GATT

The General Agreement on Tariffs and Trade (GATT) is a legal treaty signed by many countries that aims to promote international trade by lowering or eliminating trade barriers such as tariffs and quotas. It said in its preamble that its objective was to “eliminate preferences and significantly reduce tariffs and other trade barriers on a reciprocal and mutually advantageous basis.”

The GATT was first discussed during the United Nations Conference on Trade and Employment, and it was the result of negotiating governments’ failure to establish the International Trade Organization (ITO). On October 30, 1947, 23 nations signed it in Geneva, and it went into effect on a provisional basis on January 1, 1948. It was in effect until January 1, 1995, when the World Trade Organization (WTO) was established following an agreement by 123 nations on April 15, 1994, in Marrakesh as part of the Uruguay Round Agreements. The WTO (World Trade Organization) is the successor to GATT, and the text of GATT (GATT) (originally GATT 1947) continues to apply under WTO auspices, with GATT 1994 adjustments. Non-GATT countries that joined in 1995 still need to meet the minimum requirements set out in specific documents; as of September 2019, the list includes 36 countries.

Tariffs have been reduced thanks to the GATT and its successor, the WTO. Tariff levels for the major GATT participants averaged around 22% in 1947, but fell to 5% after the Uruguay Round in 1999. Experts credit GATT and the WTO for some of these tariff changes.

Effects on trade liberalization

In 1947, the major GATT participants’ average tariff levels were around 22%. Tariffs were reduced in the GATT core of the United States, United Kingdom, Canada, and Australia in comparison to other contracting parties and non-GATT participants as a result of the first negotiating rounds. By the Kennedy round (1962-67), GATT participants’ average tariff levels were around 15%. Tariffs were less than 5% after the Uruguay Round.

The early GATT’s contribution to trade liberalization went beyond facilitating applied tariff reductions “include extending the duration of negotiated tariff reductions (made more permanent in 1955), establishing the generality of non-discrimination through MFN treatment and national treatment status, ensuring increased transparency of trade policy measures, and providing a forum for future negotiations and the peaceful resolution of bilateral disputes. All of these factors aided in the rationalization of trade policy, as well as the reduction of trade barriers and policy uncertainty.”

“The prosperity of the world economy over the last half-century owes a great deal to the growth of world trade, which is partly the result of foresighted officials who created the GATT,” writes Douglas Irwin, a Dartmouth economic historian. They established a set of procedures that provided stability to the trade-policy environment, allowing for the rapid growth of global trade. With the long run in mind, the original GATT conferees helped to establish a solid foundation for the global economy, thereby improving the livelihoods of hundreds of millions of people worldwide.”

Objectives

The objectives of GATT are as follows:

• To promote full employment as well as a large and steadily increasing volume of real income and effective demand.
• To enhance global production and exchange of goods.
• To utilize all available worldwide resources.
• To ensure that people’s living standards in member countries continue to improve.
• To resolve disputes through consultation within the GATT framework.

GATT Rounds

To achieve these goals, the GATT agreement’s preamble requires members to enter into reciprocal and mutually beneficial arrangements aimed at significantly reducing tariffs and other trade barriers and eliminating discrimination in international commerce.

There were eight rounds of negotiations between the participating countries between 1947 and 1995. The first six rounds dealt with tariff rate reductions, while the seventh round dealt with non-tariff barriers. The eighth round was unlike the previous rounds in that it included a number of new subjects for consideration. This eighth round, dubbed the “Uruguay Round,” became the most contentious. The discussions at this round only resulted in the formation of the World Trade Organization (WTO).

Defects of GATT

The following are the main flaws in the GATT:

No Enforcement Authority: The GATT attempted to establish an international code of conduct for trade. However, there was no enforcement authority to oversee contracting parties’ compliance with GATT regulations and to settle trade disputes.

Problems in the Formulation of General Rules: GATT members are diverse in nature, with varying economic and political motivations, as well as being at various stages of development. These factors made it difficult to develop and implement uniform general rules of conduct for trade, tariffs, and payment.

Less Benefits for the LDC’s- The majority of GATT members fell into the category of LDCs. These countries had received less benefit from the GATT. There are currently more restrictive trade agreements in place around the world. The commodity-to-commodity approach has proven to be detrimental to LDCs’ interests. This approach complicates their future production and export planning. The GATT also did not provide any compensation to less developed countries for economic damage caused by the actions of developed countries.

Quantitative Trade Restrictions: The GATT had certainly ensured that tariff structure was sealed, but quantitative trade restrictions remained outside the scope of the GATT for a long time. As a result, developed countries used quantitative trade restrictions such as import quotas, export subsidies, voluntary export restraints, health and safety regulations, and so on with impunity. Even though the GATT agreement of 1993 prohibited the use of quantitative trade restrictions and the substitution of tariffs in their place, it did not prevent contracting parties from using them.