What is the General Agreement on Tariffs and Trade (GATT)?
The General Agreement on Tariffs and Trade (GATT), signed in 1947 by 23 nations, reduces trade obstacles by abolishing or decreasing quotas, taxes, and subsidies. It aimed to accelerate post-WWII economic recovery.
The expansion and refinement of GATT led to the founding of the World Trade Organization (WTO) in 1995, which absorbed the body that implemented GATT. Then, 125 nations signed their accords, encompassing 90% of world commerce.
Representatives from all WTO members comprise the Council for Trade in Goods (Goods Council), which oversees the GATT. Etienne Oudot de Dainville has chaired the Goods Council since September 2022. The council contains ten committees focusing on market access, agriculture, subsidies, and anti-dumping measures.
Understanding General Agreement on Tariffs and Trade (GATT)
The GATT aimed to abolish or limit quantitative trade barriers like trade restrictions and quotas, the most expensive and unpopular aspects of prewar protectionism. The pact also allowed multilateral tariff reduction discussions and arbitrated commercial disputes between states. In the postwar period, the GATT proved successful.
Trade without discrimination was a great success. Every GATT signatory was equal. The WTO has adopted the most-favored-nation principle. This meant that if a country negotiated a tariff drop with some other countries (generally its biggest trade partners), all GATT members would immediately adopt it. Escape clauses allowed governments to negotiate exclusions if tariff reductions would hurt domestic producers.
Most governments establish tariffs using the most-favored-nation approach, replacing quotas. Negotiations gradually reduced tariffs, which are better than quotas but remain trade barriers.
Members’ tariff accords used the most-favored-nation concept under GATT.
GATT history
The GATT met eight times, from April 1947 to December 1993. Each conference had significant results.
- The first summit in Geneva, Switzerland, featured 23 nations. Tariffs dominated this inaugural conference. Members granted tax reductions on almost US$10 billion in global trade.
- Annecy, France, hosted the second conference series in April 1949. Tariffs dominated again. The second conference yielded 5,000 tariff-lowering tax concessions from 13 nations.
- The third GATT meeting began in Torquay, England, in September 1950. This time, 38 nations participated, and over 9,000 tariff concessions reduced taxes by 25%.
- Japan joined the GATT during the fourth conference in 1956 with 25 other nations. The committee cut global levies by US$2.5 billion at the Geneva summit.
These meetings and decreased tariffs would continue, introducing new GATT clauses. Since 1964, the GATT has worked to reduce exploitative pricing regimes, known as dumping policies. In the 1970s, the Multifibre Arrangement (MFA) emerged to regulate international textile commerce. Next, the Uruguay Round, spanning 1986–1993, led to the creation of the WTO with accords signed in 1994.
The Uruguay Round reduced the average tariff rate from 22% to 5%. Countries continue to handle global challenges, such as agribusiness disputes and intellectual property protection.
WTO countries are currently negotiating the Doha Development Round, which began in 2001. It lowers trade obstacles and reforms trade regulations to help developing nations trade.
GATT’s purpose?
Globalization, free trade, and economic recovery after World War II were the goals of the General Agreement on Tariffs and Trade (GATT).
GATT: free trade agreement?
That was its primary objective. The GATT aimed to eliminate tariffs, quotas, favoritism, and discrimination in international trade.
Why did the WTO replace GATT?
Despite its success, the GATT lacked a unified institutional framework. It was a legal arrangement for an international organization. The World Trade Organization (WTO) embraces GATT principles. It is better positioned to implement them since it is more powerful, have a speedier dispute settlement mechanism, and are more knowledgeable about intellectual property.
Bottom Line
Without GATT, the world would be drastically different. Its free trade philosophy ended protectionism and economic misery that contributed to World War II, setting the stage for decades of economic prosperity and globalization.
Conclusion
- After WWII, 23 nations signed the General Agreement on Tariffs and Trade (GATT) in October 1947, which took effect on January 1, 1948.
- The GATT aimed to simplify international trade.
- The GATT has eight rounds, from April 1947 to December 1993, each with notable results.
- In 1995, the WTO acquired and expanded the GATT.
