General Agreement on Tariffs and Trade

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General Agreement on Tariffs and Trade

Type	Multilateral Treaty
Signed	30 October 1947
Location	Geneva, Geneva Canton, Switzerland

The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis."

The GATT was first discussed during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). It was signed by 23 nations in Geneva on 30 October 1947, and took effect on 1 January 1948. It remained in effect until the signature by 123 nations in Marrakesh on 14 April 1994, of the Uruguay Round Agreements which established the World Trade Organization (WTO) on 1 January 1995. The WTO is the successor to the GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.^[1][2] Nations that were not party in 1995 to the GATT need to meet the minimum conditions spelled out in specific documents before they can accede; in September 2019, the list contained 36 nations.^[3]

The GATT, and its successor the WTO, have successfully reduced tariffs. The average tariff levels for the major GATT participants were about 22% in 1947, but were 5% after the Uruguay Round in 1999.^[4] Experts attribute part of these tariff changes to GATT and the WTO.^[5][6][7]

Contents

• 1History
  • 1.1Initial round
  • 1.2Annecy Round: 1949
  • 1.3Torquay Round: 1951
  • 1.4Geneva Round: 1955–56
  • 1.5Dillon Round: 1960–62
  • 1.6Kennedy Round: 1964–67
  • 1.7Tokyo Round: 1973–79
  • 1.8Formation of Quadrilateral Group: 1981
  • 1.9Uruguay Round: 1986–94
• 2GATT and the World Trade Organization
• 3Effects on trade liberalization
• 4Article 24
• 5See also
• 6References
• 7Further reading
• 8External links

History[edit]

The General Agreement on Tariffs and Trade is a portmanteau for a series of global trade negotiations which were held in a total of nine rounds between 1947 and 1995. The GATT was first conceived in the aftermath of the Allied victory in the Second World War at the 1947 United Nations Conference on Trade and Employment (UNCTE), at which the International Trade Organization (ITO) was one of the ideas proposed. It was hoped that the ITO would be run alongside the World Bank and the International Monetary Fund (IMF). More than 50 nations negotiated ITO and organizing its founding charter, but after the withdrawal of the United States these negotiations collapsed.^[8]

hide v t e GATT and WTO trade rounds[9][10][11]
Name	Start	Duration	Countries	Subjects covered	Achievements
Geneva	April 1947	7 months	23	Tariffs	Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade
Annecy	April 1949	5 months	34	Tariffs	Countries exchanged some 5,000 tariff concessions
Torquay	September 1950	8 months	34	Tariffs	Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%
Geneva II	January 1956	5 months	22	Tariffs, admission of Japan	$2.5 billion in tariff reductions
Dillon	September 1960	11 months	45	Tariffs	Tariff concessions worth $4.9 billion of world trade
Kennedy	May 1964	37 months	48	Tariffs, anti-dumping	Tariff concessions worth $40 billion of world trade
Tokyo	September 1973	74 months	102	Tariffs, non-tariff measures, "framework" agreements	Tariff reductions worth more than $300 billion achieved
Uruguay	September 1986	87 months	123	Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc.	The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textilesand clothing from developing countries, and an extension of intellectual property rights.
Doha	November 2001	?	159	Tariffs, non-tariff measures, agriculture, labor standards, environment, competition, investment, transparency, patents etc.	The round has not yet concluded. The last agreement to date, the Bali Package, was signed on 7 December 2013.

Initial round[edit]

Preparatory sessions were held simultaneously at the UNCTE regarding the GATT. After several of these sessions, 23 nations signed the GATT on 30 October 1947 in Geneva, Switzerland. It came into force on 1 January 1948.^[12][8]

Annecy Round: 1949[edit]

Main article: Annecy Round

The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of the talks was more tariff reductions, around 5,000 in total.

Torquay Round: 1951[edit]

Main article: Torquay Round

The third round occurred in Torquay, England in 1951.^[13] Thirty-eight countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana Charter signified the establishment of the GATT as a governing world body.^[14]

Geneva Round: 1955–56[edit]

Main article: Geneva Round

The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.

Dillon Round: 1960–62[edit]

Main article: Dillon Round

The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC).

Kennedy Round: 1964–67[edit]

This article should include a summary of Kennedy Round. See Wikipedia:Summary style for information on how to incorporate it into this article's main text.

Main article: Kennedy Round

The sixth round of GATT multilateral trade negotiations, held from 1964 to 1967. It was named after U.S. President John F. Kennedy in recognition of his support for the reformulation of the United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave the President the widest-ever negotiating authority.

As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it became clear, long before the Round ended, that a more comprehensive approach was needed to deal with the emerging challenges resulting from the formation of the European Economic Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international trader more generally.

Japan's high economic growth rate portended the major role it would play later as an exporter, but the focal point of the Kennedy Round always was the United States-EEC relationship. Indeed, there was an influential American view that saw what became the Kennedy Round as the start of a transatlantic partnership that might ultimately lead to a transatlantic economic community.

To an extent, this view was shared in Europe, but the process of European unification created its own stresses under which the Kennedy Round at times became a secondary focus for the EEC. An example of this was the French veto in January 1963, before the round had even started, on membership by the United Kingdom.

Another was the internal crisis of 1965, which ended in the Luxembourg Compromise. Preparations for the new round were immediately overshadowed by the Chicken War, an early sign of the impact variable levies under the Common Agricultural Policy would eventually have. Some participants in the Round had been concerned that the convening of UNCTAD, scheduled for 1964, would result in further complications, but its impact on the actual negotiations was minimal.

In May 1963 Ministers reached agreement on three negotiating objectives for the round:

1. Measures for the expansion of trade of developing countries as a means of furthering their economic development,
2. Reduction or elimination of tariffs and other barriers to trade, and
3. Measures for access to markets for agricultural and other primary products.

The working hypothesis for the tariff negotiations was a linear tariff cut of 50% with the smallest number of exceptions. A drawn-out argument developed about the trade effects a uniform linear cut would have on the dispersed rates (low and high tariffs quite far apart) of the United States as compared to the much more concentrated rates of the EEC which also tended to be in the lower held of United States tariff rates.

The EEC accordingly argued for an evening-out or harmonization of peaks and troughs through its cerement, double cart and thirty: ten proposals. Once negotiations had been joined, the lofty working hypothesis was soon undermined. The special-structure countries (Australia, Canada, New Zealand and South Africa), so called because their exports were dominated by raw materials and other primary commodities, negotiated their tariff reductions entirely through the item-by-item method.

In the end, the result was an average 35% reduction in tariffs, except for textiles, chemicals, steel and other sensitive products; plus a 15% to 18% reduction in tariffs for agricultural and food products. In addition, the negotiations on chemicals led to a provisional agreement on the abolition of the American Selling Price (ASP). This was a method of valuing some chemicals used by the noted States for the imposition of import duties which gave domestic manufacturers a much higher level of protection than the tariff schedule indicated.

However, this part of the outcome was disallowed by Congress, and the American Selling Price was not abolished until Congress adopted the results of the Tokyo Round. The results on agriculture overall were poor. The most notable achievement was agreement on a Memorandum of Agreement on Basic Elements for the Negotiation of a World Grants Arrangement, which eventually was rolled into a new International Grains Arrangement.

The EEC claimed that for it the main result of the negotiations on agriculture was that they "greatly helped to define its own common policy". The developing countries, who played a minor role throughout the negotiations in this round, benefited nonetheless from substantial tariff cuts particularly in non-agricultural items of interest to them.

Their main achievement at the time, however, was seen to be the adoption of Part IV of the GATT, which absolved them from according reciprocity to developed countries in trade negotiations. In the view of many developing countries, this was a direct result of the call at UNCTAD I for a better trade deal for them.

There has been argument ever since whether this symbolic gesture was a victory for them, or whether it ensured their exclusion in the future from meaningful participation in the multilateral trading system. On the other hand, there was no doubt that the extension of the Long-Term Arrangement Regarding International Trade in Cotton Textiles, which later became the Multi-Fiber Arrangement, for three years until 1970 led to the longer-term impairment of export opportunities for developing countries.

Another outcome of the Kennedy Round was the adoption of an Anti-dumping Code, which gave more precise guidance on the implementation of Article VI of the GATT. In particular, it sought to ensure speedy and fair investigations, and it imposed limits on the retrospective application of anti-dumping measures.

Kennedy Round took place from 1962–1967. $40 billion in tariffs were eliminated or reduced.

Tokyo Round: 1973–79[edit]

Main article: Tokyo Round

Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $19 billion worth of trade.

Formation of Quadrilateral Group: 1981[edit]

The Quadrilateral Group was formed in 1982 by the European Union, the United States, Japan and Canada, in order to influence the GATT.

Uruguay Round: 1986–94[edit]

Main article: Uruguay Round

The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand the competence of the GATT to important new areas such as services, capital, intellectual property, textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role.^[15]

Agriculture was essentially exempted from previous agreements as it was given special status in the areas of import quotas and export subsidies, with only mild caveats. However, by the time of the Uruguay round, many countries considered the exception of agriculture to be sufficiently glaring that they refused to sign a new deal without some movement on agricultural products. These fourteen countries came to be known as the "Cairns Group", and included mostly small and medium-sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, and New Zealand.

The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade liberalization agreement in agricultural products in the history of trade negotiations. The goals of the agreement were to improve market access for agricultural products, reduce domestic support of agriculture in the form of price-distorting subsidies and quotas, eliminate over time export subsidies on agricultural products and to harmonize to the extent possible sanitary and phytosanitary measures between member countries.

GATT and the World Trade Organization[edit]

Main article: Uruguay Round

See also: Member_states_of_the_World_Trade_Organization § List_of_members_and_accession_dates

In 1993, the GATT was updated ('GATT 1994') to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization(WTO). The 76 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. The other 51 GATT members rejoined the WTO in the following two years (the last being Congo in 1997). Since the founding of the WTO, 33 new non-GATT members have joined and 22 are currently negotiating membership. There are a total of 164 member countries in the WTO, with Liberia and Afghanistan being the newest members as of 2018.

Of the original GATT members, Syria^[16][17], Lebanon^[18] and the SFR Yugoslavia have not rejoined the WTO. Since FR Yugoslavia,(renamed as Serbia and Montenegro and with membership negotiations later split in two), is not recognised as a direct SFRY successor state; therefore, its application is considered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed to establish a working party to examine the request of Syria for WTO membership.^[19][20] The contracting parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31 December 1995. Montenegro became a member in 2012, while Serbia is in the decision stage of the negotiations and is expected to become a member of the WTO in the future.

Whilst GATT was a set of rules agreed upon by nations, the WTO is an intergovernmental organization with its own headquarters and staff, and its scope includes both traded goods and trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.^[21]

Effects on trade liberalization[edit]

The average tariff levels for the major GATT participants were about 22 percent in 1947.^[4] As a result of the first negotiating rounds, tariffs were reduced in the GATT core of the United States, United Kingdom, Canada, and Australia, relative to other contracting parties and non-GATT participants.^[4] By the Kennedy round (1962–67), the average tariff levels of GATT participants were about 15%.^[4] After the Uruguay Round, tariffs were under 5%.^[4]

In addition to facilitating applied tariff reductions, the early GATT's contribution to trade liberalization "include binding the negotiated tariff reductions for an extended period (made more permanent in 1955), establishing the generality of nondiscrimination through most-favored nation (MFN) treatment and national treatment status, ensuring increased transparency of trade policy measures, and providing a forum for future negotiations and for the peaceful resolution of bilateral disputes. All of these elements contributed to the rationalization of trade policy and the reduction of trade barriers and policy uncertainty."^[4]

According to Dartmouth economic historian Douglas Irwin,^[7]

The prosperity of the world economy over the past half century owes a great deal to the growth of world trade which, in turn, is partly the result of farsighted officials who created the GATT. They established a set of procedures giving stability to the trade-policy environment and thereby facilitating the rapid growth of world trade. With the long run in view, the original GATT conferees helped put the world economy on a sound foundation and thereby improved the livelihood of hundreds of millions of people around the world.

Article 24[edit]

Following the United Kingdom's vote to withdraw from the European Union, supporters of leaving the EU suggested that Article 24, paragraph 5B of the treaty could be used to maintain a "standstill" in trading conditions between the UK and the EU in the event of the UK leaving the EU without a trade deal, hence preventing the introduction of tariffs. According to proponents of this approach, it could be used to implement an interim agreement pending negotiation of a final agreement lasting up to ten years.^[22]

This claim formed the basis of the so-called "Malthouse compromise" between Conservative party factions as to how to replace the withdrawal agreement.^[23] However, this plan was rejected by parliament.^[24] The claim that Article 24 might be used was also adopted by Boris Johnson during his 2019 campaign to lead the Conservative Party.

The claim that Article 24 might be used in this way has been criticised by Mark Carney, Liam Fox and others as being unrealistic given the requirement in paragraph 5c of the treaty that there be an agreement between the parties in order for paragraph 5b to be of use as, in the event of a "no-deal" scenario, there would be no agreement. Moreover, critics of the GATT 24 approach point out that services would not be covered by such an arrangement.^[25][26]

History and legal nature of the GATT

The General Agreement on Tariffs and Trade (GATT) is the most important legal source of world trade law. It was negotiated during the United Nations Conference on Trade and Employment after efforts to create the International Trade Organization remained without success. The original GATT text from 1947, subject to modifications from 1994, is still in effect, even if it has become part of the World Trade Organization which has been in force since its establishment in 1995. Until today, 164 nations have entered the WTO and must therefore also comply with the provisions of the GATT. As for the Netherlands, it signed the GATT on January 1, 1948 and became part of the WTO with its establishment in 1995. Also the Czech Republic signed the GATT in 1993 and entered the WTO in 1995. Apart from the GATT, crucial legal bases on which the WTO is acting are the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

When negotiated, the GATT was a multilateral agreement regulating international trade. Simultaneously it is to be understood as a discussion forum for international trade problems as well as a body for multilateral trade negotiations.

Goals and how to accomplish them

After the horrors of the Second World War, the international community set itself the objective to reintegrate the global economy fundamentally. The goals pursued by the GATT are explicitly enumerated in the preamble, namely raising the standard of living, ensuring full employment, increasing the real incomes, the effective demand and the production. Globally, this also entails the full use of the world’s resources and expanding the production and exchange of goods. Special emphasis is put on the support of developing countries, as they represent three quarters of the 130 signatory countries.

In order to realize these ambitious ideas, the signatory states declared to enter into “reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce”.

Basic principles

Although the WTO and the GATT are often described as enhancing “free trade”, the system allows certain forms of protection. This is why, more accurately, one should speak of a system of rules dedicated to open, fair and undistorted competition. Three main principles are thereby binding for the member states when concluding above-mentioned international arrangements.

Non-discrimination

The central principle of non-discrimination shall prevent protectionist measures and guarantee the freedom of trade among all member states. It is designed to secure fair conditions of trade.

Most-favoured-nation principle (MFN-principle), Art. I.

According to this principle, a signatory state granting any trade or financial advantage to another one shall grant it to all the other signatory states as well. This happens unconditionally (i.e. without asking for reciprocity) and immediately. Pursuant to Art. 1, custom tariffs or other fees charged by one country for the import or export of like products have to be identical for all contracting parties. Equal competition conditions are thereby established for all member states.

However, relating to this principle there are emerging various exceptions and uncertainties. It is only applicable to “like products”, while a definition of “likeness” is not provided. Dependent on the specific situation, the crucial question is whether the goods are in competition with each other due to their characteristics and quality, are meant for an identical consumer, or whether they are exchangeable. Problems can also emerge from the definition of a “foreign” or “local” product. Furthermore, numerous exceptions are provided by the GATT itself. Countries can raise barriers against products that are considered to be traded unfairly from specific countries or set up a free trade agreement that applies only to goods traded within the group, thus discriminating against goods from outside (see, for instance, the free trade areas NAFTA and EFTA or the EU’s customs union). The most important exception refers to the treatment of developing countries. To such can be given special access to the developed countries’ markets (“Generalized system of trade preferences”).

In short terms: Grant someone a special favour and you have to do the same for all other signatory states.

Principle of National Treatment, Art. 3.

This principle is supporting non-discrimination between the member states and guarantees national compliance with the non-discrimination rule in foreign trade. Therefore it prohibits unequal treatment of foreign imported and locally-produced goods. The Agreement on Subsidies and Countervailing Measures (SCM) is concretizing this basic principle as it prohibits certain subsidies to companies contingent upon export performance and upon the use of domestic over imported goods. If domestic companies is given an advantage by the subsidies, the WTO members are authorized to take countermeasures.

Also in terms of this principle, “like goods” serve as the – undefined – reference point. Restrictions are imposed on this rule as well insofar as it only applies once the goods have entered the market. Charging unequal customs duty on an import is therefore not a violation of national treatment.

In short terms: Give others the same treatment as your own nationals.

Reciprocity

According to the preamble as well as various provisions of the GATT, negotiations are to be concluded “on a reciprocal and mutually advantageous basis”. That is to say, that to a country which takes new steps towards liberalization granting trade advantages to another member state is to be granted in turn – “reciprocally – equivalent privileges by the favoured state. In declaring this, the member states aim at limiting the scope of free-riding that may arise because of the MFN rule and at obtaining better access to foreign markets. For the member states, the gain available from negotiating is greater than from unilateral liberalization.

Also in terms of reciprocity, an exception is made in favour of the developing countries. Under the Enabling Clause it is permitted to the members to accept less than full reciprocity from their developing trading partners. In doing so, the nations comply with the principle of solidarity.

The described principles affect one another, thus increasing their effectiveness as a whole. When, for instance, two countries conclude a bilateral agreement which advances liberalization, applying the Principle of Reciprocity in doing so, this progressive agreement automatically becomes effective on a multilateral basis under the Most-favoured-nation Principle. Consequently, global liberalization of trade is not be endangered by selective protectionist measures.

In short terms: Lower your import duties and other trade barriers in return for similar concessions from another country.

Liberalization through negotiation

Although one important target of the GATT is to reduce tariffs and trade barriers substantially, it is not prohibiting any kind of custom tariffs of individual countries. By way of multilateral negotiations between the member states (for instance the so-called “Uruguay Round”, held in Uruguay from 1986 to 1994, from which emerged the WTO), custom tariffs shall be lowered and made transparent. The individual custom tariffs are listed and cannot be raised unilaterally afterwards. Connected to the process of liberalization, to the developing countries is once more given a privilege as they have more time to fulfil their obligations.

In short terms: Each signatory state lowers its own trade barriers through negotiation.

Conclusion and outlook

However, as stated above, the theoretical main principles of the GATT as formulated on paper are not strictly adhered to in practical usage. Due to the numerous exceptions and restrictions as well as a wide-ranging scope of interpretation with regard to their implementation, it has become custom talking about the “grey area of the GATT”. Focusing in particular on the MFN-principle, today, about 50% of the world trade is not obeying it anymore. This is not only a consequence of the exceptional areas mentioned explicitly in the GATT but also resulting from various nontariff barriers put into practice in- and outside its regulatory terms. Taking into account this recent development, the question needs to be asked whether one can still speak of it as applied “unconditionally” or it is rather become a privilege granted only to certain countries under certain conditions, thus evading somehow the whole ambitious concept of global reintegration pursued by the international community. It remains to be seen to what extent the GATT will be undermined in future times

The General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT) is a multilateral agreement regulating international trade.

LEARNING OBJECTIVES

Outline the history of the creation of the General Agreement on Tariffs and Trade (GATT)

KEY TAKEAWAYS

Key Points

• The General Agreement on Tariffs and Trade (GATT) is a multilateral agreement regulating international trade, the purpose of which is the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis”.
• The failure to create the International Trade Organization (ITO) resulted in the GATT negotiation at the UN Conference on Trade and Employment.
• GATT was in place from 1947-1993, when it was replaced by the World Trade Organization (WTO) in 1995.
• GATT text is still in effect under the WTO framework, subject to modifications.
• During GATT’s eight rounds, countries exchanged tariff concessions and reduced tariffs.

Key Terms

• multilateral: Involving more than one party (often used in politics to refer to negotiations, talks, or proceedings involving several nations).
• tariff: A system of government-imposed duties levied on imported or exported goods; a list of such duties, or the duties themselves.

The General Agreement on Tariffs and Trade (GATT) is a multilateral agreement regulating international trade. According to its preamble, its purpose is the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis. ” GATT was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed in 1947 and lasted until 1993, when it was replaced by the World Trade Organization (WTO) in 1995. The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.

GATT held a total of eight rounds, during which countries exchanged tariff concessions and reduced tariffs.

In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the most significant changes was the creation of the WTO. The 75 existing GATT members and the European Communities became the founding members of the WTO on January 1, 1995. The other 52 GATT members rejoined the WTO in the following two years, the last being Congo in 1997. Since the founding of the WTO, 21 new non-GATT members have joined and 29 are currently negotiating membership. There are a total of 157 member countries in the WTO, with Russia and Vanuatu being new members as of 2012.

Of the original GATT members, Syria and SFR Yugoslavia (SFRY) have not rejoined the WTO. Because FR Yugoslavia (later renamed Serbia and Montenegro) is not recognized as a direct SFRY successor state, its application is considered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed to establish a working party to examine the request of Syria for WTO membership. The contracting parties who founded the WTO ended official agreement of the “GATT 1947” terms on 31 December 1995. Serbia and Montenegro are in the decision stage of the negotiations and are expected to become the newest members of the WTO in 2012 or in the near future.

WTO Membership, 2005: GATT was replaced by the World Trade Organization (WTO) in 1995. This map shows membership in the WTO in 2005.

General Agreement On Tariffs And Trade

By WILL KENTON

 Updated Jun 28, 2018

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.

The General Agreement on Tariffs and Tradewas a free trade agreement between 23 countries that eliminated tariffs and increased international trade. It was the first worldwide multilateral free trade agreement. It was in effect from January 1, 1948 until January 1, 1995. It ended when it was replaced by the more robust World Trade Organization. 

Purpose

The purpose of GATT was to eliminate harmful trade protectionism. That had sent global trade down 65 percent during the Great Depression. GATT restored economic health to the world after the devastation of the depression and World War II.

Three Provisions

GATT had three main provisions. The most important requirement was that each member must confer most favored nation status to every other member. All members must be treated equally when it comes to tariffs. It excluded the special tariffs among members of the British Commonwealth and customs unions. It permitted tariffs if their removal would cause serious injury to domestic producers.

Second, GATT prohibited restriction on the number of imports and exports. The exceptions were:

• When a government had a surplus of agricultural products.
• If a country needed to protect its balance of payments because its foreign exchange reserves were low.
• Emerging market countries that needed to protect fledgling industries.

In addition, countries could restrict trade for reasons of national security. These included protecting patents, copyrights, and public morals.

The third provision was added in 1965. That was because more developing countries joined GATT, and it wished to promote them. Developed countries agreed to eliminate tariffs on imports of developing countries to boost their economies. It was also in the stronger countries' best interests in the long run. It would increase the number of middle-class consumers throughout the world. 

History

GATT grew out of the Bretton Woods Agreement. The summit at Bretton Woods also created the World Bank and the International Monetary Fund to coordinate global growth. 

The summit almost led to a third organization. It was to be the highly ambitious International Trade Organization. The 50 countries that started negotiations wanted it to be an agency within the United Nations that would create rules, not just on trade, but also employment, commodity agreements, business practices, foreign direct investment, and services. The ITO charter was agreed to in March 1948, but the U.S. Congress and some other countries' legislatures refused to ratify it. In 1950, the Truman Administration declared defeat, ending the ITO.

At the same time, 15 countries focused on negotiating a simple trade agreement. They agreed on eliminating trade restrictions affecting $10 billion of trade or a fifth of the world’s total. Under the name GATT, 23 countries signed the deal on October 30, 1947. It was put into force on June 30,1948. GATT didn’t require the approval of Congress. It was technically just an agreement under the provisions of U.S. Reciprocal Trade Act of 1934. It was only supposed to be temporary until the ITO replaced it.

Throughout the years, rounds of further negotiations on GATT continued. The main goal was to further reduce tariffs. In the mid-1960s, the Kennedy round added an Anti-Dumping Agreement. The Tokyo round in the seventies improved other aspects of trade. The Uruguay round lasted from 1986 to 1994 and created the World Trade Organization. 

GATT and WTO

GATT lives on as the foundation of the WTO. The 1947 agreement itself is defunct. But, its provisions were incorporated into the GATT 1994 agreement. That was designed to keep the trade agreements going while the WTO was being set up. So, the GATT 1994 is itself a component of the WTO Agreement. 

Member Countries

The original 23 GATT members were Australia; Belgium; Brazil; Burma, now called Myanmar; Canada; Ceylon, now Sri Lanka; Chile; China; Cuba; Czechoslovakia, now Czech Republic and Slovakia; France; India; Lebanon; Luxembourg; Netherlands; New Zealand; Norway; Pakistan; Southern Rhodesia, now Zimbabwe; Syria; South Africa; the United Kingdom and the United States. The membership increased to more than 100 countries by 1993. 

Pros

For 47 years, GATT reduced tariffs. This boosted world trade 8 percent a year during the 1950s and 1960s. That was faster than world economic growth. Trade grew from $332 billion in 1970 to $3.7 trillion in 1993. 

It was such a success that many more countries wanted to join. By 1995, there 128 members, generating at least 80 percent of world trade. 

By increasing trade, GATT promoted world peace. In the 100 years before GATT, the number of wars was 10 times greater than the 50 years after GATT. Before World War II, the chance of a lasting trade alliance was only slightly better than 50/50. 

By showing how free trade works, GATT inspired other trade agreements. It set the stage for the European Union. Despite the EU's problems, it has prevented wars between its members. 

GATT also improved communication. It provided incentives for countries to learn English, the language of the world's largest consumer market. This adoption of a common language reduced misunderstanding. It also gave less developed countries a competitive advantage. English gave them insight into the developed country's culture, marketing, and product needs. 

For example, most Indians know English. It allows them to work in call centers that support U.S. countries. It has been a major reason for call center outsourcing.

Cons

Low tariffs destroy some domestic industries, contributing to high unemployment in those sectors. Governments subsidized many industries to make them more competitive on a global scale. U.S. and EU agriculture were major examples. In the early 1970s, the textile and clothing industries were exempted from GATT. When the Nixon Administration took the U.S. dollar off the gold standard in 1973, it lowered the value of the dollar compared to other currencies. That further lowered the international price of U.S. exports.

By the 1980s, the nature of world trade had changed. GATT did not address the trade of services that allowed them to grow beyond any one country's ability to manage them. For example, financial services became globalized. Foreign direct investment had become more important. As a result, when U.S. investment bank Lehman Brothers collapsed, it threatened the entire global economy. Central banks scrambled to work together for the first time to address the 2008 financial crisis. They were forced to provide the liquidity for frozen credit markets.

Like other free trade agreements, GATT reduced the rights of a nation to rule its own people. The agreement required them to change domestic laws to gain the trade benefits. For example, India had allowed companies to create generic versions of drugs without paying a license fee. This helped more people afford medicine. GATT required India to remove this law. That raised the price of drugs to a level out of reach for many Indians.

Trade agreements like GATT often destabilize small, traditional economies. Countries like the United States that subsidize agricultural exports can put local family farmers out of business. Unable to compete with low-cost grains, the farmers migrate to cities looking for work, often in factories set up by multi-national corporations. Often these factories can move to other countries with lower-cost labor, leaving the farmers unemployed.

Farmers that stay often grow opium, coca, or marijuana, just because they can't grow traditional crops and stay in business. Violence from the drug trade may force them to emigrate to protect themselves and their children. 

Other Trade Agreements: NAFTA | TTIP | TPP | CAFTA | FTAA | Doha | U.S. Regional Agreements 

General Agreement on Tariffs and Trade

INTERNATIONAL RELATIONS

WRITTEN BY: 

• The Editors of Encyclopaedia Britannica

See Article History

Alternative Title: GATT

General Agreement on Tariffs and Trade (GATT), set of multilateral trade agreements aimed at the abolition of quotas and the reduction of tariff duties among the contracting nations. When GATT was concluded by 23 countries at Geneva, in 1947 (to take effect on Jan. 1, 1948), it was considered an interim arrangement pending the formation of a United Nations agency to supersede it. When such an agency failed to emerge, GATT was amplified and further enlarged at several succeeding negotiations. It subsequently proved to be the most effective instrument of world trade liberalization, playing a major role in the massive expansion of world trade in the second half of the 20th century. By the time GATT was replaced by the World Trade Organization(WTO) in 1995, 125 nations were signatories to its agreements, which had become a code of conduct governing 90 percent of world trade.

GATT’s most important principle was that of trade without discrimination, in which each member nation opened its markets equally to every other. As embodied in unconditional most-favoured nation clauses, this meant that once a country and its largest trading partners had agreed to reduce a tariff, that tariff cut was automatically extended to every other GATT member. GATT included a long schedule of specific tariff concessions for each contracting nation, representing tariff rates that each country had agreed to extend to others. Another fundamental principle was that of protection through tariffs rather than through import quotas or other quantitative trade restrictions; GATT systematically sought to eliminate the latter. Other general rules included uniform customs regulations and the obligation of each contracting nation to negotiate for tariff cuts upon the request of another. An escape clause allowed contracting countries to alter agreements if their domestic producers suffered excessive losses as a result of trade concessions.

GATT’s normal business involved negotiations on specific trade problems affecting particular commodities or trading nations, but major multilateral trade conferences were held periodically to work out tariff reductions and other issues. Seven such “rounds” were held from 1947 to 1993, starting with those held at Geneva in 1947 (concurrent with the signing of the general agreement); at Annecy, France, in 1949; at Torquay, Eng., in 1951; and at Geneva in 1956 and again in 1960–62. The most important rounds were the so-called Kennedy Round (1964–67), the Tokyo Round (1973–79), and the Uruguay Round (1986–94), all held at Geneva. These agreements succeeded in reducing average tariffs on the world’s industrial goods from 40 percent of their market value in 1947 to less than 5 percent in 1993.

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The Uruguay Round negotiated the most ambitious set of trade-liberalization agreements in GATT’s history. The worldwide trade treaty adopted at the round’s end slashed tariffs on industrial goods by an average of 40 percent, reduced agricultural subsidies, and included groundbreaking new agreements on trade in services. The treaty also created a new and stronger global organization, the WTO, to monitor and regulate international trade. GATT went out of existence with the formal conclusion of the Uruguay Round on April 15, 1994. Its principles and the many trade agreements reached under its auspices were adopted by the WTO.