Functions of General Agreement on Tariffs and Trade (GATT)

Functions of GATT

In fulfillment of its objectives, GATT adopted certain measures. These may be discussed under the following headings.

  1. Most favored nation clause
  2. Trade negotiations
  3. Tariff and non-tariff measures
  4. Safeguards
  5. Complaints and waivers
  6. Settlement of disputes

1. Most Favored Nation clause

The “Most favored Nation clause is one of the significant provisions adopted by GATT. Under the concept of Most Favored Nation, all contracting parties of the agreement would be treated as most favored nations. The principal objective is that the benefits extended to one should also be extended to all contracting parties. There should be no discrimination among nations. Trading should be carried on the principle of non-discrimination and reciprocity. This clause discouraged the member countries from granting any new trade concessions unless those were mutually agreed upon. However, many escape clauses were found. Under specific circumstances, less developed countries were allowed to exercise the right to discriminate. For example, dumping and export subsidy might be countered by trade measures only against the offending country. Moreover, special concessions were allowed for trade with former colonies of less developed western countries.

2. Trade negotiations under GATT

From 1947 to 2001, GATT has organized 12 trade negotiations. The following table shows various negotiations of GATT and WTO since 1947.

3. Tariff and Non-tariff measures

Tariff measures:

Tariffs were the important obstacle to international trade. Therefore, GATT encouraged negotiations for the reduction of hig4 tariffs, The participating countries agreed to cut tariff of thousands of industrial products. Reduction of tariff was on reciprocal and mutually advantageous basis. Article 11 of the GATT provided that all concessions granted by contracting parties must be entered in a schedule of concessions. Once a concession was included in the schedule of concessions, it could not be withdrawn except under specified circumstances.

Non-tariff measures

Post-World War II witnessed reduced distorting effects of non-trade barriers world trade. The Tokyo Round held during 1973 — 1979 tackled the problems of non-tariff barriers under more effective international discipline. All the agreements provide for special and more favorable treatment for developing countries. The negotiations led to the following non-tariff measures:

  • restriction on use of subsidies,
  • technical barriers,
  • import licensing procedures,
  • government procurement,
  • custom valuation,
  • permission of anti-dumping code.

To read more about the non-tariff measures of GATT, refer this article: Non-tariff measures of GATT

5. Complaints and waivers

Article XXII of the GATT entertains complaints from contacting party relating to the operation of the agreement. The contracting party who is likely to be deprived of the benefits under GATT agreement can request the other party for consultation. The basic principle of GATT is that member countries should consult one another on trade matters and problems. Article XXV of the GATT provides the procedure for granting waiver to some contracting party from the application of the provisions of the GATT. Waivers are granted on the approval by two thirds of voting contracting parties.

6. Settlement of disputes

GATT aimed at the smooth settlement of disputes among the contracting parties. GATT allows the member countries to settle problems among them by consulting one another on matters of trade. Initially, the contracting parties should resolve the disputes by holding talks on bilateral basis. In case of failure, the dispute may be referred to panels of independent experts formed under GATT council. The panel members are drawn from countries which have no direct interest in the disputes. If the offending parties does not act upon the panel’s decision, the aggrieved party is authorized to withdraw all concessions offered to the offending party. Since the panel procedure ensures mutually satisfactory settlement, members make increased use of the panel.