By Naveera Perera
The General Agreement on Tariffs and Trade (GATT) is a multilateral agreement signed between 23 countries on 30th October 1947, in Geneva, Switzerland. Amidst the backdrop of the Second World War in which many countries felt the severe economic repercussions, the GATT recognised the need to remove quantitative trade barriers such as trade controls and quotas. The GATT considered trade a tactic that would reduce the likelihood of war occurring between nations as countries’ economies worldwide became interconnected. The immediate impact of GATT was implementing a framework for multilateral negotiations and forming a system to arbitrate commercial disputes among nations.
Is GATT Solely an Agreement, or Is It an Organisation?
As implied by the term GATT itself, it clearly refers to a specific agreement. This includes the original 1947 agreement and, subsequently, with the changes brought forth during the Uruguay Round, the GATT 1994 agreement. However, at one point in time, GATT also referred to the organisation created to implement the rules set out in the agreement. From 23 member states, this organisation grew to include a total of 128 countries. The organisation, however, was replaced under the Marrakesh Agreement of 1994 with the World Trade Organisation (WTO), which commenced in January 1995. The main reason behind the failure of GATT includes the lack of recognition or support provided to developing countries. GATT was also unable to keep up with the growing nature of international trade, which focused on trade in goods, services, and the idea of intellectual property. Despite the change of organisations, the GATT 1994 agreement continues to be significant along with other important agreements, including the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Unlike the GATT, which played a role in negotiation and arbitration, the WTO includes four core functions, including trade negotiations, whereby the WTO Ministerial Conference acts as the largest platform for such discussions. It also includes dispute settlement, providing a way for the rights of member states to be protected. Additionally, WTO monitors and overlooks the operation of covered agreements and, lastly, conducts ample research to increase information and capacity building in international trade.
Sri Lanka’s Role in GATT
Sri Lanka joined the GATT on 29th July 1948, making it one of the founding members. Its subsequent membership at the WTO upon its establishment demonstrates Sri Lanka’s interest in complying with international trade and reaping the benefits of a free market. In assessing Sri Lanka’s role in trade, it was in 1977 that Sri Lanka adopted trade liberalisation policies, making it one of the first South Asian countries to implement such measures.
How Does GATT or the WTO Help Sri Lanka?
According to the World Bank, Sri Lanka is currently categorised as a lower-middle-income country since 2021, with a GNI (Gross National Income) per capita of USD 3,815. In other words, Sri Lanka is a country which would gain more from having fewer trade restrictions with other nations. Hence, GATT and, subsequently, the WTO provided Sri Lanka with direct market access, thereby enhancing trade.
Although Sri Lanka is economically inferior as a country, as per GATT, it must be treated as an equal to another. This aspect is known as the ‘most-favoured-nation’ (MFN) principle, whereby when a country removes a tariff on a product for another WTO member country, that same concession will extend to all. In other words, MFN does not allow one country to benefit or receive preferential treatment over another. This principle acts as one of the core underlying principles of WTO today, although there are exceptions. It is interesting to note that countries such as Sri Lanka have the flexibility to gain preferential treatment in certain situations, as noted in the agreement. One such example is when Sri Lanka signed the South Asian Preferential Trading Arrangement (SAPTA) in 1995, the Indo-Sri Lanka Free Trade Agreement (ISFTA), the Pakistan-Sri Lanka Free Trade Agreement (PSFTA), the Asia-Pacific Trade Agreement (APTA) (Bangkok Agreement), all of which promotes preferential trade.
Furthermore, the WTO’s Dispute Settlement System (DSB) provides an opportunity for countries such as Sri Lanka to hold more powerful economies into account. This allows Sri Lanka, in theory, to ensure they receive fair treatment amidst developed nations. The effectiveness of the DSB in the present context, however, leads to the contrary view of developing nations losing such an opportunity with the uncertain nature of the Appellate Body.
GATT/WTO Membership As A Turning Point in Sri Lanka Trade Relations As Sri Lanka is a developing nation with a strategic geographical location, becoming a member of the GATT and, eventually, the WTO has benefitted the country in international trade. It has provided a platform for Sri Lanka to carry out trade relations without being subjected to trade barriers with leading economies in the world, it has led the way for multiple bilateral and multilateral trade agreements, and it has improved trade in a multifaceted nature, ranging from goods, services and intellectual property. Finally, as a concluding point, the GATT and WTO have allowed the country to play a key role in essential trade negotiations, allowing a developing nation to voice concerns related to agriculture and other subjects vital to its economy during the multiple ministerial conferences held every two years.
The views and opinions expressed in articles submitted to the Comparative Advantage Blog are those of the author and do not necessarily reflect the views of The Moot Court Bench