Tariff Negotiations

GATT recognizes that tariffs are the main impediments to the growth of international trade. Thus, the contracting parties are authorised to occasionally negotiate for a substantial reduction of tariffs.

The following guidelines are to be followed in tariff negotiations: 

1. Reduction in tariffs is to be negotiated on a reciprocal and mutually advantageous basis.

2. The negotiation should be either for reduction of tariffs or binding of low tariffs. Binding of low tariffs is advantageous as traders will be assured of the continuance of low tariffs so that they can take up business expansion and productive investments without any risk (of high tariff).

3. Each member has to work in good faith and not raise its tariffs and other quantitative measures with a view to increasing its bargaining power in tariff negotiation (when anticipated).

The GATT adopted the bilateral-multilateral technique of negotiating reduction in tariffs. It was a bilateral method in the sense that the negotiations were carried on a nation-to-nation basis. In fact, the contradicting parties formed pairs among themselves and each pair conducted negotiations on a selective commodity-by-commodity basis. The negotiations had multilateral aspects also as the tariff reductions agreed within bilateral pairs of negotiation parties were made generally applicable to all contracting parties through the “most-favored-nation-clause”.

The bilateral-multilateral method of tariff negotiations was in vogue till the operation of the Kennedy Round, on May 4, 1964. Before Kennedy Round five main tariff negotiating conference had been held which effected agreements (bindings) to reduce or to stabilize about 60,000 tariff rates between the participating countries.

The bilateral-multilateral technique of tariff reduction has the following drawbacks:

1. It leads to unfavorable terms of trade to the underdeveloped primary producing nations on account of their weak bargaining position in a bilateral agreement with an advanced nation. The principle or reciprocity was injurious to their interest.

2. It creates uncertainty and instability in the tariff structure of various countries. 

3. It causes injustice to the already low-tariff countries, as they are in a very weak bargaining position and have little to offer in exchange for concessions offered by other countries (previously with  high tariffs).

4. It is a very slow method of reducing tariffs. Hence the achievements made during a long period of 14 years of its operation are not very substantial or encouraging.
 
In fact, at the Ministerial meeting of the contracting parties in 1961, it was agreed that the reduction of tariffs on a most-favoured-nation basis should be continued but in view of the changing conditions of world trade, the traditional GATT technique for tariff negotiation on a commodity-by-commodity and nation-by-nation basis are inadequate and inappropriate. Hence, ultimately the bilateral aspect of negotiations was given up in Kennedy Round.

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