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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 (known as the Goods Council) is now responsible for GATT and consists of representatives from all WTO member countries. The chairperson of the Goods Council is Ambassador Clare Kelly of New Zealand. The council has 10 committees that address subjects including market access, agriculture, subsidies, and anti-dumping measures.
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 by which to arbitrate commercial disputes among nations. The framework enabled a number of multilateral negotiations for the reduction of tariff barriers. GATT was regarded as a significant success in the postwar years.
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 was 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 successive rounds of negotiations.
The most-favored-nation principle concerning tariffs started with GATT and continues to this day.
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.
This series of meetings and tariff reductions would continue, resulting in new GATT provisions in the process. In 1964, GATT began to work toward curbing predatory pricing policies (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 which created the WTO.
The average tariff rate fell from around 22% when the General Agreement was first signed in Geneva in 1947 to around 5% by the end of the Uruguay Round. As the years passed, the member countries continued to take on 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.
The General Agreement on Tariffs and Trade was set up to eliminate protectionism, get countries trading freely among themselves, and help restore economic prosperity following the devastation of World War II.
That was essentially its goal. GATT sought to push the world toward a reality where goods and services are exchanged among countries without tariffs, quotas, favoritism, or discrimination.
GATT, though largely successful in reaching 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 incorporates the principles of 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 world would be a very different place without 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.
