What is the General Agreement On Tariffs And Trade
The General Agreement on Tariffs and Trade (GATT) was created after World War II to aid global economic recovery through reconstructing and liberalizing global trade. GATT's main objective was to reduce barriers to international trade through the reduction of tariffs, quotas and subsidies. It has since been superseded by the creation of the World Trade Organization (WTO).
BREAKING DOWN General Agreement On Tariffs And Trade
The General Agreement on Tariffs and Trade (GATT) was formed in 1947 with a treaty signed by 23 countries, and signed into international law on January 1, 1948. GATT remained one of the focal features of international trade agreements until it was replaced by the creation of the World Trade Organization on January 1, 1995. By this time, 125 nations were signatories to its agreements, which covered about 90% of global trade.
The aim behind GATT was to form rules to end or restrict the most costly and undesirable features of the pre-war protectionist period, namely quantitative trade barriers such as trade controls and quotas. The agreement also provided a system to arbitrate commercial disputes between nations, and the framework enabled a number of multilateral negotiations for the reduction of tariff barriers. GATT was regarded as a significant success in the post-war years.
Key Achievement of GATT
One of the key achievements of GATT was that of trade without discrimination. Every signatory member of 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 average tariff rate fell from around 22% when GATT was first signed in Geneva in 1947, to around 5% by the end of the Uruguay Round (concluded 1993). The Uruguay Round also negotiated the creation of the WTO, a formal organization that has absorbed and extended GATT.