General Agreement on Tariffs and Trade (GATT)

Definition

The General Agreement on Tariffs and Trade (GATT) was a multilateral treaty aimed at promoting international trade by reducing trade barriers such as tariffs and quotas. Established in 1947, GATT served as a framework for negotiating trade agreements and provided a platform for dispute resolution among member countries, significantly influencing global trade policies and practices.

5 Must Know Facts For Your Next Test

1. GATT was negotiated in 1947 and officially came into force in 1948, establishing rules for international trade among its initial 23 member countries.
2. One of the key principles of GATT is 'most-favored-nation' (MFN), which mandates that any trade advantage given by one member to another must be extended to all other members.
3. GATT's primary goal was to facilitate trade through negotiations, resulting in several rounds of talks, including the notable Uruguay Round which led to the creation of the WTO.
4. Throughout its existence, GATT played a crucial role in reducing average tariffs from about 40% in 1947 to less than 4% by the time it transitioned to the WTO.
5. GATT's provisions emphasized reciprocity and transparency in trade negotiations, encouraging nations to commit to fair trading practices and fostering a cooperative international trade environment.

Review Questions

• What were the primary goals of GATT, and how did it impact international trade relations?
  • GATT aimed to reduce tariffs and other trade barriers to promote free trade among member countries. Its impact on international trade relations was significant, as it facilitated negotiations that led to a substantial decrease in average tariffs over the decades. The agreement also established important principles like most-favored-nation treatment, which encouraged cooperation and fairness among nations, ultimately fostering a more interconnected global economy.
• Analyze how GATT laid the foundation for the establishment of the World Trade Organization (WTO).
  • GATT served as a vital framework for multilateral trade negotiations from its inception in 1947 until its transition to the WTO in 1995. The experience gained through various rounds of negotiations under GATT highlighted the need for a more structured organization that could address broader issues beyond tariffs, such as services and intellectual property. Consequently, the WTO was created to replace GATT, enhancing global trade governance with a more comprehensive set of rules and a formal dispute resolution mechanism.
• Evaluate the role of GATT in shaping modern trade policies and its relevance in today's global economy.
  • GATT played a pivotal role in shaping modern trade policies by establishing foundational principles that continue to influence international trade today. Its focus on reducing barriers and promoting transparency has led to a framework that many countries still follow. In today's global economy, the principles of GATT are evident in ongoing trade negotiations and agreements, showcasing its lasting impact on how nations approach international commerce and cooperation amidst growing globalization.

Related terms

World Trade Organization (WTO): The WTO is an international organization that emerged from GATT in 1995, serving to regulate and facilitate international trade agreements among member countries.

Tariffs: Tariffs are taxes imposed by governments on imported goods, intended to protect domestic industries by making foreign products more expensive.

Trade Liberalization: Trade liberalization refers to the reduction or elimination of trade barriers to allow for freer flow of goods and services across international borders.