The General Agreement on Tariffs and Trade, also known as GATT, was signed on October 30, 1947, in Geneva, Switzerland, to regulate international trade and reduce barriers between countries in order to increase global economic growth. The GATT agreement was seen as a critical development in the post-World War II era, where the rise of protectionist policies threatened the international trading system. The agreement aimed to promote free trade, protect intellectual property rights, and open up new markets for goods and services.
Since its establishment, GATT has undergone numerous rounds of negotiations, resulting in the reduction of tariffs and other trade barriers, particularly for developing countries. In 1994, the Uruguay Round of negotiations established the World Trade Organization (WTO) and incorporated GATT as its central agreement. The WTO currently has 164 member countries, and its primary objective is to promote free trade by eliminating trade barriers and harmonizing trade rules across its members.
This article aims to provide a comprehensive overview of the GATT agreement, its history, objectives, and impact, focusing on the current state of international trade and the role of the WTO in regulating trade.
History of GATT
The establishment of GATT in 1947 was the culmination of a series of negotiations that began in 1945 at the United Nations Conference on Trade and Employment in Havana, Cuba. At the conference, representatives from 54 countries gathered to establish a framework for international trade that would promote economic growth and prosperity in the post-war period.
The negotiations resulted in the Havana Charter, a proposed international agreement that included provisions for the liberalization of trade, investment, and intellectual property rights. However, the Havana Charter was never ratified by the US Congress, and instead, the US proposed the establishment of an interim agreement, the General Agreement on Tariffs and Trade (GATT), to promote free trade until the Havana Charter could be approved.
GATT was established as a multilateral agreement among the participating countries, with the primary objective of reducing tariffs and other trade barriers on a reciprocal and non-discriminatory basis. The agreement was initially signed by 23 countries, including the US, the UK, and France, and later expanded to include over 100 countries.
Throughout the years, GATT went through multiple rounds of negotiations, each aimed at reducing trade barriers and promoting free trade across the world. These rounds of negotiations led to significant reductions in tariffs, particularly in industrial goods, and the expansion of international trade.
In 1986, the Uruguay Round of negotiations began, culminating in the Marrakesh Agreement, which established the World Trade Organization (WTO) and incorporated GATT as its central agreement. The WTO is responsible for administering and enforcing the provisions of GATT, as well as other agreements related to international trade.
Objectives of GATT
The main objective of GATT is to promote free trade by removing trade barriers and creating a level playing field for all countries. The agreement seeks to achieve this by:
1. Reducing Tariffs: One of the main provisions of GATT is the reduction of tariffs on a reciprocal and non-discriminatory basis. Tariffs are taxes imposed on imported goods and services, which make them more expensive and less competitive in the domestic market. By reducing tariffs, GATT aims to encourage trade and promote economic growth.
2. Eliminating non-tariff barriers: In addition to tariffs, countries can use various non-tariff barriers such as quotas, licensing requirements, and technical standards to restrict imports. GATT seeks to eliminate these barriers to create a level playing field for all countries.
3. Encouraging Fair Competition: GATT aims to promote fair competition by preventing anti-competitive practices such as dumping, where a country exports products at a lower price than it sells them domestically, and subsidies, where a government provides financial assistance to its domestic industries.
4. Protecting Intellectual Property: GATT also seeks to protect intellectual property rights, such as patents, trademarks, and copyrights, to encourage innovation and creativity.
Impact of GATT
GATT has had a significant impact on international trade, particularly in the reduction of tariffs and other trade barriers. According to the WTO, the average tariff for industrial goods has decreased from over 40% in 1947 to less than 4% in 2019. The reduction in tariffs has led to an increase in international trade, particularly in manufactured goods.
In addition to the reduction in tariffs, GATT has also played a role in expanding the membership of the international trading system, particularly by including developing countries. In the early years of GATT, the participating countries were mostly developed countries, which had better access to markets and resources. However, with the expansion of GATT and the establishment of the WTO, developing countries have been able to participate in international trade at a more substantial level.
Furthermore, GATT has also created a more predictable and transparent system for international trade, reducing the uncertainty and risk associated with doing business across borders. The agreement has also created a mechanism for resolving disputes through the WTO’s dispute settlement process, which allows countries to settle disagreements regarding trade disputes in a fair and legal manner.
Challenges Facing the GATT/WTO
Despite the successes of GATT and the WTO, the organizations have faced several challenges in recent years, particularly in light of the increasing trend in protectionist policies.
One of the significant challenges facing the WTO is the lack of progress in the Doha Development Agenda, which was launched in 2001 with the objective of promoting the development interests of developing countries. The agenda includes several key issues, such as the reduction of agricultural subsidies, the elimination of non-tariff barriers, and the promotion of services trade. However, progress has been slow, with negotiations ongoing since 2001.
Additionally, the rise of protectionist policies, particularly in the US and other developed countries, has threatened the international trading system. The US, under the Trump administration, has imposed tariffs and other trade barriers on several of its trading partners, including China, Canada, and the EU, leading to retaliation and a potential trade war.
Furthermore, the COVID-19 pandemic has also had an impact on international trade, leading to disruptions in supply chains and reduced demand for goods and services. The pandemic has highlighted the importance of the international trading system in maintaining supply chains and ensuring the availability of essential goods and services.
Conclusion
The General Agreement on Tariffs and Trade has played a significant role in promoting free trade and reducing trade barriers across the world. It has led to the expansion of international trade and the opening up of new markets for goods and services. However, the WTO and GATT face several challenges, including the lack of progress in the Doha Development Agenda, protectionist policies, and the impact of the COVID-19 pandemic.
The future of international trade and the role of the WTO and GATT remain uncertain, given the changing global economic landscape. However, it is clear that a multilateral approach to international trade, based on the principles of free trade, fair competition, and respect for intellectual property, is essential in ensuring economic growth and prosperity across the world.
General Agreement on Tariffs and Trade was an endeavor that came out of the necessity to regulate the way in which trading is done throughout the world.
During certain junctures in time, countries would bulk up their tariffs and duties; in some instances, it was claimed as a way for the nation to increase revenue in order to keep them stable during trading, but on another level, it was also referred to as a way in which countries discouraged trading between with their nation and other nations.
The organization of the General Agreement on Tariffs and Trade was created in 1949, and it lasted up until 1993; remnants of the trade agreement that had been set in place with this organization were adopted under the World Trade Organization.
Under the World Trade Organization, the trade agreement that is in reference to the General Agreement on Tariffs and Trade only pertains to merchandise movement between nations. There are various other agreements that have been put in place to deal with more specialized intellectual properties, and various other goods and services that can be acquired from one nation to the next.
What the current trade agreement does is it organizes that nations and has the work together to situate when and how they are going to trade. It is also an agreement that helps them decrease the tariffs that are placed on goods, in order to allow for easier and less expensive trading.
Improvements to the General Agreement on Tariffs and Trade agreement are being done often, to improve trading conditions throughout the world.
