Genesis of equitable trade

The Geneva Round was the first round of trade negotiations held in 1947 and were concomitant with the formation of the General Agreement on Trade and Tariffs (GATT). In this article, we will touch upon the broad agreements in the first round and the background of the creation of GATT.

Formation of GATT

As part of the post-war efforts, the US and UK jointly worked on ways to devise a new world order. As a result of these efforts, the Bretton Woods institutions of World Bank and International Monetary Fund came into existence in July 1944. The World Bank was to provide financial assistance for reconstruction of countries affected by the war and the IMF was to oversee international monetary stability and extend assistance to countries with deficits in their balance of payments. The organisation for governing international trade — the International Trade Organisation — proved to be a bigger challenge, as we will see below.

GATT is a multilateral trade agreement which was signed by 23 countries on October 30, 1947, in Geneva. These 23 countries were also members of the Preparatory Committee established by the United Nations Economic and Social Council for Asia and the Pacific (UNESCAP) to draft the charter of the International Trade Organisation (ITO). As seen in the previous article, the ITO was intended to be one of the Bretton Woods institutions, to oversee tariff concessions. The GATT was supposed to adopt these tariff concessions within the ITO framework, when the latter came into existence. In other words, GATT was supposed to nest within the ITO, and was tasked with implementing the Havana charter of the ITO. However, the ITO did not see the light of the day because of domestic issues in the US Congress. That left GATT as the only Agreement, which was basically the trade and commercial policy part of the Havana Charter of the ITO, which was being negotiated since 1946. John Jackson, in his article The GATT in the US Domestic Law, published in the Michigan Law Review in 1967, called the creation of the GATT as a ‘misdirected beginning’.

Trade negotiations under the Geneva Round

It is important to remember that the main trading nations in 1947 were the USA and the developed countries of Western Europe, such as the UK, France, West Germany, Italy, Spain, Portugal, Belgium and the Netherlands. Apart from these, Australia and New Zealand also had active interests. Countries with lesser income levels, such as China, India and Brazil, on the other hand, viewed the negotiations differently. India would soon get independence and trade was clearly not a focus area. The general view among these countries was that there was little to gain from these negotiations, for the simple reason that they had little to offer. Moreover, the rules and procedures governing world trade were set by the developed countries, since they were the most interested. Consequently, the areas that were inconvenient to developed countries, such as agriculture trade, were kept off the table. The less developed countries, however, did get a concession, which was included in Article XVIII of the 1947 Agreement. This concession allowed less developed countries undertaking post-war reconstruction to be exempted from their GATT obligations in order to protect some industries.

Most of the negotiations in the Geneva Round were conducted bilaterally, with countries or small groups of countries exchanging tariff concessions on a product-by-product basis. While the negotiations were largely bilateral, the outcomes were applicable multilaterally, on a ‘Most Favoured Nation’ (MFN) basis. Another feature of the round was the centrality of the US in the process. As the WTO website tells us, the main negotiations were held from April to October 1947. In these negotiations, 123 meetings were held, wherein 20 schedules containing the tariff reductions and bindings were agreed on. These schedules covered some 45,000 tariff concessions and about USD 10 billion in trade.

Interestingly, 56 countries met a few months after the Geneva Round in Havana in March 1948 to discuss the ‘Havana Charter’ of the ITO. Here, the number of less developed countries had grown to include those from Latin America and South East Asia. The negotiations over the Geneva draft continued in Havana and the less developed countries asked for freedom to impose import quotas and other restrictions unilaterally. Many of these changes were agreed upon, but in the expectation that the ITO Charter would soon be adopted, they were omitted from GATT on the ground that they were not directly related to the defense of committed tariff concessions. As we saw above, the ITO Charter was not adopted because of reservations of the USA, and the trade and commercial policy part of the Charter was incorporated into GATT. The GATT thus became, by accident, a multilateral institutional framework for trade negotiations.

The tariff concessions offered by all the participating countries can be found on the website of the WTO, and make for interesting viewing. For example, India was requested for tariff concessions by Australia, New Zealand and the Benelux group (Belgium, Netherlands and Luxembourg). India reduced the ad valorem tariff on butter and cheese from 30 per cent to 25 per cent. India offered a range of concessions on 84 items varying from playing cards and toys to machinery and equipment. The tariff commitments offered by the US were perhaps the most comprehensive and ran into 164 pages. The US offered tariff cuts on a number of items, reducing its tariff by 50 per cent on a wide range of products.

Conclusion

The GATT became an important guide and framework for trade negotiations for close to 50 years and provided both substantive (MFN and National Treatment) and procedural (bilateral negotiations, tariff schedules) norms and rules. However, the Geneva Round was driven mainly by the trade interests of the USA. The main demands on the table were those of the USA and included tariff cuts from their dominant trading partners in Western Europe, Australia and New Zealand, and included mainly manufactured goods. Clearly, there was little interest among the less developed countries, whose challenges were vastly different. Many of the less developed countries were newly independent (like India and Pakistan), while others were struggling with basic challenges of economic development. While the participation of developing countries did increase progressively over the years, the rules of the game were already set in the initial draft of GATT and this did not change much over the years. Even so, the GATT did provide the framework for non-discrimination in trade and progressive liberalisation in the form of tariff concessions and later non-tariff barriers.

The writer is Additional Chief Secretary, Department of Mass Education Extension and Library ervices and Department of Cooperation, Government of West Bengal.