General Agreement on Tariffs and Trade

Definition

The General Agreement on Tariffs and Trade (GATT) is a legal agreement between multiple countries aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs and quotas. Established in 1947, GATT was the first multilateral trade agreement designed to create a framework for conducting global trade, fostering cooperation among member countries and contributing to economic stability and growth worldwide.

5 Must Know Facts For Your Next Test

1. GATT was created to facilitate free trade by reducing tariffs and other trade barriers, leading to increased economic cooperation among nations.
2. It operated through a series of negotiation rounds, with the most notable being the Uruguay Round, which led to the creation of the WTO.
3. GATT emphasized nondiscrimination principles, including Most-Favored-Nation (MFN) status, meaning any trade advantage given to one country must be extended to all member countries.
4. By the end of its existence in 1994, GATT had helped to significantly lower average tariff rates from over 40% in the 1940s to less than 5% by the 1990s.
5. The transition from GATT to the WTO represented a shift from a simple agreement to a comprehensive organization with greater powers for enforcement and dispute resolution.

Review Questions

• How did GATT contribute to the promotion of international trade among member countries?
  • GATT contributed to the promotion of international trade by establishing a framework for negotiations aimed at reducing tariffs and eliminating other trade barriers. By encouraging member countries to engage in rounds of negotiations, GATT helped lower tariffs significantly over the years, facilitating smoother trade relations. The principles of nondiscrimination and transparency laid out in GATT were vital in creating an environment conducive to free trade among its members.
• Analyze the impact of GATT's transition to the World Trade Organization on global trade practices.
  • The transition from GATT to the World Trade Organization marked a significant evolution in global trade practices. The WTO not only continued the efforts initiated by GATT but also introduced more comprehensive rules governing international trade, covering areas like services and intellectual property. This expansion allowed for more robust enforcement mechanisms and dispute resolution processes, giving members greater confidence in adhering to agreed-upon trade rules.
• Evaluate how GATT's principles of Most-Favored-Nation (MFN) status influenced modern international trade agreements.
  • The principles of Most-Favored-Nation (MFN) status established under GATT have had a lasting impact on modern international trade agreements by promoting non-discriminatory practices among trading partners. This principle ensures that any favorable trading terms granted by one country must be extended to all WTO members, fostering an environment of equality in trade relationships. As a result, this has led to increased collaboration and reduced bilateral tensions, which are crucial for maintaining stable and predictable global markets in today’s interconnected economy.

Related terms

World Trade Organization: The World Trade Organization (WTO) is an international organization that regulates trade between nations, succeeding GATT in 1995, and aims to ensure that trade flows as smoothly, predictably, and freely as possible.

Tariffs: Tariffs are taxes imposed by a government on imported goods, making them more expensive compared to domestic products and serving as a form of trade protectionism.

Trade Liberalization: Trade liberalization refers to the removal or reduction of trade barriers, such as tariffs and quotas, to encourage free trade among nations.