General Agreement on Tariffs and Trade

Definition

The General Agreement on Tariffs and Trade (GATT) is a multilateral treaty aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs and quotas. Established in 1947, GATT set the groundwork for trade negotiations and helped countries work together to ensure fair trade practices, facilitating economic growth across nations.

5 Must Know Facts For Your Next Test

1. GATT was instrumental in the post-World War II recovery, promoting economic cooperation and integration among nations.
2. Over its existence, GATT facilitated several rounds of negotiations known as 'rounds,' which aimed to further reduce tariffs and expand trade agreements.
3. The Uruguay Round (1986-1994) was the last round of GATT negotiations, leading to the creation of the WTO, which incorporated GATT's principles into a more comprehensive framework.
4. GATT's main principles include most-favored-nation treatment, which requires countries to treat all trading partners equally regarding tariffs and trade regulations.
5. GATT contributed significantly to the increase in global trade volumes in the latter half of the 20th century, reflecting a shift towards more interconnected economies.

Review Questions

• How did the establishment of GATT impact international trade relations in the years following World War II?
  • The establishment of GATT had a profound impact on international trade relations post-World War II by fostering cooperation among nations and reducing barriers to trade. By promoting fair competition through lower tariffs and consistent trade practices, GATT helped stabilize economies recovering from war. This agreement set the stage for increased global trade, encouraging countries to engage more with each other economically.
• Evaluate the role of GATT in shaping modern trade agreements and its evolution into the World Trade Organization.
  • GATT played a crucial role in shaping modern trade agreements by establishing a framework for negotiating tariff reductions and addressing non-tariff barriers. Its evolution into the WTO marked a significant shift towards a more formalized institution that not only continued GATT's objectives but also expanded its scope to include services and intellectual property rights. This transition allowed for more structured dispute resolution mechanisms and a broader commitment to free trade principles.
• Critically assess the effectiveness of GATT in achieving its goals of reducing trade barriers and promoting economic growth among member countries.
  • The effectiveness of GATT in achieving its goals can be seen through significant reductions in global tariffs and increased trade volumes among member countries. However, critics argue that while GATT laid essential groundwork for multilateral trade agreements, it struggled with enforcing compliance and addressing issues such as agriculture subsidies and developing country concerns. The transition to the WTO allowed for better mechanisms to tackle these issues but also highlighted limitations in achieving comprehensive global trade equity, suggesting that while GATT was effective in certain areas, it had inherent challenges that continued into its successor organization.

Related terms

World Trade Organization: The World Trade Organization (WTO) is an international organization that regulates and facilitates trade between nations, evolving from GATT in 1995 to provide a more structured framework for trade agreements and dispute resolution.

Tariff: A tariff is a tax imposed by a government on imported goods, intended to increase the cost of foreign products and protect domestic industries.

Trade Liberalization: Trade liberalization refers to the removal or reduction of trade barriers, allowing for increased free trade between countries, which can boost economic growth and efficiency.