The conclusion of the Uruguay Round is a major achievement in international trade relations and a crucial element in promoting world trade and growth in the medium term. It arrested the deterioration in the trading environment and created a strengthened framework for future trade relations, thereby boosting business and investment confidence.
The Round provides positive outcomes in several areas, including market liberalization, strengthening of rules and institutional structures, and integration into the trading system of new and dynamic areas, such as services and intellectual property, and also traditional areas, such as agriculture and textiles and clothing that were hitherto exempted from many GATT rules. This section provides a qualitative analysis of the economic implications of the Round, based on available information at the time of preparation of this study.
In the area of market liberalization, significant benefits to income and exports will accrue to all countries because of reduced industrial country tariffs on industrial products (Table 5),27 locking-in of unilateral tariff liberalization by developing countries through increased tariff bindings, and the elimination of “gray area measures,” such as VERs and orderly marketing arrangements. At the same time, the integration into the WTO of agriculture (which has been a source of intense conflict between trading partners) and textiles and clothing will roll back pervasive governmental intervention and initiate a process of liberalization in these sectors.
Uruguay Round Tariff Reductions on Industrial Products by Selected Countries1
(In percent)
The figures are based on available GATT and IMF data. The table shows the average level at which tariffs were bound prior to the Uruguay Round, actual average applied tariffs prior to the Uruguay Round, and the level at which tariffs are to be bound after implementation of the Uruguay Round agreement. In cases where only a part of tariff lines is bound, average bound rates are calculated as an average of bound and applied rates.
Uruguay Round Tariff Reductions on Industrial Products by Selected Countries1
(In percent)
| Import-Weighted Average Bound Rates Pre-Uruguay Round | Import-Weigh ted Average Applied Rates Pre-Uruguay Round | Import-Weighted Average Bound Rates Post-Uruguay Round | ||
|---|---|---|---|---|
| Industrial countries | 6.0 | 5.0 | 3.6 | |
| Australia | 20.1 | 10.0 | 12.2 | |
| Canada | 9.0 | 4.9 | 4.8 | |
| European Union | 5.7 | 5.7 | 3.6 | |
| Japan | 3.9 | 1.9 | 1.7 | |
| United States | 5.4 | 5.4 | 3.5 | |
| Developing countries | ||||
| Argentina | 38.2 | 20.0 | 30.9 | |
| Brazil | 40.7 | 15.0 | 27.0 | |
| Chile | 34.9 | 15.0 | 24.9 | |
| Colombia | 44.3 | 11.0 | 35.3 | |
| India | 71.4 | 54.0 | 32.4 | |
| Korea, Republic of | 18.0 | 7.9 | 8.3 | |
| Malaysia | 10.0 | 9.1 | 9.1 | |
| Thailand | 35.8 | 35.8 | 28.1 | |
| Venezuela | 50.0 | 12.0 | 31.1 | |
The figures are based on available GATT and IMF data. The table shows the average level at which tariffs were bound prior to the Uruguay Round, actual average applied tariffs prior to the Uruguay Round, and the level at which tariffs are to be bound after implementation of the Uruguay Round agreement. In cases where only a part of tariff lines is bound, average bound rates are calculated as an average of bound and applied rates.
Uruguay Round Tariff Reductions on Industrial Products by Selected Countries1
(In percent)
| Import-Weighted Average Bound Rates Pre-Uruguay Round | Import-Weigh ted Average Applied Rates Pre-Uruguay Round | Import-Weighted Average Bound Rates Post-Uruguay Round | ||
|---|---|---|---|---|
| Industrial countries | 6.0 | 5.0 | 3.6 | |
| Australia | 20.1 | 10.0 | 12.2 | |
| Canada | 9.0 | 4.9 | 4.8 | |
| European Union | 5.7 | 5.7 | 3.6 | |
| Japan | 3.9 | 1.9 | 1.7 | |
| United States | 5.4 | 5.4 | 3.5 | |
| Developing countries | ||||
| Argentina | 38.2 | 20.0 | 30.9 | |
| Brazil | 40.7 | 15.0 | 27.0 | |
| Chile | 34.9 | 15.0 | 24.9 | |
| Colombia | 44.3 | 11.0 | 35.3 | |
| India | 71.4 | 54.0 | 32.4 | |
| Korea, Republic of | 18.0 | 7.9 | 8.3 | |
| Malaysia | 10.0 | 9.1 | 9.1 | |
| Thailand | 35.8 | 35.8 | 28.1 | |
| Venezuela | 50.0 | 12.0 | 31.1 | |
The figures are based on available GATT and IMF data. The table shows the average level at which tariffs were bound prior to the Uruguay Round, actual average applied tariffs prior to the Uruguay Round, and the level at which tariffs are to be bound after implementation of the Uruguay Round agreement. In cases where only a part of tariff lines is bound, average bound rates are calculated as an average of bound and applied rates.
Existing quantitative studies of the economic impact of the Round have focused exclusively on the static benefits emanating from market liberalization. These estimate annual real income gains globally ranging from $212 billion to $274 billion (or about 1 percent of world GDP) upon full implementation, of which some $80 billion would accrue to developing countries.28 The final results of the Round indicate that these static benefits may have been overestimated because of optimistic assumptions about market opening to be realized by developing countries (Table 5) and about liberalization in agriculture.29 On the other hand, the focus on static benefits significantly underestimates likely gains.30 In any event, the studies consistently show that benefits from the Round depend on the extent of each country’s liberalization efforts. To take advantage of the enhanced trading possibilities created by the Round, countries must also take supporting measures to facilitate positive supply responses.
Developing countries are expected to benefit from their own efforts at binding tariffs and making their trade regimes more transparent and rules based; they will also gain from the Round through the liberalization in their export markets of, for example, agriculture and textiles and clothing through the phaseout of the MFA. as well as from tariff cuts on products of export interest to them. Some developing countries have raised concerns about two potentially adverse effects, intrinsic to the market liberalization results of the Uruguay Round, relating to the erosion of preference margins and to possible adverse price effects on food importers. The analysis suggests that adverse effects will be limited or outweighed by gains from the Round as a whole. In any case, the impact on individual countries would need to be monitored as the Round is implemented.
The MFN tariff cuts under the Round would reduce preference margins that beneficiaries currently enjoy under schemes such as the Generalized System of Preferences (GSP), the Lomé Convention, and the Mediterranean Agreements. A more detailed analysis, however, suggests that the erosion of preference margins is small, and smaller than suggested by MFN tariff cuts of industrial countries.31 Furthermore, the biggest beneficiaries of preferences are the more advanced developing countries; the potential benefits to them (from MFN tariff cuts on nonpreferential items and from liberalization of agriculture and textiles and clothing) are likely to outweigh losses from erosion of preferences. Moreover, in a number of cases these countries are already being pressed for graduation out of preferences and could lose a large part of these preferences in the normal course of events. The impact of the reduction of preference margins on African and Caribbean countries is likely to be generally small because existing preference margins are relatively small owing to the commodity composition of their exports. As seen in Table 6, for example, the simple average preference margins granted to sub-Saharan African countries range from only 0.9 percent to 4.4 percent, with a median rate of less than 2.5 percent.
Industrial Country Tariff Preferences for Non-Oil Imports from Sub-Saharan African Countries1
(In percent)
Tariffs are simple (unweighted) averages of nominal duties levied on the country’s exports.
Preference margin is the difference between the simple average tariff on the African country’s exports and the simple average tariff on other exporters of the same products.
Industrial Country Tariff Preferences for Non-Oil Imports from Sub-Saharan African Countries1
(In percent)
| OECD Average | ||
|---|---|---|
| Exporting Country | Preferential tariff | Preference margin2 |
| Nigeria | 2.7 | –0.9 |
| Ethiopia | 0.7 | –1.3 |
| Congo | 0.1 | –1.4 |
| Angola | 0.2 | –1.5 |
| Sudan | 0.1 | –1.5 |
| Liberia | 0.6 | –1.7 |
| Zambia | 0.3 | –1.7 |
| Gabon | 0.6 | –2.0 |
| Madagascar | 0.5 | –2.0 |
| Zaire | 0.3 | –2.1 |
| Central African Republic | 0.2 | –2.2 |
| Ghana | 1.0 | –2.2 |
| Guinea | 0.6 | –2.3 |
| Mauritania | 1.7 | –2.3 |
| Tanzania | 0.1 | –2.3 |
| Malawi | 1.1 | –2.4 |
| Uganda | 0.9 | –2.4 |
| Cameroon | 0.4 | –2.5 |
| Zimbabwe | 0.9 | –2.5 |
| Chad | 0.4 | –2.7 |
| Botswana | 0.3 | –2.8 |
| Togo | 0.3 | –2.8 |
| Niger | 0.1 | –3.0 |
| Coted’Ivoire | 0.7 | –3,1 |
| Mauritius | 1.3 | –3.1 |
| Sierra Leone | 0.5 | –3.1 |
| Kenya | 0.5 | –3.3 |
| Senegal | 0.5 | –3.3 |
| Mali | 0,4 | –3.4 |
| Swaziland | 0.8 | –4.4 |
Tariffs are simple (unweighted) averages of nominal duties levied on the country’s exports.
Preference margin is the difference between the simple average tariff on the African country’s exports and the simple average tariff on other exporters of the same products.
Industrial Country Tariff Preferences for Non-Oil Imports from Sub-Saharan African Countries1
(In percent)
| OECD Average | ||
|---|---|---|
| Exporting Country | Preferential tariff | Preference margin2 |
| Nigeria | 2.7 | –0.9 |
| Ethiopia | 0.7 | –1.3 |
| Congo | 0.1 | –1.4 |
| Angola | 0.2 | –1.5 |
| Sudan | 0.1 | –1.5 |
| Liberia | 0.6 | –1.7 |
| Zambia | 0.3 | –1.7 |
| Gabon | 0.6 | –2.0 |
| Madagascar | 0.5 | –2.0 |
| Zaire | 0.3 | –2.1 |
| Central African Republic | 0.2 | –2.2 |
| Ghana | 1.0 | –2.2 |
| Guinea | 0.6 | –2.3 |
| Mauritania | 1.7 | –2.3 |
| Tanzania | 0.1 | –2.3 |
| Malawi | 1.1 | –2.4 |
| Uganda | 0.9 | –2.4 |
| Cameroon | 0.4 | –2.5 |
| Zimbabwe | 0.9 | –2.5 |
| Chad | 0.4 | –2.7 |
| Botswana | 0.3 | –2.8 |
| Togo | 0.3 | –2.8 |
| Niger | 0.1 | –3.0 |
| Coted’Ivoire | 0.7 | –3,1 |
| Mauritius | 1.3 | –3.1 |
| Sierra Leone | 0.5 | –3.1 |
| Kenya | 0.5 | –3.3 |
| Senegal | 0.5 | –3.3 |
| Mali | 0,4 | –3.4 |
| Swaziland | 0.8 | –4.4 |
Tariffs are simple (unweighted) averages of nominal duties levied on the country’s exports.
Preference margin is the difference between the simple average tariff on the African country’s exports and the simple average tariff on other exporters of the same products.
While preferences received by developing countries pertain largely to the lower-than-MFN tariffs faced by their exports, another dimension of preferential treatment stems from the access granted to some high-cost developing country exporters in areas that are subject to quantitative restrictions, such as agriculture and textiles and clothing. This aspect of preferences will not have much effect on agriculture because current levels of access can continue to be preserved under the Round.32 Moreover, preferential access of high-cost suppliers under the MFA will to some extent be preserved for the duration of the transition period by virtue of back-loaded liberalization of textiles and clothing. However, selected countries (e.g., in North Africa and the Caribbean), which rely overwhelmingly on preferences on industrial products, could be adversely affected. More generally, MFN tariff cuts under the Round will also reduce discrimination against third countries under existing customs unions and free trade areas.
For net food importers, the impact would depend on the extent to which food prices rise after agricultural liberalization; this is not clear yet. Some estimates of price increases for various agricultural products range between 4 percent and 10 percent over the medium term;33 but they assume greater liberalization than contained in the final agreement. Furthermore, the potential effect on prices could be offset through likely productivity increases in agriculture-exporting countries. The adverse impact, if any, will probably be felt to the extent that countries are commercial importers of food. Recipients of food aid will be affected insofar as the reduction of agricultural surpluses also reduces availability of food stocks for aid; food aid per se is exempted from export subsidy commitments.34 Finally, domestic agriculture sectors in many countries could receive a boost as world market distortions are reduced, provided that appropriate policies are pursued to reap the benefits from liberalization.
The Uruguay Round has clarified and strengthened the rules with respect to a number of trade policy instruments, notably safeguards, antidumping, and subsidies and countervailing measures. Strengthened rules are important in determining the conditions of international trade and investment. The predictability of policy and security of market access engendered by strong rules contribute to the dynamic gains from the Round. Strong multilateral rules also enhance the ability of governments to control domestic pressures for protection. Nonetheless, there is room for latitude—albeit less than in the past—and it would thus be important for national authorities to apply the rules in a manner favoring liberal solutions. In this connection, the improvements in the dispute settlement system are particularly beneficial.
On institutional structure, the creation of the WTO will place the rules-based trading system on a more permanent and legally secure footing. The WTO (and its biennial ministerial meetings) will provide a forum for continuous multilateral trade negotiations in the future, exercise surveillance over member countries’ trade policies, and administer a strengthened dispute settlement system, which should increase the speed and automaticity of procedures and compliance with rulings and limit the scope for unilateral actions.
One of the important achievements of the Round has been to bring two of the most dynamic areas of world trade—intellectual property and services—within the scope of the trading system.35 The higher standards and improved enforcement of intellectual property protection will increase sales and profits of intellectual property-based industries, particularly in industrial countries (although in some sectors this would be at the expense of consumers in technology-importing countries). In the long run, better intellectual property protection could increase the incentives to undertake research and development and product innovation, benefiting consumers worldwide.
The services agreement in the Uruguay Round institutes a multilateral framework for this important sector of trade based on the principles of nondiscrimination and transparency. Unless they explicitly invoke an exemption, parties to the agreement on services cannot discriminate between foreign services or service suppliers (MFN treatment). Countries have also undertaken specific commitments to provide foreign service suppliers market access and treatment no less favorable than that applying to domestic service suppliers (national treatment), subject to the conditions and qualifications listed in their schedules of commitments. The agreement also requires that parties publish all service-related laws and regulations, and establish inquiry points to provide information on services to other members. The MFN and transparency principles apply to all services sectors, while commitments on market access and national treatment apply only in respect of sectors that countries have entered in their schedules. While the commitments largely involve a binding of the existing levels of market access, which provide security and confidence for investment activity, a framework is also in place for negotiating further liberalization in services. Further benefits from liberalization of market access will have to await future negotiations, especially financial services.
The Uruguay Round gave an impulse toward greater integration of developing and least-developed countries into the multilateral trading system. They participated more actively in the negotiations than previously and undertook greater commitments to liberalize and lock in their trade reforms. They were better able than in the past to secure improved market access in sectors of interest to them, and to strengthen the rules-based trading system that is vital to ensure the success of their own reform efforts. While the Round retains the principle of “special and differential treatment”36 for developing and least-developed countries, they have effectively reduced reliance on this principle by taking on more commitments than before. In some areas, developing and least-developed countries will have longer transition periods than industrial countries to fulfill their commitments (e.g., in agriculture and subsidies), and, in other areas, they will face less strict disciplines than industrial countries (e.g., in agriculture and tariffs).
In conclusion, when implemented, the Uruguay Round agreement would reduce the scope for trade conflict, unilateralism, and inward-looking regionalism. Its achievements in market liberalization, strengthening of rules and institutions, and extension of discipline to new areas will be far reaching. Equally important, the Uruguay Round agreement has created an environment conducive to tackling future challenges in trade policy. However, work remains to be done in ensuring its expeditious ratification and effective implementation and in designing further liberalization in areas where barriers remain high despite the Round (e.g., agriculture, textiles and clothing, and services).
Industrial countries’ weighted average bound tariffs will decline in five equal annual installments (with some exceptions) from 6 percent to 3.6 percent; the decline based on applied rates (currently averaging 5 percent) will be less.
This would represent a once-for-all permanent increase in GDP. See Annex I of IMF (1994b) for a detailed discussion of quantitative estimates of the gains of the Round based on existing studies. In October 1994, the GATT Director General announced that global income in 2005 might be more than $500 billion higher than it would have been without the market-opening measures agreed in the Uruguay Round, based on preliminary work done by the GATT Secretariat. The reason for the upgrading was a new economic model that sought to capture some of the competition-enhancing effects of trade liberalization and the opportunities that it would offer for spreading fixed costs over larger markets.
While developing countries have bound their tariffs and reduced bound tariffs, they have not, in most instances, reduced their applied tariffs on agricultural or industrial products as assumed by the studies. Further, the extent of liberalization in agriculture by industrial countries may have been overestimated. In addition, some studies, which were undertaken before the Round was concluded, had assumed tariff reductions different from those ultimately agreed in the Final Act,
The narrow focus excludes benefits from strengthening of rules (including dispute settlement procedures), the new framework for services, and higher standards of intellectual property protection. Underestimation is also likely because many of the models neglect gains from trade due to economies of scale under imperfect competition and dynamic gains, and provide for insufficient disaggregation within manufacturing. Finally, the gains from liberalization are estimated relative to the status quo, whereas the relevant counterfactual would have to take account of the likelihood of a deterioration in the trading environment if the Uruguay Round had failed. For a detailed discussion, see Annex I of IMF (1994b). As indicated by recent analyses conducted by the GATT Secretariat, inclusion of the effects of imperfect competition leads to substantially higher estimated income gains.
See UNCTAD(1994).
The requirement under the agriculture agreement of the Round to guarantee a certain amount of imports as a share of domestic consumption can be met by granting market access to preference-receiving countries in line with their current market shares.
A special Uruguay Round decision adopted by ministers at Marrakesh recognizes that there could be negative effects on least-developed and net food-importing countries arising from reduced availability of basic foodstuffs and possible short-term difficulties in financing commercial food imports. The decision provides for the establishment of appropriate mechanisms to avoid such negative effects.
Belween 1980 and 1991, trade in intellectual property and services expanded by 256 percent and 132 percent, respectively, compared with 95 percent for trade in goods.
Developing countries with special and differential treatment under GATT have greater ability to impose trade restrictions than industrial countries; they benefit from preferential access for their exports in industrial country markets: and they may grant preferences to each other’s exports under conditions less stringent than normally under GATT.