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 tariffs and other trade barriers. Established in 1947, GATT provided a framework for trade negotiations and set out rules for international commerce, significantly influencing the growth of global trade and the expansion of multinational corporations.

5 Must Know Facts For Your Next Test

1. GATT was created to provide a stable framework for international trade relations after World War II, aiming to prevent the protectionist policies that contributed to the Great Depression.
2. The GATT negotiations led to several rounds of talks, with the Uruguay Round being the most significant, as it established the WTO and expanded the scope of trade regulations beyond just tariffs.
3. Member countries agreed to adhere to the principles of most-favored-nation treatment and national treatment, ensuring that trade practices were fair and non-discriminatory.
4. GATT's influence helped pave the way for the rise of multinational corporations by creating a more predictable trading environment that encouraged investment across borders.
5. Despite its successes, GATT faced criticism for not addressing issues related to labor rights, environmental standards, and agricultural subsidies adequately.

Review Questions

• How did GATT facilitate international trade among its member countries?
  • GATT facilitated international trade by establishing a set of rules that governed trade relationships among member countries. It aimed to reduce tariffs and other trade barriers, promoting a more open trading environment. By encouraging negotiations through multiple rounds of talks, GATT allowed countries to come together to address trade issues collectively, which ultimately fostered cooperation and increased global trade flows.
• Evaluate the impact of GATT on the emergence of multinational corporations in the global economy.
  • GATT had a significant impact on the emergence of multinational corporations by creating a more stable and predictable international trading system. As tariffs were reduced and trade barriers were lowered, businesses found it easier to operate across borders. This encouraged companies to expand their operations globally, leading to the growth of multinational corporations that could take advantage of diverse markets and resources, thereby transforming the global economy.
• Assess the effectiveness of GATT in addressing contemporary challenges in international trade, such as environmental standards and labor rights.
  • While GATT was effective in reducing tariffs and fostering global trade during its existence, it struggled with contemporary challenges like environmental standards and labor rights. Critics argue that GATT focused primarily on economic issues while neglecting social and environmental considerations. This gap highlighted the need for a more comprehensive approach to trade regulation, which has been somewhat addressed by subsequent agreements under the WTO framework that incorporate broader issues into trade discussions.

Related terms

World Trade Organization (WTO):

The WTO is an international organization that succeeded GATT in 1995, responsible for overseeing global trade agreements and ensuring compliance with trade rules among its member countries.

Tariff: A tariff is a tax imposed by a government on imported goods, making foreign products more expensive compared to domestic ones, often used to protect local industries.

Trade Liberalization: Trade liberalization refers to the reduction or elimination of trade barriers, such as tariffs and quotas, to encourage free trade among countries.