General Agreement on Tariffs and Trade

Definition

The General Agreement on Tariffs and Trade (GATT) is a multilateral treaty aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs and quotas. Established in 1947, GATT served as a framework for trade negotiations and played a critical role in the evolution of global trade agreements, leading to the establishment of the World Trade Organization (WTO) in 1995.

5 Must Know Facts For Your Next Test

1. GATT was initially signed by 23 countries in 1947 and aimed to promote economic recovery after World War II by facilitating trade.
2. The agreement established a series of rounds of negotiations where member countries would meet to discuss and agree on tariff reductions.
3. The Uruguay Round, concluded in 1994, was the last GATT negotiation round and led to significant reforms, including the creation of the WTO.
4. GATT principles include most-favored-nation treatment, which ensures that any trade advantage given to one country must be extended to all GATT members.
5. While GATT focused primarily on goods, it laid the groundwork for future agreements covering services and intellectual property through the WTO.

Review Questions

• How did the establishment of GATT influence global trade practices in the post-World War II era?
  • GATT significantly influenced global trade practices by providing a platform for countries to negotiate tariff reductions and eliminate trade barriers. This helped facilitate international trade during a time when economies were recovering from the devastation of World War II. By creating rules and agreements among member nations, GATT fostered an environment conducive to economic cooperation, which ultimately led to increased global trade volumes and interconnectedness among economies.
• Evaluate the impact of GATT's principles on member countries' trade relations over the decades.
  • GATT's principles, such as most-favored-nation treatment and national treatment, greatly impacted member countries' trade relations by promoting fair competition and reducing discriminatory practices. These principles encouraged countries to lower tariffs and engage in more liberalized trade practices, fostering economic growth. However, they also created challenges as nations had to balance domestic interests with international commitments, leading to tensions at times over protectionist measures.
• Assess how the transition from GATT to the World Trade Organization represents a shift in global trade governance.
  • The transition from GATT to the WTO represents a significant shift in global trade governance by expanding the scope of international trade regulations beyond just goods to include services and intellectual property. This shift illustrates an evolution towards a more comprehensive approach to managing global trade issues. The WTO also introduced stronger enforcement mechanisms and dispute resolution processes compared to GATT, reflecting a recognition of the complexities of modern trade dynamics and the need for robust institutions to manage them.

Related terms

World Trade Organization: An international organization that regulates trade between nations and enforces the rules established under GATT, replacing it as the primary global trade authority.

Tariff: A tax imposed on imported goods, intended to raise revenue for the government and protect domestic industries by making foreign products more expensive.

Trade Liberalization: The process of reducing restrictions on international trade, often associated with agreements that aim to foster free trade among nations.