General Agreement on Tariffs and Trade (GATT)

Definition

The General Agreement on Tariffs and Trade (GATT) was a multilateral treaty established in 1947 aimed at promoting international trade by reducing or eliminating trade barriers, particularly tariffs. GATT provided a framework for negotiating trade agreements and served as a foundation for the eventual establishment of the World Trade Organization (WTO), which built upon GATT's principles to create a more structured global trade environment.

5 Must Know Facts For Your Next Test

1. GATT was created to promote trade by providing a forum for member countries to negotiate reductions in tariffs and other trade barriers.
2. The agreement facilitated multiple rounds of negotiations, known as 'trade rounds,' where countries would discuss and agree on tariff reductions and other trade-related issues.
3. GATT's key principles included most-favored-nation treatment, which requires that any favorable trading terms offered by one member to another must be extended to all other members.
4. Over time, GATT helped to reduce average tariffs significantly, from around 40% in the late 1940s to approximately 4% by the end of the Uruguay Round in the 1990s.
5. The transition from GATT to the WTO in 1995 marked a significant evolution in global trade governance, expanding the scope of agreements to include services and intellectual property.

Review Questions

• How did GATT influence the establishment of the World Trade Organization (WTO), and what changes did the WTO introduce?
  • GATT laid the groundwork for the creation of the WTO by establishing principles for trade negotiations and dispute resolution among member countries. While GATT primarily focused on reducing tariffs on goods, the WTO expanded this framework to include services and intellectual property rights. The WTO also introduced a more robust system for resolving trade disputes among nations, thus enhancing the enforcement of trade agreements.
• Discuss the significance of most-favored-nation treatment in GATT and its impact on international trade relations.
  • Most-favored-nation treatment is a core principle of GATT that ensures any favorable trading terms negotiated between two member countries must be granted to all other member countries as well. This principle promotes equality among trading partners and helps prevent discrimination in international trade relations. As a result, it fosters an environment where countries are encouraged to negotiate lower tariffs and improve market access collectively.
• Evaluate the long-term effects of GATT's tariff reduction efforts on global trade patterns and economic growth.
  • GATT's successful tariff reduction efforts significantly altered global trade patterns by facilitating a dramatic increase in international trade volumes over the decades. By lowering tariffs from an average of 40% in the late 1940s to around 4% by the 1990s, GATT contributed to economic growth across many nations as markets became more interconnected. This liberalization led to increased competition, innovation, and consumer choice, demonstrating how cooperative trade policies can drive economic prosperity on a global scale.

Related terms

World Trade Organization (WTO): An international organization that regulates and facilitates international trade among nations, established in 1995 as a successor to GATT, providing a comprehensive framework for trade negotiations and dispute resolution.

Tariffs: Taxes imposed on imported goods, aimed at making foreign products more expensive compared to domestic products, often used as a tool to protect local industries.

Trade Liberalization: The process of reducing government restrictions on international trade, such as tariffs and quotas, to promote a freer flow of goods and services across borders.