General Agreement on Tariffs and Trade (GATT)

Definition

The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement established in 1947 aimed at promoting international trade by reducing tariffs and other trade barriers. It laid the groundwork for subsequent trade negotiations and set the stage for the establishment of the World Trade Organization (WTO) in 1995, emphasizing the importance of trade liberalization in a post-war economic landscape.

5 Must Know Facts For Your Next Test

1. GATT was created to address the trade issues that arose after World War II and aimed to rebuild war-torn economies by promoting trade.
2. The agreement operated through a series of negotiation rounds, with the most notable being the Uruguay Round, which led to the establishment of the WTO.
3. GATT emphasized the principles of non-discrimination, reciprocity, and transparency in international trade relations.
4. The initial focus of GATT was primarily on reducing tariffs, but it later expanded to include issues such as subsidies, anti-dumping measures, and trade in services.
5. While GATT was successful in fostering trade growth, it faced criticism for its limited scope and lack of enforcement mechanisms, leading to its eventual evolution into the WTO.

Review Questions

• How did the establishment of GATT influence international trade practices after World War II?
  • The establishment of GATT significantly influenced international trade practices by promoting a framework that encouraged member nations to reduce tariffs and other trade barriers. This helped create a more predictable trading environment, facilitating increased global commerce as countries sought to rebuild their economies following World War II. The principles outlined in GATT laid the foundation for future negotiations and established norms that emphasized cooperation among nations in their trading relationships.
• Discuss the key principles of GATT and how they shaped subsequent international trade agreements.
  • GATT was built on key principles such as non-discrimination, reciprocity, and transparency. Non-discrimination ensured that countries could not favor one trading partner over another without extending those benefits to all GATT members. Reciprocity encouraged countries to provide similar concessions to each other, promoting fairness in trade negotiations. These principles were integral in shaping subsequent international agreements, leading to the creation of the WTO, which expanded upon GATT's framework to address more complex global trade issues.
• Evaluate the impact of GATT on the development of the World Trade Organization (WTO) and contemporary global trade policies.
  • GATT's impact on the development of the WTO was profound, as it provided the foundational structure upon which the WTO was built. The transition from GATT to WTO marked a shift towards a more comprehensive approach to global trade that included not just goods but also services and intellectual property rights. The WTO has enhanced enforcement mechanisms and broader participation among member nations, leading to more robust global trade policies that aim to address modern challenges such as digital trade and environmental sustainability. This evolution reflects an ongoing commitment to fostering a more interconnected global economy.

Related terms

World Trade Organization (WTO): An international organization that emerged from GATT, responsible for regulating and facilitating international trade agreements and ensuring compliance among member nations.

Trade Liberalization: The process of reducing or eliminating trade barriers, such as tariffs and quotas, to encourage free trade among countries.

Most Favored Nation (MFN): A principle in international trade agreements ensuring that any favorable trading terms granted by one country to another must be extended to all other countries that are part of the agreement.