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 laid the foundation for a series of trade negotiations that sought to foster global economic cooperation and liberalization, significantly influencing the evolution of international business practices and policies over the decades.

5 Must Know Facts For Your Next Test

1. GATT was established as a result of the Bretton Woods Conference in 1944 and was designed to create a fair trading system in the aftermath of World War II.
2. The agreement was initially signed by 23 countries, but its membership grew significantly over the years, ultimately paving the way for the establishment of the WTO.
3. GATT focused primarily on tariff reductions but also addressed non-tariff barriers through rounds of negotiations known as 'trade rounds,' with the Uruguay Round being one of the most significant.
4. By promoting trade through tariff reduction, GATT has contributed to significant global economic growth, raising living standards and increasing consumer access to goods.
5. GATT's principles of non-discrimination and reciprocity remain fundamental in contemporary international trade agreements and negotiations.

Review Questions

• How did the establishment of GATT influence international trade practices in the post-World War II era?
  • The establishment of GATT significantly influenced international trade practices by providing a structured framework for reducing tariffs and other trade barriers among countries. This led to increased trade volumes and encouraged nations to cooperate economically, promoting stability in the global market after World War II. The principles established under GATT have shaped modern trade policies and continue to guide international economic relations.
• In what ways did GATT evolve into the World Trade Organization, and what were the implications of this transition for global trade governance?
  • GATT evolved into the World Trade Organization (WTO) in 1995 to address broader issues in global trade, including services, intellectual property rights, and investment measures. This transition expanded the scope of international trade governance beyond tariffs, providing a more comprehensive legal framework for global economic interactions. The WTO strengthened dispute resolution mechanisms, giving countries a more structured avenue for resolving trade conflicts compared to GATT.
• Evaluate the impact of GATT on developing nations' participation in global trade, considering both opportunities and challenges presented by its framework.
  • GATT had a mixed impact on developing nations' participation in global trade. On one hand, it provided opportunities for these countries to access larger markets through reduced tariffs, which could stimulate economic growth and development. On the other hand, many developing nations faced challenges in competing with more industrialized economies due to disparities in resources and infrastructure. The negotiations often favored wealthier countries, raising concerns about equity in trade practices. As a result, while GATT promoted greater integration into the global economy, it also highlighted existing inequalities that continue to be addressed within the WTO framework.

Related terms

World Trade Organization:

The World Trade Organization (WTO) is an international organization that succeeded GATT in 1995, providing a framework for negotiating and formalizing trade agreements and settling trade disputes.

Tariff: A tariff is a tax imposed by a government on imported goods, intended to protect domestic industries from foreign competition by increasing the price of imported products.

Trade Liberalization: Trade liberalization refers to the reduction or elimination of trade barriers to encourage free trade between countries, leading to increased competition, efficiency, and consumer choice.