General Agreement on Tariffs and Trade

Definition

The General Agreement on Tariffs and Trade (GATT) was a multilateral treaty established in 1947 aimed at promoting international trade by reducing trade barriers such as tariffs and quotas. It created a framework for negotiating trade agreements and resolving disputes, which laid the groundwork for the establishment of the World Trade Organization (WTO) in 1995. GATT is significant in understanding how international economic relations are shaped, particularly through the lens of cooperation among states under hegemonic stability theory.

5 Must Know Facts For Your Next Test

1. GATT was created in the aftermath of World War II to promote economic recovery and prevent protectionism that contributed to the war.
2. The agreement provided a platform for multiple rounds of negotiations, known as 'trade rounds,' where member countries would come together to negotiate tariff reductions.
3. GATT operated on key principles such as Most-Favored-Nation (MFN) treatment, ensuring that any trade advantage granted to one member must be extended to all other members.
4. It focused primarily on goods and tariffs, while issues related to services and intellectual property were later addressed through the WTO.
5. GATT's effectiveness in fostering international trade and economic growth can be linked to hegemonic stability theory, suggesting that a dominant state can maintain order and stability in the global trading system.

Review Questions

• How did the creation of GATT reflect the principles of hegemonic stability theory?
  • The creation of GATT aligns with hegemonic stability theory as it was largely driven by the United States, which emerged as the dominant economic power after World War II. This framework helped establish a stable trading environment by promoting cooperation among states and reducing trade barriers. The U.S. played a crucial role in leading negotiations and setting the rules that facilitated trade liberalization, demonstrating how a hegemonic power can influence global economic governance.
• In what ways did GATT contribute to shaping modern international trade policies?
  • GATT significantly influenced modern international trade policies by establishing key principles such as nondiscrimination through Most-Favored-Nation treatment and national treatment for foreign goods. These principles laid the groundwork for multilateral negotiations that aimed to reduce tariffs and promote free trade. Additionally, GATT's structure and processes set precedents for future organizations like the WTO, emphasizing the importance of rules-based trade systems in maintaining global economic relations.
• Evaluate the role of GATT in promoting international cooperation during its existence, considering its impact on trade relations among countries.
  • GATT played a crucial role in promoting international cooperation by providing a platform for member countries to negotiate tariff reductions and resolve disputes peacefully. Its rounds of negotiations fostered dialogue and collaboration among nations, helping to build trust and interdependence in trade relations. Despite its limitations, such as focusing primarily on goods while excluding services, GATT facilitated significant increases in global trade volumes and contributed to post-war economic stability. The agreement's legacy continues to influence contemporary trade dynamics through its principles and frameworks adopted by the WTO.

Related terms

World Trade Organization:

An international organization that regulates trade between nations, succeeding GATT and providing a more formal structure for trade negotiations and dispute resolution.

Tariff: A tax imposed by a government on imported goods, which can affect trade dynamics and relationships between countries.

Trade Liberalization: The process of reducing or eliminating trade barriers to encourage free trade among nations, often a goal of agreements like GATT.