What Is the General Agreement on Tariffs and Trade (GATT)?
The General Agreement on Tariffs and Trade (GATT), signed in 1947 by 23 countries, is a treaty minimizing barriers to international trade by eliminating or reducing quotas, tariffs, and subsidies. It was intended to boost economic recovery after World War II.
GATT was expanded and refined over the years, leading to the creation in 1995 of the World Trade Organization (WTO), which absorbed the organization created to implement GATT. By then, 125 nations were signatories to its agreements, which covered about 90% of global trade.
The Council for Trade in Goods (Goods Council) is now responsible for the GATT and consists of representatives from all WTO member countries. As of September 2022, the chair of the Goods Council is Etienne Oudot de Dainville. The council has 10 committees that address subjects including market access, agriculture, subsidies, and anti-dumping measures.
- The General Agreement on Tariffs and Trade (GATT) was signed by 23 countries in October 1947, after World War II, and became law on Jan. 1, 1948.
- The purpose of the GATT was to make international trade easier.
- The GATT held eight rounds in total, from April 1947 to December 1993, each with significant achievements and outcomes.
- In 1995, the GATT was absorbed into the World Trade Organization (WTO), which extended it.
General Agreement on Tariffs and Trade (GATT)
Understanding the General Agreement on Tariffs and Trade (GATT)
The GATT was created to form rules to end or restrict the most costly and undesirable features of the prewar protectionist period, namely quantitative trade barriers such as trade controls and quotas. The agreement also provided a system to arbitrate commercial disputes among nations, and the framework enabled a number of multilateral negotiations for the reduction of tariff barriers. The GATT was regarded as a significant success in the postwar years.
One of the key achievements of the GATT was that of trade without discrimination. Every signatory member of the GATT was to be treated as equal to any other. This is known as the most-favored-nation principle, and it has been carried through into the WTO. A practical outcome of this was that once a country had negotiated a tariff cut with some other countries (usually its most important trading partners), this same cut would automatically apply to all GATT signatories. Escape clauses did exist, whereby countries could negotiate exceptions if their domestic producers would be particularly harmed by tariff cuts.
Most nations adopted the most-favored-nation principle in setting tariffs, which largely replaced quotas. Tariffs (preferable to quotas but still a trade barrier) were, in turn, cut steadily in rounds of successive negotiations.
The GATT instituted the most-favored-nation principle in tariff agreements among members.
History of the General Agreement on Tariffs and Trade (GATT)
The GATT held eight rounds of meetings—the first beginning in April 1947, the last ending in December 1993. Each of the conferences had significant achievements and outcomes.
- The first meeting was in Geneva, Switzerland, and included 23 countries. The focus of this opening conference was on tariffs. The members established tax concessions touching more than US$10 billion of trade around the globe.
- The second series of meetings began in April 1949 and were held in Annecy, France. Again, tariffs were the primary topic. Thirteen countries were at the second meeting, and they accomplished an additional 5,000 tax concessions reducing tariffs.
- Starting in September 1950, the third series of GATT meetings occurred in Torquay, England. This time 38 countries were involved, and almost 9,000 tariff concessions passed, reducing tax levels by as much as 25%.
- Japan became involved in the GATT for the first time in 1956 at the fourth meeting along with 25 other countries. The meeting was in Geneva, and again the committee reduced worldwide tariffs, this time by US$2.5 billion.
This series of meetings and reduced tariffs would continue, adding new GATT provisions in the process. In 1964, the GATT began to work toward curbing predatory pricing policies. These policies are known as dumping. Then in the 1970s, an arrangement regarding international trade in textiles, known as the Multifibre Arrangement (MFA), came into force. The next big event was the Uruguay Round, which lasted from 1986 to 1993, with the agreements signed in 1994, and created the WTO.
The average tariff rate fell from around 22% when the GATT was first signed in Geneva in 1947 to around 5% by the end of the Uruguay Round. As the years have passed, the countries continued to attack global issues, including addressing agriculture disputes and working to protect intellectual property.
The latest round of negotiations among WTO members, known as the Doha Development Round, began in 2001 and is ongoing. Its aim is to improve the trading prospects of developing countries by introducing lower trade barriers and revised trade rules.
What is the purpose of the General Agreement on Tariffs and Trade (GATT)?
The General Agreement on Tariffs and Trade (GATT) was set up to eliminate protectionism, get countries trading freely among themselves, and help restore economic prosperity following the devastation of World War II.
Is the GATT a free trade agreement?
That was essentially its goal. The GATT sought to push the world toward a reality where goods and services are exchanged among countries without tariffs, quotas, and so forth, and without favoritism and discrimination.
Why was the GATT replaced by the World Trade Organization (WTO)?
The GATT, though largely successful in its goal, was said to lack a coherent institutional structure. In short, it was a legal agreement acting as an international organization. The World Trade Organization (WTO) incorporates the principles of the GATT and is better positioned to carry them out because, among other things, it is better versed in issues like intellectual property, has a faster dispute settlement system, and wields more power.
The Bottom Line
The world would be a very different place without the GATT. Its free trade ethos put an end to a dark period of protectionism and economic hardship that led to World War II, paving the way for decades of economic growth and increased globalization.