GATT

Definition

GATT, or the General Agreement on Tariffs and Trade, is a multilateral agreement that aimed to promote international trade by reducing tariffs and other barriers to trade among its member countries. It served as the foundation for the modern global trading system and played a crucial role in how governments enact trade policy globally, regionally, and nationally.

5 Must Know Facts For Your Next Test

1. GATT was established in 1947 and was the primary international agreement regulating trade until it was replaced by the WTO in 1995.
2. GATT aimed to promote free trade by reducing tariffs and other trade barriers through a series of negotiation rounds, the most significant being the Kennedy Round and the Uruguay Round.
3. GATT operated on the principles of non-discrimination, reciprocity, and gradual trade liberalization, which were key to its success in expanding global trade.
4. GATT played a crucial role in the development of regional trade agreements, such as the European Union and NAFTA, as countries sought to further reduce trade barriers within their regions.
5. The transition from GATT to the WTO in 1995 expanded the scope of international trade rules to include services, intellectual property, and investment, reflecting the growing complexity of the global economy.

Review Questions

• Explain the key objectives and principles of GATT and how they influenced the global trading system.
  • The primary objectives of GATT were to promote free trade and economic growth by reducing tariffs and other trade barriers among its member countries. It operated on the principles of non-discrimination (through the most-favored-nation clause), reciprocity (where countries would mutually lower trade barriers), and gradual trade liberalization. These principles were crucial in expanding global trade and laying the foundation for the modern international trading system, as they encouraged countries to work together to reduce trade barriers and create a more open and integrated global economy.
• Describe the role of GATT in the development of regional trade agreements, such as the European Union and NAFTA.
  • GATT played a significant role in the development of regional trade agreements, as countries sought to further reduce trade barriers within their respective regions. The principles of GATT, such as non-discrimination and reciprocity, provided a framework for countries to negotiate and establish these regional agreements, which often went beyond the trade liberalization achieved through GATT. The formation of the European Union and NAFTA, for example, were facilitated by the GATT system, as they allowed countries to deepen economic integration and cooperation within their regions while still maintaining their commitments to the broader GATT/WTO framework.
• Analyze how the transition from GATT to the WTO in 1995 reflected the evolving nature of the global economy and the need for a more comprehensive approach to international trade regulation.
  • The transition from GATT to the WTO in 1995 marked a significant shift in the approach to international trade regulation, reflecting the growing complexity and interconnectedness of the global economy. While GATT primarily focused on reducing tariffs and other trade barriers for goods, the WTO expanded the scope of international trade rules to include services, intellectual property, and investment. This change was necessary to address the increasing importance of these sectors in the global economy and to ensure that the rules governing international trade kept pace with the evolving nature of economic activity. The establishment of the WTO also strengthened the institutional framework for trade negotiations and dispute settlement, providing a more robust and effective system for managing the complexities of the modern global trading system.

Related terms

WTO: The World Trade Organization, which was established in 1995 to replace GATT and oversee the rules of international trade.

Tariff: A tax or duty imposed on imported goods, which can be used as a trade policy tool by governments.

Free Trade Agreement: A pact between countries to reduce or eliminate tariffs and other trade barriers between them, often on a regional basis.