General Agreement on Tariffs and Trade

Definition

The General Agreement on Tariffs and Trade (GATT) is a multilateral treaty established in 1947 aimed at promoting international trade by reducing tariffs and other trade barriers. GATT provided a framework for negotiating trade agreements among member countries, leading to a more open and fair trading system, and was eventually replaced by the World Trade Organization (WTO) in 1995. Its principles helped shape global economic policies and fostered greater economic integration among nations.

5 Must Know Facts For Your Next Test

1. GATT was created to facilitate international trade and to provide a platform for negotiating trade agreements, allowing countries to discuss their trade policies openly.
2. The agreement focused primarily on the reduction of tariffs, but also addressed non-tariff barriers like import quotas and subsidies.
3. Over the years, GATT underwent several rounds of negotiations, with the most significant being the Uruguay Round, which led to the establishment of the WTO.
4. GATT's most-favored-nation principle required that any favorable trading terms offered to one member must be extended to all members, promoting equality in trade relations.
5. While GATT was effective in lowering tariffs globally, it faced criticism for not addressing issues like agricultural subsidies and services sectors adequately.

Review Questions

• How did the principles established by GATT influence modern trade agreements among nations?
  • The principles established by GATT laid the foundation for modern trade agreements by promoting the idea of reducing tariffs and fostering open trade among nations. Its most-favored-nation clause encouraged equal treatment of all member states, which became a standard in subsequent agreements. This emphasis on fairness and transparency has influenced how countries negotiate trade deals today, ensuring that they consider the interests of all parties involved.
• Evaluate the impact of GATT on economic integration in the post-World War II era.
  • GATT significantly impacted economic integration in the post-World War II era by encouraging countries to lower trade barriers and adopt more liberal trade policies. This integration allowed for increased cooperation among nations, stimulating global economic growth and development. By creating a rules-based trading system, GATT helped stabilize international relations and contributed to the expansion of global commerce, setting the stage for further economic collaboration through organizations like the WTO.
• Discuss the challenges faced by GATT in addressing non-tariff barriers and how these challenges were resolved in later agreements.
  • GATT faced significant challenges in addressing non-tariff barriers such as import quotas and subsidies, which many countries used to protect their domestic industries. The limitations of GATT in effectively managing these issues became apparent as global trade evolved. To resolve these challenges, later agreements under the WTO framework introduced more comprehensive rules that specifically targeted non-tariff measures, allowing for more effective oversight and enforcement. This evolution reflects an ongoing commitment to adapting international trade regulations to meet emerging global economic realities.

Related terms

World Trade Organization:

An international organization that replaced GATT in 1995, tasked with regulating international trade and providing a framework for trade negotiations.

Tariff: A tax imposed by a government on imported goods, often used to protect domestic industries or to generate revenue.

Free Trade Agreement: A pact between two or more countries to reduce or eliminate trade barriers, promoting increased trade and investment among the signatory nations.