GATT

General Agreement on Tariffs and Trade

A historical international trade agreement signed in 1947 to reduce trade barriers and promote free trade among member nations, the General Agreement on Tariffs and Trade, or GATT, was established to counteract the protectionist policies that emerged after World War I, which hindered global economic growth. With time, GATT became the foundation of global trade regulations and significantly influenced the international trade system. 

What is GATT? 

GATT is a multilateral trade agreement signed by 23 countries in 1947. The agreement was created to promote international trade by eliminating barriers such as tariffs and quotas. GATT was later succeeded by the World Trade Organization, or WTO, in 1995. 

The main objectives of GATT were to encourage fair competition, lower trade barriers, and boost economic growth and prosperity. To achieve this, it established guidelines and processes for negotiating and carrying out trade agreements, offered a forum for settling trade disputes, and pushed member nations to cut tariffs and other trade obstacles. 

 

Understanding GATT 

The Most Favoured Nation (MFN) concept, which demanded that members treat all other members equally regarding trade policies, was one of the main tenets of the GATT. This assisted in promoting non-discriminatory trade practices and preventing nations from treating particular trading partners preferentially. 

As part of the GATT, participating nations pledged to lower their tariffs and other trade restrictions on a reciprocal basis. This implied that if one member country lowered its tariffs on a certain good, the other members had to follow suit. GATT also allowed for negotiating new trade agreements and established a framework for resolving disputes between member nations. 

GATT expanded through time to cover other topics connected to global trade, including services, intellectual property rights, and investment. The WTO, which built on the GATT’s basis and broadened its scope to embrace additional areas of trade regulation, replaced the GATT in 1995. 

 

History of GATT 

GATT was established during World War II when nations sought methods to rebuild their economies and create jobs. International trade was one of the most important means of doing this because it gave access to new markets and resources. Several nations were putting up high tariffs and other barriers to preserve their industries, which constrained trade and economic development. 

By giving member nations a platform for negotiations to lower tariffs and other trade obstacles, GATT sought to address this issue. The pact also established mechanisms for resolving disputes between member nations and provisions for progressively lowering tariffs and other trade obstacles. 

Also, GATT sought to restrict the adoption of unfair trade practices that might undermine domestic sectors and distort trade, such as dumping and subsidies. To do this, the agreement established a mechanism for monitoring and implementing these standards and guidelines for the employment of anti-dumping and subsidy measures. 

Throughout its existence, GATT effectively lowered global tariffs and boosted trade between nations. Periodically, so-called “trade rounds” of negotiations were held to discuss fresh trade concerns and work out new deals to lower tariffs and other trade barriers. The Uruguay Round, which ended in 1994 and led to the founding of the WTO, is the most well-known of these trade rounds. 

Purpose of GATT 

GATT was an important agreement because it helped to promote global trade and economic growth. It also helped to create jobs and improve living standards. Its goal was to encourage free trade by lowering or eliminating restrictions on items exchanged between member nations, like tariffs and quotas. Until 1995, when the World Trade Organization came in its place, GATT was in operation as a multilateral trade pact. 

The WTO now focuses on issues including intellectual property rights, trade in services, investment, tariffs and other conventional trade obstacles. Yet, the fundamental tenets of GATT, such as the dedication to free trade and the significance of amicably settling disputes, continue to guide the organisation’s operations. 

Objectives and operation 

By lowering tariffs, removing trade restrictions, and establishing just and equitable trade regulations, GATT sought to advance world trade. GATT aimed to achieve these objectives by creating a forum for negotiations among its member countries and a set of rules to regulate international trade. 

A dispute settlement mechanism was established to enforce the rules and agreements under GATT. This mechanism allowed member countries to bring disputes over alleged violations of GATT rules to a panel of independent experts, who would then recommend resolving the dispute. If the parties disagreed with the recommended resolution, the case could be appealed to a higher-level panel. If a country refused to comply with the recommended resolution, it could face trade sanctions or other penalties. 

GATT also had a system for administering trade agreements and monitoring member countries’ trade policies. This system included the General Council, which was responsible for overseeing the implementation of GATT agreements and addressing any issues. In addition, the GATT Secretariat provided technical assistance and support to member countries and conducted research and analysis on trade issues. 

The multilateralism, reciprocity, and non-discrimination tenets were the foundation for the GATT’s operation. These guidelines were created to encourage fair and equitable commercial ties among members and ensure that all nations may profit from global commerce. 

Frequently Asked Questions

It’s true that GATT was a multinational pact that attempted to encourage free trade by lowering trade obstacles like tariffs, quotas, and subsidies. 

 

 

 

 

GATT’s promotion of free trade and removal of obstacles to international trade substantially impacted the world economy. Due to increased competition, reduced costs, and improved efficiency, both consumers and producers gained from this. 

However, greater import competition may have had a detrimental effect on particular industries, resulting in job losses and other economic difficulties. GATT had a multifaceted impact on the economy and was influenced by several variables, including the particular industries and nations involved. 

The GATT’s non-discrimination tenet was its most significant one. The MFN rule and the national treatment rule were two rules that represented this notion. The MFN rule mandated that nations treat all trading partners equally and without distinction. Whenever they entered the domestic market, international goods and services had to be treated equally to domestic ones under the national treatment rule. 

Some of the limitations are: 

  • GATT’s limited scope prevented it from addressing other topics like services, intellectual property, and investments. It solely addressed trade in goods. 
  • Absence of an efficient dispute resolution system and enforcement mechanism: GATT lacked these elements. 
  • Insufficient representation: GATT negotiations favoured the interests of industrialised countries because there was little representation for developing nations. 

As GATT lacked a proper institutional framework to enact its rules and agreements, the WTO came in its place in 1995. The WTO has a more solid institutional foundation, including a system for resolving disputes and a more expansive mandate that includes services, intellectual property, and agriculture coverage. 

 

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