General Agreement on Tariffs and Trade (GATT)

Definition

The General Agreement on Tariffs and Trade (GATT) is a multilateral treaty that was established in 1947 to promote international trade by reducing or eliminating trade barriers such as tariffs and quotas. GATT aimed to create a stable trading environment and foster economic growth through the principle of non-discrimination, which includes the most-favored-nation (MFN) treatment and national treatment, ensuring that countries treat imports and exports equally.

5 Must Know Facts For Your Next Test

1. GATT was created as a response to the economic instability following World War II, aiming to enhance global trade and prevent future conflicts through economic cooperation.
2. It originally consisted of 23 countries but eventually grew to include over 120 nations by the time it was replaced by the WTO in 1995.
3. The rounds of negotiations under GATT included significant agreements such as the Kennedy Round, Tokyo Round, and Uruguay Round, each focusing on different aspects of trade liberalization.
4. GATT's framework emphasized transparency in trade policies, requiring countries to publish their trade regulations and notify the GATT about changes.
5. Dispute resolution under GATT was less formal than under the WTO, often relying on diplomatic negotiations rather than a structured legal process.

Review Questions

• How did GATT contribute to the reduction of trade barriers among member countries?
  • GATT played a crucial role in reducing trade barriers through successive negotiation rounds that focused on lowering tariffs and eliminating quotas. By establishing rules for fair trade practices, it encouraged countries to engage in dialogue and compromise on their trade policies. This collaborative approach fostered a more interconnected global economy and laid the groundwork for future trade agreements.
• Discuss the significance of the most-favored-nation (MFN) principle established by GATT and its impact on international trade relations.
  • The most-favored-nation (MFN) principle was significant because it ensured that any favorable trading terms granted by one GATT member to another would be extended to all other members. This principle helped create a level playing field in international trade, preventing discrimination between trading partners and promoting broader economic cooperation. As a result, it increased market access for all member countries and contributed to global trade growth.
• Evaluate the effectiveness of GATT's dispute resolution mechanism compared to that of the World Trade Organization (WTO). How did this difference shape international trade practices?
  • GATT's dispute resolution mechanism was less formal and relied more on diplomatic negotiations rather than strict legal processes. This sometimes led to prolonged disputes without clear resolutions, which could strain international relations. In contrast, the WTO introduced a more structured and binding dispute settlement process, enhancing the effectiveness of conflict resolution in international trade. This shift encouraged countries to adhere to agreed-upon rules and reduced the chances of escalating trade conflicts, ultimately leading to a more stable trading environment.

Related terms

World Trade Organization (WTO): The WTO is an international organization that succeeded GATT in 1995, providing a framework for negotiating trade agreements and resolving disputes between member countries.

Most-Favored-Nation (MFN): A principle within GATT that requires a country to extend the same trading terms to all other members as it provides to its most-favored trading partner, promoting equality in trade.

Tariff: A tax imposed by a government on imported goods, which can be used to protect domestic industries or generate revenue.