MARK 493 Lecture Notes - Lecture 2: General Agreement On Tariffs And Trade, National Treatment, Pacific States

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Chapter 2
The World Trade Organization
The General Agreement on Tariffs & Trade (GATT)
The GATT is the predecessor of the WTO (the WTO replaced GATT).
They’re both international agreements providing for freeing trade and preventing trade
discrimination.
GATT was a trade outcome after WW2 and was signed by 23 countries it promoted open
markets and competition protected by agreed-upon rules.
It was thought that if we can unify the world by trade, it might help spread the wealth and
prevent rogue political factions from going off into different directions (Afghanistan was
last to join WTO)
To join the WTO, countries have to have their laws up to par.
WTO deals only with trade & economics, not human rights.
2 major roles of GATT when it was created:
1. It was expected to develop rules to govern trade relations of participating countries
and;
2. Provide a forum for members to discuss trade and trade-related issues
Uniform tariff barriers are set up so that every member country is charging the same tariffs
for importation of goods regardless of where they come from. No matter where you
import steel from, you know you’ll be charged $0.03 tax
The WTO has no enforcement mechanism compliance in ensured by commitment and
economic leverage of its members.
If one country wrongs another, the WTO cannot force one country to comply, even if they
are found to be in the wrong. The victim country can only retaliate retaliatory tariffs
Why would a country not abide by the agreed upon tariffs?
To appease the country; countries want to be able to make their own rules and manage
their own countries
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THE RULES OF GATT/WTO
GATT and WTO trading rules are based on 3 basic rules:
1. The Binding Concessions Rule: When you agree to a tariff and the tariff is fixed,
binding. You cannot simply raise it without going to the WTO and getting
permission to do so
2. The Most-Favored Nation (MFN) Rule: What is the lowest tariff that you charge
your favorite trading partner? Ideally, there’s a low tariff and that now becomes
your standard tariff for that product
3. The National Treatment Rule: When goods imported to a country will be treated
the same way as domestically produced goods with regards to taxation rules;
whatever applies to domestic goods should be applied to imported goods
There are specific rules for less developed countries additional concessions for them
especially when it comes to patent laws (i.e. produce generic goods just for their own
consumption because generic goods are less expensive)
Other significant rules govern special treatment for developing countries:
Free Trade Areas No tariffs between member nations for something to be tax-
free, it to be grown/made in that country (with a max of only 7% imported parts)
(i.e. NAFTA)
Customs Unions Same as free trade except once something has been imported
into one member country (i.e. France), it can be sold anywhere else with Customs
Union member nations tax-free (i.e. the EU)
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Document Summary

The general agreement on tariffs & trade (gatt) The gatt is the predecessor of the wto (the wto replaced gatt). They"re both international agreements providing for freeing trade and preventing trade discrimination. Gatt was a trade outcome after ww2 and was signed by 23 countries it promoted open markets and competition protected by agreed-upon rules. It was thought that if we can unify the world by trade, it might help spread the wealth and prevent rogue political factions from going off into different directions (afghanistan was last to join wto) To join the wto, countries have to have their laws up to par. Wto deals only with trade & economics, not human rights. 2 major roles of gatt when it was created: it was expected to develop rules to govern trade relations of participating countries and, provide a forum for members to discuss trade and trade-related issues.

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