by General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. Established in 1947, its main objective was to reduce trade barriers such as tariffs, quotas, and subsidies, promoting economic recovery post-World War II. GATT provided a forum for negotiating trade agreements, settling trade disputes, and enforcing members’ commitments to reduce trade barriers. It laid the foundation for the rules-based trading system, emphasizing non-discrimination and transparency in international trade practices. GATT went through multiple negotiation rounds, each aiming to further liberalize global trade. The most notable was the Uruguay Round, which concluded in 1994, leading to the establishment of the World Trade Organization (WTO) in 1995. The WTO replaced GATT as the global organization overseeing international trade rules, incorporating and expanding on its principles and structures.
History of GATT:
General Agreement on Tariffs and Trade (GATT) was established in the aftermath of World War II, with its genesis rooted in the desire to create a stable trade framework that would prevent the protectionist trade policies that many believed had contributed to the economic downturns and international tensions of the 1930s. The idea was to establish an International Trade Organization (ITO) as part of the Bretton Woods system of international economic cooperation, which also included the International Monetary Fund (IMF) and the World Bank. However, the ITO never came into existence due to the failure of the United States to ratify it. As a provisional workaround, 23 countries signed the GATT in 1947, which then came into effect on January 1, 1948.
GATT was initially intended to be temporary, pending the establishment of the ITO, but it effectively served as the global framework for trade regulation for almost five decades. Its primary aim was to reduce tariffs and other trade barriers, and to provide a platform for the negotiation of trade liberalization. Over the years, GATT underwent several rounds of negotiations, which were named after the host city or country (e.g., Geneva, Annecy, Torquay, Geneva again, Dillon, Kennedy, Tokyo, and Uruguay).
The most significant of these was the Uruguay Round (1986-1994), which led to the creation of the World Trade Organization (WTO) on January 1, 1995. The WTO absorbed GATT, bringing it into a new legal framework and expanding its scope to include not just goods, but also services and intellectual property. The transformation marked a shift from a provisional agreement to a permanent institution, reflecting the evolution of the global economy and the increasing complexity of international trade.
Objectives of GATT:
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Trade Liberalization:
The primary goal was to reduce tariffs, quotas, and other trade barriers among member countries, facilitating smoother and more accessible international trade.
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Non-Discrimination:
GATT emphasized the principle of non-discrimination through two key policies: the Most Favored Nation (MFN) clause, which ensured that any trade advantage a country offers to one GATT member must be extended to all members, and the national treatment policy, which required foreign goods to be treated no less favorably than domestically produced goods once they had entered a market.
- Predictability:
By encouraging countries to bind their tariffs (agree not to raise them beyond agreed levels), GATT aimed to create a more predictable trading environment. This predictability was intended to encourage investment and long-term business planning.
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Fair Competition:
GATT sought to level the playing field in international trade by establishing rules aimed at fair competition, thereby discouraging practices such as dumping (selling goods abroad at unfairly low prices).
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Dispute Resolution:
Establishing a formal mechanism for resolving trade disputes between countries was an essential objective. This mechanism was intended to provide a structured process for addressing grievances and conflicts arising from trade relations, helping to avoid unilateral actions that could lead to trade wars.
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Economic Growth and Development:
Ultimately, GATT aimed to contribute to economic growth and development worldwide, particularly in post-war recovery, by fostering an open and non-discriminatory trading system. This goal was based on the belief that freer trade would lead to more efficient resource allocation, increased production and employment, and a higher standard of living globally.
Functions of GATT:
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Trade Negotiations:
GATT provided a forum for member countries to negotiate the reduction or elimination of tariffs and other trade barriers. These negotiations occurred in a series of trade rounds, including the notable Kennedy Round, Tokyo Round, and the Uruguay Round, which led to significant reductions in tariffs and the expansion of international trade.
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Trade Liberalization:
Central to its functions, GATT worked towards liberalizing trade by encouraging member countries to reduce trade barriers. The aim was to create a more open and efficient international trading system.
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Enforcement of Trade Rules:
GATT established a set of rules governing international trade. These rules were designed to ensure that trade occurred on a stable, predictable, and fair basis. GATT provided mechanisms to enforce these rules and resolve disputes between countries over trade issues.
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Monitoring and Surveillance:
GATT was responsible for monitoring the trade policies and practices of its member countries. This function involved reviewing national trade policies to ensure compliance with GATT rules and commitments, thereby promoting transparency and accountability in international trade.
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Dispute Resolution:
An important function of GATT was to provide a mechanism for the resolution of trade disputes between member countries. The dispute resolution process aimed to resolve conflicts in a structured and legal manner, thereby avoiding unilateral actions that could lead to trade wars.
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Technical Assistance and Training:
GATT provided technical assistance and training for developing countries to help them understand and implement GATT rules and benefit from the international trading system. This function was essential for integrating developing countries into the global economy.
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Promotion of Economic Development:
Through its efforts to liberalize trade and reduce barriers, GATT aimed to promote economic development and raise living standards across the globe. By facilitating increased international trade, GATT sought to contribute to economic growth in both developed and developing countries.
