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MGT520 - International Business - Lecture Handout 29

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The General Agreement on Tariffs and Trade (GATT) is a multilateral treaty designed to minimize trade barriers. GATT went into effect in 1948. It provided a forum for trade ministers to discuss policies and problems of common concern. GATT’s mission was adopted by the World Trade Organization (WTO), which replaced GATT in 1995.

The Role of the General Agreement on Tariffs and Trade:

  • The goal of GATT was to promote a free and competitive trading environment that benefits efficient producers. To that end, GATT sponsored international negotiations, called “rounds,” to reduce trade barriers (both tariff and nontariff). GATT successfully oversaw a reduction of tariffs from an average of over 40% in 1948 to approximately 3% today, and promoted a dramatic increase in world trade.
  • To ensure that international trade is conducted on a nondiscriminatory basis, GATT follows the most favored nation (MFN) principle which requires one nation to treat a second nation no worse than it treats any third nation. Any preferential treatment that is extended to one country must be extended to all countries. Thus, the principle implies multilateral rather than bilateral trade negotiations.

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MGT601 - SME Management - Lecture Handout 44

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WTO is a reality, which has come to stay. We have to face the emerging challenges and grasp the opportunities. As the Governor, SBP stated that we need to develop strategy to get maximum benefit from globalization.

Foremost areas of concerns

  • The textile sector, which contributes 67% of our total exports, would in 2005 face severest competition from other major suppliers like china, Hong Kong, Thailand and Bangladesh. We have made some progress in facing post quota era under Textile Vision 2005 to take the production of textile good, upwards in the value chain. it is apprehended that the MFA phase out will start another era of non-tariff barriers. With the phasing out of quotas, textile manufacturers in industrialized and some quota free countries may decide to relocate. Government should provide incentive to ensure that they relocate in Pakistan.
  • The country urgently needs to build a strong network of anti-dumping and countervailing duties to protect the local industry against the onslaught of unfair foreign competition. It is heartening to note that Trade policy 2003-04 envisages enhancement of capabilities of NTC and it is recommended that NTC should be restructured and converted into an autonomous body employing private sector professionals.
  • The developing countries face problems in hiring law firms to advice on WTO related issues, which is a constraining factor in seeking relief from Dispute Settlement Body. There is a need to train local lawyers with WTO expertise.
  • Our survival lies in enhancing credibility through adoption of international quality standards, but Pakistan has a long way to go in obtaining certifications of ISO9000, ISO14000 and other standards. We need to set up PNAC accreditation testing laboratories for conformity assessment.

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