GATT

Definition

The General Agreement on Tariffs and Trade (GATT) is a multilateral treaty aimed at promoting international trade by reducing tariffs and other trade barriers. Established in 1947, GATT provides a framework for negotiating trade agreements and resolving disputes among member countries, facilitating smoother trade relations and economic cooperation.

5 Must Know Facts For Your Next Test

1. GATT was initially signed by 23 countries and served as a primary framework for international trade negotiations until the establishment of the WTO.
2. One of GATT's main principles is 'most-favored-nation' treatment, which requires countries to extend the same trading advantages to all GATT members.
3. The rounds of negotiations under GATT led to significant tariff reductions globally, especially during the Uruguay Round, which also addressed issues like services and intellectual property.
4. GATT did not have a permanent institutional structure; its function relied on periodic negotiating rounds and was supported by member countries' commitment to uphold the agreements.
5. The transition from GATT to WTO represented a shift towards a more comprehensive approach to global trade, including stricter enforcement mechanisms and broader coverage of trade-related issues.

Review Questions

• How did GATT influence international trade practices among member countries?
  • GATT significantly influenced international trade by establishing rules that member countries were expected to follow, which included reducing tariffs and eliminating quotas. Its 'most-favored-nation' principle ensured that any trade advantage granted by one member must be extended to all others, promoting fairness in trade relations. This helped create a more predictable trading environment that encouraged countries to engage in commerce with one another.
• Discuss the role of GATT in facilitating trade negotiations and how it laid the groundwork for the WTO.
  • GATT served as a foundational platform for multilateral trade negotiations, allowing countries to come together to discuss and negotiate tariff reductions and trade rules. The series of negotiation rounds under GATT produced significant agreements that shaped global trade policies. Its evolution into the WTO in 1995 represented an expansion of its original goals, incorporating broader issues beyond tariffs, including services and intellectual property rights, thus creating a more structured approach to global trade governance.
• Evaluate the effectiveness of GATT's principles in addressing contemporary trade challenges compared to the framework established by the WTO.
  • While GATT was effective in promoting tariff reductions and establishing basic rules for international trade, it faced limitations in dealing with modern trade challenges such as digital commerce, environmental issues, and non-tariff barriers. The WTO has built upon GATT's foundation by providing a more comprehensive framework that includes mechanisms for dispute resolution and coverage of additional sectors like services and investments. This shift allows for better handling of contemporary issues in global trade dynamics, reflecting the complexities of today’s interconnected economies.

Related terms

WTO:

The World Trade Organization (WTO) is the successor to GATT, established in 1995, which provides a more robust institutional framework for global trade negotiations and enforcement.

Tariff: A tariff is a tax imposed on imported goods, which can be used to protect domestic industries by making foreign products more expensive.

Trade Liberalization: Trade liberalization refers to the process of reducing barriers to trade, such as tariffs and quotas, to encourage more open international trade and competition.