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ec_final.docxEconomics 4
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1. General Agreements on Tariffs and Trade
General Agreements on Tariffs and Trade (GATT) are a set of conventionally rules and regulations that came in to the forefront as a result of the aftermath of the Second World War. The war left the countries devastated and the economies could not sustain growth. GATT came into effect in the year nineteen forty-eight.
The main objectives and motives had both political and economic point of origin. The war had left countries with the fear of an all-economic super power in the world due to the fact that an economic super power may lead to a military superpower who may then opt to conquer the world leading to another war. Economically, the nations did not want any country to fall victim to another due to the wealth differences and therefore, a mid-ground had to be in effect. The economic purpose of the agreement was to increase the employment percentage in every country. This was with the aim of making it a possibility for people to earn an honest living. In addition, the agreement was meant to increase the economic competitiveness of countries that predominantly import and to improve the balance of trade by regulating the tariffs of trade.
GATT has had nine rounds of negotiation since its formation. The fifth and sixth rounds both held in the sixties seem have had the most success. The result of the fifth round was a further r reduction in tariff and the beginning of talks to form the European Economic Community (EEC). The sixth round saw further reduction in tariffs, recognition of the EEC and formulation of the Trade Expansion Act. The three factors led to the realization of the GATT motives and purpose in that developing countries especially in Africa where most of the countries had gained independence gained recognition on the international trade platform. More people could earn a living and more countries now participated in international trade without being sidelined by the more powerful countries. The reduction and subsequent elimination of tariffs made it easier for them to enter in to the market thus gaining economic empowerment. The subsequent abolition of the American Selling Price made, calls for revocation of the reciprocity of developing countries to developed countries, and reduction in tariff brought about the total tariff reduction of forty billion dollars thus enabling developing countries to engage in trade.
2. Economic Conditions in the Seventies
During the nineteen seventies, the global economy suffered a recession due to political and economic reasons. The Tokyo round of talks convened in the year nineteen seventy-three was designed to uplift the world from the then recession. Anti-trade policies and trade embargoes on the Middle East promoted the recession since the Middle Eastern countries decided not to trade until the lifting of the embargoes. The Tokyo round had the intention of reducing the effect of the embargoes and seeking a way forward upon the prevailing recession.
The number of countries that played a part in the talks was one hundred and ninety-two. This in itself was a success according to the original goals of the GATT. The talks resulted in a reduction of one-hundred and ninety billion tariff worth and further promoted trade. the new policies that gave Least Developed Countries (LDCs) a preferential treatment from developed countries thus giving them better competitiveness compared to the already existing developed countries.
The Tokyo Talks are a failure in the sense that the prevailing recession got worse. The world experienced a condition referred to as stagflation. Stagflation is the stagnation in growth of the economy while experiencing high inflation rates. The stagnation and inflation was due to two economic shocks, the Peruvian Anchovy fisheries shock, and the Organization of Oil Producing Countries shock. Unemployment index, inflation index skyrocketed regardless of the GATT Tokyo Talks
The rising inflation throughout the period, economic stagnation and general inflation curtailed the effects of the GATT Tokyo Talks. The talks did achieve reduction in tariff, which is commendable, but the recession tinted the effects of the tariff reduction. This is why the GATT Secretariat may consider it a success but a failure to most international economists (CONCESSIONS, 1980).
4. Effective Tariff
The reduction of trade tariffs since the year nineteen forty-seven has seen a reduction of up to currently just a tenth of the original tariffs after the Second World War. This has however not achieved the free flow of good between countries due to an existing effective tariff. The effective tariff is any extra charges levied on extra finished goods. For example, a country agrees to a certain tariff for imports that give a certain charge on a particular number of units imported. This is the Tariff Rate Quota (TRQ). The importing country the sets a parallel tariff for import that exceeds the set quota thus an above quota tariff (AQT). The TRQ and the AQT combine to give an effective tariff that is always higher than the agreed tariff hindering the free flow of goods and products from a country to a country.
The low tariffs have the aim of reducing the total cost of flow for finished goods, which would see the free flow of goods and products. The AQT usually is set to protect local companies from external competition thus creating protectionism among states. This validates the argument that despite the low tariffs on finished goods, the steep effective tariff, bars trade between the countries (Wilson, Mann & Otsuki, 2005).
Reference
Busch, M. L., & Reinhardt, E. (2003). Developing countries and general agreement on tariffs and trade/world trade organization dispute settlement.Journal of World Trade, 37(4), 719-736.
CONCESSIONS, S. O. T. (1980). GENERAL AGREEMENT ON TARIFFS AND TRADE.
Wilson, J. S., Mann, C. L., & Otsuki, T. (2005). Assessing the benefits of trade facilitation: a global perspective. The World Economy, 28(6), 841-871.
