricultural produce at very low prices on the global market. These cheap imports entering Indian markets threaten the income of Indian farmers, who are unable to match such low pricing due to limited government support.
Critics argue that the AoA favors the interests of developed economies. India has called for restructuring the agreement to better reflect the developmental needs and limitations of lower-income countries. Greater flexibility and fairness are needed to ensure that countries like India can protect their farming communities while engaging in international trade.
Although the AoA was intended to create a balanced global trade environment in agriculture, its current implementation poses considerable challenges for India. Reconciling international obligations with national priorities is essential to protect the interests of Indian farmers and maintain the country’s food security system.