General Agreement on Tariffs and Trade

Definition

The General Agreement on Tariffs and Trade (GATT) was a multilateral treaty aimed at promoting international trade by reducing trade barriers, such as tariffs and quotas. Established in 1947, GATT sought to create a fair trading system among nations and laid the groundwork for the World Trade Organization (WTO). It reflects the evolution of trade policies and agreements that emerged post-World War II, highlighting the increasing interdependence of global economies and the role of cooperation in shaping trade relations.

5 Must Know Facts For Your Next Test

1. GATT was signed by 23 nations in 1947 as a response to the economic turmoil caused by World War II and aimed to facilitate international trade.
2. The agreement included a series of negotiation rounds, with the most significant being the Uruguay Round, which ultimately led to the creation of the WTO.
3. GATT operated under key principles such as most-favored-nation treatment, which ensures that trade benefits granted to one country must be extended to all other GATT members.
4. It played a crucial role in decreasing average tariffs from about 40% in the 1940s to around 5% by the end of the 20th century, significantly boosting global trade.
5. Despite its success in reducing tariffs, GATT had limitations as it did not cover services or agricultural products comprehensively until the establishment of the WTO.

Review Questions

• How did GATT contribute to the development of global trade policies after World War II?
  • GATT was instrumental in shaping global trade policies following World War II by establishing a framework for reducing tariffs and promoting free trade. It encouraged countries to work together to lower barriers, leading to increased cooperation among nations. This collaboration helped foster a more interconnected global economy and laid the foundation for future trade agreements and organizations like the WTO.
• Evaluate the impact of GATT on international trade relationships among member countries.
  • GATT had a significant positive impact on international trade relationships among member countries by promoting transparency and predictability in trade practices. The principles of non-discrimination and most-favored-nation status encouraged countries to engage in dialogue rather than resorting to protectionist measures. This environment fostered stronger economic ties and increased mutual reliance among nations, ultimately leading to expanded trade flows.
• Assess how GATT's legacy influenced contemporary debates surrounding globalization and protectionism.
  • GATT's legacy continues to influence contemporary debates on globalization and protectionism by highlighting the benefits of reduced trade barriers versus the risks associated with unchecked globalization. While proponents argue that open markets promote economic growth and efficiency, critics point out that this can lead to job losses and inequality. The evolution into the WTO reflects ongoing tensions between liberalizing trade and protecting domestic industries, illustrating how GATT's principles remain relevant in modern discussions about global economic policy.

Related terms

World Trade Organization: An international organization established in 1995 to oversee global trade agreements and provide a framework for negotiating trade deals, evolving from the principles set forth by GATT.

Tariffs: Taxes imposed on imported goods, often used to protect domestic industries by making foreign products more expensive.

Trade Liberalization: The process of reducing or eliminating trade barriers, such as tariffs and quotas, to encourage free trade among countries.