Uruguay Round

Have you ever wondered how you purchase goods that aren't even manufactured in your own country? The main idea is that your country buys it from another country while being governed by the World Trade Organization (WTO), which was established in 1995. Without the WTO, trade would not have been as seamless as it is now. Now, you're probably wondering how trade was before the WTO and what led to its formation. Let's jump right into the Uruguay round article to find out!

Uruguay Round Meaning

Before delving into the meaning of the Uruguay Round, let us first analyze the World Trade Organization (WTO). The World Trade Organization is an international organization that is in charge of regulating trade between various nations. It was inaugurated on 1st January 1995 as part of an agreement made by the member nations.¹

The WTO is the sole organization that regulates worldwide trade to assist diverse importers and exporters in conducting international business activities. Most notably, it contributes to the reduction of tensions that occur between nations as a result of trade activities. You're probably wondering how trading was regulated before 1995. Before the World Trade Organization, there was a governing organization known as the General Agreement on Tariffs and Trade (GATT).

Following World War II, GATT was established in 1947.² GATT was supposed to be changed into the International Trade Organization, a specialized agency of the United Nations (UN), but this did not happen because of disagreements among the nations. GATT was a very effective organization for regulating trade between nations, but there was always a need for a powerful international organization to regulate trade globally.

So, to meet the needs of a powerful international organization, the Uruguay round of GATT began in 1986. Various countries took part in the Uruguay round, which lasted seven and a half years (1986-1994), to transform the GATT agreement into a powerful organization.³ As a result of the Uruguay round of GATT, WTO was formed.

• An international organization that is responsible for regulating trade between various nations is known as the World Trade Organization (WTO).
• Before WTO, there was an international trade regulating body known as General Agreement on Tariff and Trade (GATT).

Uruguay Round of GATT

Before directly jumping into the Uruguay round of GATT, let's learn about the trade rounds. The trade round is the procedure by which different countries negotiate tariff reductions. The primary goal of conducting a trade round is to liberalize trade. Eight trade rounds have been completed since the establishment of GATT. The first five rounds were conducted in the form of a parallel bilateral negotiation. For example, if country A grants a tariff decrease that benefits country B and numerous other countries, it will request a similar concession in return.

The Kennedy round was the sixth round of trade negotiations, which took place in 1967. The main result of this round was a 50% reduction in average tariffs for the US.⁴ Similarly, the seventh round, which took place in 1979, was known as the Tokyo round.⁴ This round of negotiations between the nations helped in controlling the rapid increase in non-tariff barriers to international trade.

The eighth round of agreement, known as the Uruguay round, was completed in 1994.⁴ The Uruguay round of GATT was one of the most significant because it resulted in the establishment of a powerful international organization (WTO) to regulate and liberalize international trade.

Uruguay Round Agreement

Let us now move on to the Uruguay round agreement. The GATT's eighth round began in 1986 in Punta del Este, Uruguay.⁴ Further, the meeting continued in Geneva, which lasted for several years, where the participants negotiated various offers and counteroffers. The round was supposed to be completed by 1990, but due to a variety of political concerns, it did not get completed on time.

Finally, in 1993, the arduous negotiations between states resulted in a total of 23,000 pages of the agreement, which consisted of detailed commitments by member nations.⁴ The agreement was signed in Marrakesh, Morocco, in 1994, after it was approved by major nations. ⁴ Hence, World Trade Organization (WTO) was formed and officially commenced on 1st January 1995.¹

Outcomes of Uruguay Round

The outcomes of the Uruguay round can be divided into two major parts:

1. Trade liberalization;

2. Changes in administration.

Outcomes of Uruguay Round: Trade Liberalization

First of all, let us understand the meaning of trade liberalization. Trade liberalization is the process by which trade restrictions and barriers are reduced or removed to promote the exchange of goods between nations.

To promote trade liberalization, the Uruguay round cut tariffs around the world. The tariffs were reduced by almost 40 percent from 6.3 percent to 3.8 percent.⁵ As a result of reduced tariffs, there was a small amount of increase in world trade. Further, along with tariff reduction, another important move to liberalize trade was seen in the two sectors.

The two sectors were:

1. Agriculture

2. Clothing and textiles

The Uruguay round had a major role in cutting the tariff on agricultural products. The developed nations were required to reduce the tariff on agricultural products on average by 36 percent, whereas developing nations were required to reduce the tariff by 24 percent.⁶ Further, the agreement required the volume of subsidized exports to reduce by 21 percent.⁶ Lastly, the countries that used to have import quotas needed to replace them with tariffs.

Likewise, the world trade in clothing and textiles was highly deformed by Multi-Fiber Arrangement (MFA). The Uruguay round stopped the MFA by eliminating the restrictions imposed on the trade of clothing and textiles.

The restrictions on clothing export had been imposed on China but were slowly uplifted. Hence, the trade in clothing was liberalized after the Uruguay round.

Outcomes of Uruguay Round: Changes in Administration

The most obvious outcome of the Uruguay round is the change in administration from General Agreement on Tariffs and Trade (GATT) to World Trade Organization (WTO). Although the GATT was a very successful agreement for regulating trade between nations, there was always a need for a powerful international organization to govern international trade. Since the year 1995, after the Uruguay round of GATT, WTO has replaced the administration of GATT.¹

In the rules of WTO, the updated version of the initially formed GATT agreement has been incorporated. GATT was focused only on the trade of goods and neglected the trade of services. As the modern economy has been more focused on the trade of services rather than goods, the WTO agreement includes rules on the trade of services. Under GATT, the dispute settlement process took several years, whereas WTO has clearly defined structured procedures for dispute settlement.

• The effect of change in the administration after the Uruguay round is as follows:

  GATT	WTO
  1. Only focused on the trade of goods.	1. Focuses on the trade of both goods and services.
  2. Took a lengthy measure for dispute settlement.	2. Took a quick, structured approach to settle the dispute.

  Table 1 - Effects of change in administration after the Uruguay round.

Uruguay Round Summary

Now, let's have a quick look at the summary of the Uruguay round.

We know that the trade round is the process by which many countries negotiate tariff reductions and try to liberalize trade. The general agreement on tariff and trade (GATT) had several trade rounds, out of which the eighth and the most important round was the Uruguay round. The Uruguay round was very important as it was very crucial in the commencement of the World Trade Organization (WTO).

The outcome of the Uruguay round helped in trade liberalization by reducing tariffs, mainly in the sector of agriculture and clothing. Further, it helped in the change in the administration from GATT to WTO, which enabled the trade of both goods and services and had a fast, structured approach to settling disputes related to trade between nations.