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GATT (General Agreement on Tariffs and Trade)

The General Agreement on Tariffs and Trade (GATT) was a multilateral international agreement aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs, quotas, and subsidies. Established in 1947, GATT served as the foundation for the global trading system and was later replaced by the World Trade Organization (WTO) in 1995.

Background and History
  • Post-World War II Context: After World War II, there was a global consensus that trade barriers contributed to economic instability and global conflict. To avoid the economic mistakes of the interwar period (such as the Great Depression), countries sought to establish a more cooperative international trade environment.
  • Creation of GATT: GATT was signed in 1947 by 23 countries, aiming to reduce tariffs and other barriers to trade. It was intended as a temporary agreement while the international community worked on establishing the International Trade Organization (ITO), but the ITO never came into existence.
  • GATT Rounds: Over the years, the GATT underwent several negotiation rounds (e.g., the Kennedy Round, Tokyo Round, Uruguay Round) that progressively reduced trade barriers, expanded the scope of the agreement, and incorporated more members.
Key Objectives of GATT
  1. Trade Liberalization: The primary goal was to reduce tariffs and non-tariff barriers to trade between countries, making it easier for nations to exchange goods and services.
  2. Non-Discrimination: GATT promoted the principle of Most-Favored-Nation (MFN) treatment, which meant that countries could not discriminate between trading partners. If a country granted a trade concession (like a lower tariff) to one country, it had to extend the same concession to all GATT members.
  3. Reciprocity: The principle of reciprocity meant that trade concessions should be mutually agreed upon, ensuring that countries benefited equally from trade liberalization.
  4. Predictability: By establishing fixed tariffs and providing a platform for regular negotiations, GATT aimed to create a predictable environment for international trade.
  5. Promote Economic Growth: By removing trade barriers, GATT aimed to stimulate global economic growth and improve standards of living worldwide.
Principles of GATT
  • Most-Favored-Nation (MFN) Principle:
    • This principle ensured that any trade advantage granted to one member of GATT must be granted to all other members. This was key to preventing discriminatory tariffs and trade practices.
  • National Treatment:
    • This principle required that once goods entered a country, they should be treated the same as domestic products, with no discriminatory taxation or regulation.
  • Reciprocity:
    • Countries involved in trade negotiations should offer concessions of similar value, thus ensuring balanced benefits from trade liberalization.
  • Transparency:
    • Countries were required to make their trade policies transparent, ensuring that any new tariffs, quotas, or regulations were openly communicated to all GATT members.
  • Tariff Binding:
    • Countries agreed to “bind” their tariff rates, meaning they could not raise tariffs above the agreed level without compensating other countries.
  • Prohibition of Quotas:
    • GATT sought to eliminate non-tariff barriers such as quotas, which restrict the amount of goods that can be imported.
GATT and the Creation of WTO

The Uruguay Round negotiations were the final GATT round and resulted in the establishment of the World Trade Organization (WTO) in 1995. The WTO was created to:

  • Provide a permanent institutional framework for global trade negotiations.
  • Settle trade disputes and ensure the enforcement of trade agreements.
  • Expand the scope of the international trade system beyond goods to include services, intellectual property, and trade-related investment measures.

While GATT remained a key part of the WTO’s framework, the WTO introduced more robust dispute resolution mechanisms and expanded trade rules, especially in services and intellectual property.

Limitations and Criticisms of GATT
  1. Limited Scope: GATT primarily focused on trade in goods and did not address services, intellectual property, or agriculture in detail, which became increasingly important in global trade.
  2. Inefficiency in Dispute Resolution: GATT’s dispute resolution mechanism was often slow and lacked enforcement power, which led to inefficiencies in addressing trade disputes.
  3. Agricultural Subsidies: GATT was criticized for not adequately addressing agricultural subsidies, which continued to distort trade in agricultural products, especially in developed countries.
  4. Unequal Benefits: Some developing countries argued that the benefits of GATT were disproportionately enjoyed by developed countries, which had more bargaining power during negotiations.
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