General Agreement on Tariffs and Trade

Definition

The General Agreement on Tariffs and Trade (GATT) was a multilateral treaty aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs and quotas. Established in 1947, it served as a framework for negotiating trade agreements and establishing rules governing international commerce, significantly shaping global trade relations over the decades.

5 Must Know Facts For Your Next Test

1. GATT was created in 1947 to promote free trade and economic cooperation among countries after World War II.
2. The agreement focused primarily on reducing tariffs, but it also addressed non-tariff barriers to trade through subsequent rounds of negotiations.
3. GATT operated under a series of negotiation rounds, with the most significant being the Uruguay Round, which led to the establishment of the WTO.
4. One of the core principles of GATT is reciprocity, meaning that any concessions made by one member must be met with equivalent concessions from others.
5. GATT's legal framework provided the foundation for many subsequent regional and bilateral trade agreements as countries sought to expand their trade relationships.

Review Questions

• How did the establishment of GATT in 1947 influence global trade relations?
  • The establishment of GATT in 1947 significantly influenced global trade relations by providing a structured framework for negotiating trade agreements and reducing barriers to trade. It promoted the idea of multilateral negotiations, which encouraged countries to engage in cooperative economic policies. This laid the groundwork for increased international commerce and economic interdependence, which became essential for post-war recovery.
• Analyze how the principles of GATT, such as reciprocity and Most Favored Nation, shaped international trade practices among member nations.
  • The principles of reciprocity and Most Favored Nation established a level playing field among GATT member nations by ensuring that any tariff reductions or trade advantages granted by one country would be reciprocated by others. This created an environment where countries were incentivized to negotiate more freely, fostering greater collaboration in international trade. As a result, these principles helped reduce overall trade barriers and promoted an increase in global commerce.
• Evaluate the transition from GATT to the World Trade Organization and its implications for global trade governance.
  • The transition from GATT to the World Trade Organization (WTO) marked a significant evolution in global trade governance, expanding the scope of international trade rules beyond tariffs to include services, intellectual property, and investment measures. This shift allowed for a more comprehensive approach to addressing modern trade issues. The WTO also established a formal dispute resolution mechanism, enhancing enforcement capabilities compared to GATT's informal processes. Consequently, this transition enabled a more structured and enforceable trading system that better addresses the complexities of today's global economy.

Related terms

World Trade Organization:

The World Trade Organization (WTO) is an international organization that replaced GATT in 1995, overseeing global trade agreements and resolving trade disputes among member countries.

Most Favored Nation: The Most Favored Nation (MFN) principle is a key GATT rule that requires member countries to extend the same trade advantages to all other GATT members, ensuring equal trading conditions.

Trade Liberalization: Trade liberalization refers to the process of reducing government restrictions on international trade, aiming to promote free trade and increase economic efficiency.