What Is GATT?
The General Agreement on Tariffs and Trade (GATT) was a provisional multilateral agreement established in 1947 to promote international trade by reducing tariffs and other trade barriers. It served as the primary framework for global trade liberalization and multilateral trade system negotiations until it was superseded by the World Trade Organization (WTO) in 1995. Falling under the broader category of international economics and trade agreements, GATT aimed to create a more open and predictable environment for the exchange of goods among nations, fostering economic growth and stability in the post-World War II era.
History and Origin
The General Agreement on Tariffs and Trade emerged from the ashes of World War II, driven by a global desire to prevent the protectionist trade policies, such as high tariffs and quotas, that had contributed to the Great Depression and global conflict. It was initially conceived as part of a broader effort to establish an International Trade Organization (ITO) alongside the International Monetary Fund (IMF) and the World Bank, which were born out of the Bretton Woods Conference. However, when the Havana Charter for the ITO failed to gain ratification, particularly from the U.S. Congress, GATT was pressed into service as a provisional agreement8.
Signed by 23 nations in Geneva on October 30, 1947, the GATT officially came into effect on January 1, 1948. Its core purpose was to substantially reduce tariffs and other barriers to trade, and to eliminate discriminatory treatment in international commerce, aiming for reciprocal and mutually advantageous arrangements7. Despite its provisional nature, GATT effectively functioned as a de facto international organization for nearly five decades, hosting numerous rounds of trade negotiations that significantly lowered global trade barriers.
Key Takeaways
- GATT was a provisional agreement signed in 1947 to reduce trade barriers and promote international trade.
- It operated through principles like Most-Favored-Nation (MFN) and national treatment, aiming for non-discrimination in trade.
- GATT conducted eight rounds of multilateral trade negotiations, successfully liberalizing trade in goods.
- It provided a forum for dispute settlement and a framework for international trade rules.
- The agreement was superseded by the World Trade Organization (WTO) in 1995, incorporating GATT's principles and expanding its scope.
Interpreting the GATT
The General Agreement on Tariffs and Trade was primarily interpreted and applied through its core principles and subsequent negotiation rounds. Its fundamental principle of Most-Favored-Nation (MFN) treatment mandated that any trade concession granted by one member to any other country must be extended immediately and unconditionally to all other GATT members. This principle fostered non-discrimination among trading partners, promoting a level playing field. Another key principle was national treatment, which required imported goods, once they had entered a country, to be treated no less favorably than domestically produced goods in terms of internal taxes and regulations. The impact of GATT was measured not by a single numerical output, but by the aggregate reduction in import duties and the expansion of global trade volumes over its tenure.
Hypothetical Example
Consider a hypothetical scenario in the early days of GATT. Before GATT, Country A might impose a 50% tariff on textiles from Country B, but only a 20% tariff on textiles from Country C due to a bilateral agreement. Under GATT's Most-Favored-Nation principle, if Country A agreed in a negotiation round to reduce its tariff on textiles from Country C to 20%, it would then be obligated to immediately extend that same 20% tariff to textiles imported from all other GATT member countries, including Country B. This mechanism prevented preferential trade blocs and encouraged widespread trade liberalization, as any concession became a global standard among members.
Practical Applications
GATT's principles were practically applied through a series of multilateral trade negotiations, often referred to as "rounds." These rounds, such as the Dillon, Kennedy, Tokyo, and most notably, the Uruguay Round, involved member countries collectively negotiating reductions in tariffs and other trade barriers. The Uruguay Round, which concluded in 1994, was particularly significant as it led to the establishment of the World Trade Organization (WTO) in 1995, formally integrating GATT into a broader and more robust institutional framework5, 6. This round also extended global trade rules to new areas previously not covered, such as trade in services and intellectual property, and brought agriculture and textiles more fully under the multilateral trading system4. GATT also served as a forum for dispute resolution, providing a mechanism for members to address trade grievances and enforce adherence to agreed-upon rules, thereby fostering a more predictable environment for market access.
Limitations and Criticisms
Despite its success in reducing tariffs and promoting free trade, GATT faced several criticisms and limitations throughout its operational period. One significant critique was its provisional nature and lack of a formal institutional structure, which limited its enforcement powers compared to a full-fledged international organization. Its dispute settlement process, for instance, was often seen as cumbersome and less binding than what would later be adopted by the WTO3.
Furthermore, GATT was criticized for being a "rich man's club" by developing countries, who argued that its early rounds disproportionately benefited developed nations and perpetuated an inequitable global economy2. Issues like agricultural subsidies and trade in textiles remained highly protected for many years, only being comprehensively addressed in the final Uruguay Round. Environmental groups also criticized GATT for rulings that sometimes prioritized trade liberalization over environmental protection, leading to the coining of the term "Gattzilla" by some activists1. These limitations highlighted the need for a more comprehensive and legally binding international trade body, ultimately leading to the creation of the WTO.
GATT vs. WTO
The General Agreement on Tariffs and Trade (GATT) was a treaty and a provisional agreement that primarily focused on the trade of goods, aiming to reduce tariffs and other barriers through a series of negotiation rounds. It lacked a robust institutional structure and its dispute settlement mechanisms were considered less effective.
In contrast, the WTO, established in 1995, is a permanent international organization that succeeded GATT. While it incorporates the original GATT text (GATT 1994) as its foundational agreement for trade in goods, the WTO's mandate is significantly broader, encompassing trade in services, intellectual property, and investment measures. Crucially, the WTO provides a stronger and more comprehensive institutional framework, including a more formalized and binding dispute settlement system under international law, which was a key enhancement over its predecessor.
FAQs
What was the main objective of GATT?
The primary objective of GATT was to reduce or eliminate trade barriers, such as tariffs and quotas, among member countries to promote free trade and stimulate global economic recovery after World War II.
How many countries were original signatories to GATT?
The General Agreement on Tariffs and Trade was originally signed by 23 countries in 1947.
When did GATT cease to exist?
GATT did not technically cease to exist but was superseded and incorporated into the framework of the WTO on January 1, 1995, following the conclusion of the Uruguay Round negotiations. The original GATT 1947 text remains an integral part of WTO agreements.
What are the key principles of GATT?
Key principles of GATT included Most-Favored-Nation (MFN) treatment, which required equal treatment for all trading partners, and national treatment, which prohibited discrimination between imported and domestic goods once they entered a market. It also emphasized transparency and the reduction of import duties.