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General Agreement on Tariffs and Trade (Gatt)

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)


Prior to World War I (191418), world trade flourished and international monetary relations were healthy. After 1860 a network of bilateral treaties based on most-favored-nation principals (MFN) governed trade relationships. Nations had flexibility to set and revise tariffs as long as they (tariffs) were consistent with MFN ideals. (A tariff is a special tax applied to imports to protect a domestic market from a competing foreign products or sometimes simply to raise revenue for the government.) Tariffs increase the costs of imports by foreign competitors or by a company domiciled in the U.S. but which exports from another country, thus making it more difficult for the company to be competitive. Besides tariffs, few other trade barriers existed during this early period.

World War I severely undermined existing trade networks as countries charged higher tariffs and introduced import quotas and other controls. These trade barriers persisted after the war, because there was no central authority to reestablish prior order to world trade. Trade reform was an international focus until the Great Depression (19291939) struck in 1929. The 1930s witnessed greater protectionism measures, discriminatory trade practices, and other trade actions that impeded international commerce. As a result, during the 1930s world trade stagnated, not keeping pace with increased economic production. Another complicating factor was that the Peace Treaty of Versailles that ended the First World War allowed the Allies (especially France and Great Britain) to receive huge payments of war reparations from Germany. The final amount of reparations, established in 1921, was $56 billion. These reparations cut into the financial resources of central Europe. In addition, the erection of protective tariffs, hobbled Europe's economic recovery, perpetuated poverty, and probably contributed to the rise of fascist nationalistic movements in Italy and Germany during the 1920s and 1930s.

To insure that the World War I precedent of war reparations and protectionism was not renewed at the end of World War II (19391945), the United States and Great Britain immediately took steps to arrive at international cooperation among the non-socialist economies of post-war Europe. Rather than further drain Europe's devastated economies, the United States injected much needed economic assistance in the form of the Marshall Plan, which was an attempt to help reconstruct Europe in order to neutralize the considerable political appeal of socialist and communist parties after the war. As part of the economic program for the Western Allies after World War II, trade barriers were reduced and discriminatory tariff preferences were eliminated wherever possible.

It was in this political and economic climate that the General Agreement on Tariffs and Trade (GATT) resulted from a 1947 meeting of 22 nations (representing 80 percent of world trade) in Geneva, Switzerland. GATT, a specialized agency of the United Nations, comprised a system of international obligations to limit tariffs on particular items consistent with a set schedule. GATT's primary goal was to raise living standards and seek full employment by establishing mutually beneficial trade arrangements. GATT sought to reduce or eliminate tariffs and prohibit other trade controls such as import quotas.

Thus, unlike postWorld War I experiences, the world economy following World War II witnessed expanding international commerce with lowered trade barriers. The extent to which GATT contributed to the economic success was a subject of debate. Many believed the organization's successes at periodically reducing trade barriers had greater influence on the postWorld War II economic boom than other institutions including the World Bank and the International Monetary Fund. With the United States taking the lead, tariffs of industrialized countries fell from approximately 40 percent immediately following World War II to about five percent in the mid-1990s.

The history of GATT was marked by a series of eight negotiating rounds aimed at steadily reducing trade barriers. Some rounds took years to reach signed agreement. The first five rounds, occurring in 19471962, expanded membership but they did little to further tariff reduction or eliminate import quotas. Trade reform and, correspondingly, post-war economic recovery were slow through the 1950s. The sixth round, known as the Kennedy Round, lasted from 19621967, producing the most substantial tariff reductions of the post-war period. The following Tokyo Round of 19731979 added more reductions, and it also developed a code of conduct and made progress on other barrier restrictions.

The eighth series of negotiations, the Uruguay Round, led to more than 20 separate agreements in 1994. The 124 participating nations made substantial progress in several areas. Notably, the 47-year-old GATT organization was replaced by the newly created World Trade Organization (WTO). Unlike GATT, WTO was provided international dispute resolution authority. The participants established more stringent rules on investment and trade in service industries. (Service includes engineering, tourism, accounting, and construction industries.)

The WTO recognized intellectual property rights: trademarks received seven years of protection, patents 20 years, and copyrights 50 years. Inclusion of such property rights was a major benefit to U.S. software industry. It protected books, computer software, film, and pharmaceutical products from piracy. The agreements further reduced tariffs overall by a third. While industrialized nations agreed to completely eliminate some tariffs by 2005, developing countries agreed to hold tariff rates to set levels. This reduction was the largest at that time. Tariffs eliminated by developed countries included a range of products such as construction, agricultural, medical equipment, steel, alcoholic beverages, paper products, and pharmaceuticals. Provisions were made to allow nations to withdraw from agreements based on environmental protection concerns.

Occasionally the hardship of structural relocation of industries in order to arrive at a global division of labor produced political backlash that impeded the implementation of GATT goals. For instance, the U.S. textile industry, which had helped to define the regional economies of the Northeast and Southeast and the West, resisted being phased out to developing nations. The result was the continued protection of U.S. textiles, with tariffs in place as social factors outweighed economics. However, prior protectionist agreements, such as the Multi-Fiber Agreement, established that U.S. import quotas would eventually be phased out. Officials continued to expect that developing countries would eventually take over textile and apparel production.

GATT/WTO supporters estimated U.S. income would be boosted by $122 billion by 2005 and exports would double to one trillion dollars by 2010. U.S. manufacturers thought to benefit most from the Uruguay round were producers of food and chemical products, industrial machinery, computer and telecommunications equipment, and scientific instruments.

Many U.S. jobs in industries previously protected by tariffs migrated to the cheap labor markets of developing countries and Eastern Europe. The U.S. workers who used to fill those jobs could only hope that the promise of new business opportunities and new jobs through expanded international trade would be fulfilled.

See also: Foreign Investment in the United States, Foreign Investment of U.S. Companies Abroad, North American Free Trade Agreement

FURTHER READING

Bhagwati, Jagdish, and Mathias Hirsch, eds. The Uruguay Round and Beyond: Essays in Honor of Arthur Dunkel. Ann Arbor, MI: University of Michigan Press, 1998.

Hoekman, Bernard M., and Michel M. Kostecki. The Political Economy of the World Trading System: From GATT to WTO. New York: Oxford University Press, 1995.

Jackson, John Howard. The World Trading System: Law and Policy of International Economic Relations, 2nd ed. Cambridge, MA: MIT Press, 1997.

Jackson, John H., and Alan O. Sykes. Implementing the Uruguay Round. New York: Oxford University Press, 1997.

Martin, Will, and L. Alan Winters, eds. The Uruguay Round and the Developing Countries. New York: Cambridge University Press, 1996.

Preeg, Ernest H. Traders in a Brave New World: The Uruguay Round and the Future of the International Trading System. Chicago: University of Chicago Press, 1995.

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"General Agreement on Tariffs and Trade (Gatt)." Gale Encyclopedia of U.S. Economic History. . Encyclopedia.com. 26 Sep. 2017 <http://www.encyclopedia.com>.

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"General Agreement on Tariffs and Trade (Gatt)." Gale Encyclopedia of U.S. Economic History. . Retrieved September 26, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/general-agreement-tariffs-and-trade-gatt

General Agreement on Tariffs and Trade

GENERAL AGREEMENT ON TARIFFS AND TRADE

GENERAL AGREEMENT ON TARIFFS AND TRADE —the world's major multinational trade agreement—and the international secretariat that oversees its operations, are both referred to as GATT. More than 100 nations are signatories, and many others pattern their trade policies on its provisions. Although Cold War tensions excluded some nations, including the Soviet Union and the Chinese governments in Taipei and Beijing, GATT served as the major international trade agreement, affecting the vast majority of world trade. In the 1990s, the end of the Cold War led to the incorporation of the former Eastern Bloc nations into GATT negotiations. The concept for such an approach to international trade policy originated in bilateral Anglo American discussions during World War II and sought to alleviate postwar economic problems. In the original plan, the International Monetary Fund and the World Bank were to be joined by the International Trade Organization (ITO), which would regulate commerce. The general agreement that emerged from the Havana Conference in 1947 was drafted only as a temporary measure to stabilize world trade until the ITO took over. When the U. S. Senate refused to consent to the ITO charter, President Harry S. Truman decided to join GATT through an executive order. Another twenty-two nations joined the United States in endorsing the new arrangement, which incorporated many provisions in the ITO's charter but lacked envisioned enforcement powers. GATT has managed to survive and remain effective primarily because of the goodwill of member nations, the benefits they enjoy from expanded trade, and their desire to avoid retaliation from other nations that support it. Despite absence of a rigid structure and enforcement authority, GATT has played a major role in the reduction or elimination of high trade barriers among western industrialized nations, contributing factors to the Great Depression of the 1930s and the onset of World War II.

The agreement's goal is to encourage member nations to lower tariffs and eliminate import or other regulatory quotas. Nondiscrimination is a key principle in all of its many subagreements. That principle is carried out primarily through most-favored-nation provisions in tariff treaties, which require that no signatory shall impose greater burdens on one trading partner than on another. A second principle is that a GATT member may not rescind any tariff concession without compensation for trading partners adversely affected. The agreement also urges all parties to rely on negotiations and consultation to resolve trade conflicts. The arrangement is not without problems. Exceptions to its rules are permitted to accommodate the special needs of developing nations that may wish to continue relations with former colonial powers. Perhaps the most important exception to the most-favored-nation approach is one that furthers GATT's goal of reducing trade barriers. If a group of nations decides to create a free-trade zone, such as the European Community or the North American Free Trade Agreement (NAFTA), it can do so without retaliation or sanction from other GATT members.

A series of negotiating periods, or "rounds," took place after the initial agreement in 1947: Geneva, Switzerland (1947); Annecy, France (1949); Torquay, England (1950–1951); Geneva (1955–1956); and the Dillon Round (named for U. S. Secretary of the Treasury Douglas Dillon)in Geneva (1961–1962). These first five rounds followed the pattern that had characterized negotiations under the U. S. Reciprocal Trade Agreements Act of 1934. Representatives of the primary supplier of a commodity or product would engage in talks with a major consumer, each party seeking reductions in rates. Once a bilateral bargain was struck and added to the multinational agreement, the most-favored-nation principle extended rates to all parties. In this way, world tariffs on industrial products fell to 13 percent.

The sixth round was named for President John F. Kennedy and took place in Geneva from 1964 to 1967. The United States brought in a new strategy when it offered broad, across-the-board reductions. Negotiators focused on deciding what commodities or items to exclude. The Tokyo Round (1973–1979)continued tariff reduction, leading to a general overall rate of 4 percent on industrial commodities. GATT succeeded in reducing tariffs but did not deal nearly as effectively with nontariff barriers (NTBs). The Kennedy Round was the first at which the NTBs were given serious attention, and they dominated discussions at the Tokyo Round. Negotiations led to a series of codes of conduct directed at NTBs. These attempted to lessen or eliminate such practices as dumping, government-subsidized exports, exclusionary government procurement policies, and arbitrary customs valuations. Most industrial nations agreed to abide by these codes, but developing nations did not. The Uruguay Round concluded seven years of negotiations on 15 December 1993 after a most ambitious agenda. In addition to further tariff reductions, it fashioned partial agreements on agricultural products, services, and intellectual property rights that earlier rounds had failed to address. As with all previous GATT negotiations, special interests in many nations were critical of the round, but prospects for international acceptance appeared positive. In the 1990s, trade policy became a major issue in American domestic politics. Protectionist and internationalist wings divided both of the two major parties. Among Democrats, President Bill Clinton's support of multinational trade agreements, such as GATT and NAFTA, placed him in direct conflict with the organized labor union constituency of his party. On the conservative side of the ideological spectrum, in 1992 and 1996, presidential candidate Pat Buchanan led a protectionist insurrection within Republican Party ranks. In both cases, however, protrade forces remained in control of the national Republican and Democratic Parties. The bulk of anti-GATT and anti-NAFTA sentiment became concentrated in the presidential campaigns of Reform Party candidate H. Ross Perot of 1992 and 1996. Internationally, in the 1990s, the GATT negotiations elicited fears that multinational trade agreements facilitated American cultural imperialism. Even countries historically friendly to the United States, such as Britain and France, expressed concern that "globalization" homogenized local cultures. The notion that global free trade promoted American cultural domination of the world remained a delicate and controversial issue at the close of the twentieth century.

BIBLIOGRAPHY

Baldwin, Robert E., and Anne O. Krueger, eds. The Structure and Evolution of Recent U. S. Trade Policy. Chicago: University of Chicago Press, 1984.

Evans, John W. The Kennedy Round in American Trade Policy: The Twilight of the GATT? Cambridge, Mass. : Harvard University Press, 1971.

John M.Dobson/a. g.

See alsoForeign Investment in the United States ; Reciprocal Trade Agreements ; Trade, Foreign .

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General Agreement on Tariffs and Trade

General Agreement on Tariffs and Trade

BIBLIOGRAPHY

The General Agreement on Tariffs and Trade (GATT) is the predecessor to the World Trade Organization (WTO). From 1947 to 1994, the GATT provided the worlds main institutional framework for multilateral trade negotiations. It was created in Geneva in 1947 to remedy the protectionism and economic discrimination that arose during the interwar period and that arguably deepened the Great Depression. It was thus designed to facilitate nondiscriminatory trade liberalization among the worlds major trading partners.

GATT members reduce trade barriers through periodic negotiating rounds, each of which produces an agreement that must be ratified by all members before it takes effect. Although these negotiations typically take place in small groups, the resulting concessions are extended to all members through the most-favored-nation rule, which grants each member the same treatment as the most-favored trading partner. The most-favored-nation rule ensures that any liberalization achieved during GATT rounds is nondiscriminatory. Eight rounds have been concluded as of 2006: Geneva (1947), Annecy (1949), Torquay (1951), Geneva (1956), Dillon (1960-1961), Kennedy (1964-1967), Tokyo (1973-1979), and Uruguay (1986-1994). A ninth, Doha, began in 2001. These rounds have reduced global tariffs on manufactured goods from nearly 40 percent in 1947 to under 4 percent in 2006. These tariff reductions are considered one of the foremost achievements of the GATT system.

Since its founding, the GATT has evolved in important ways. First, its membership has grown from twenty-three countries in 1947 to 149 in 2006. The GATT system has thus become global in scope. Second, the range of policies covered by GATT strictures has expanded over time. While early rounds focused on tariffs, later ones addressed nontariff barriers such as subsidies, voluntary export restraints, and antidumping duties. The Uruguay Round went further still, tackling policies such as technical barriers to trade, sanitary and phytosanitary standards, trade-related intellectual property rights, and trade-related investment measures. Third, the range of economic sectors covered by GATT rules has also grown over time. Whereas early GATT rounds focused on manufactures, the Uruguay Round produced agreements to liberalize trade in traditionally protected sectors such as agriculture, textiles and clothing, and services. Fourth, in 1995 the GATT was subsumed into the newly created WTO. The GATT continues to govern trade in goods but is now part of the broader WTO framework that also addresses new issues such as trade in services and the enforcement of intellectual property rights. Finally, the Uruguay Round also strengthened GATT dispute-settlement procedures, establishing stricter timetables for settling disputes and making it more difficult for losing parties to block unfavorable rulings from dispute-settlement panels. Notably, however, the Uruguay Round did not create any new enforcement mechanisms: Although panels can authorize retaliatory sanctions from complainant states, panels have no power to enforce their own decisions. WTO panel decisions, like GATT decisions, must thus be enforced by trade sanctions from member states.

The GATT system has both supporters and critics. Its supporters contend that it is crucial to achieving the benefits of free trade, such as lower prices for consumers and export opportunities for producers. Supporters also note that GATT rules against trade discrimination make it more difficult for governments to use trade preferences and sanctions as diplomatic tools. Critics, however, claim that the GATT system is deficient in several ways. Some critics, particularly from developing countries, feel that the GATT has not gone far enough in liberalizing trade in agriculture and textiles. Others feel that the GATT has gone too far in constraining national policymaking autonomy. For example, WTO panels have ruled against the European Unions ban on hormone-treated beef, stating that scientific evidence does not justify such a ban. Critics contend that such decisions about health, safety, and the environment should be left to national governments. Similarly, some have criticized the WTOs rules on intellectual property rights, which could prevent developing countries from obtaining cheap, generic pharmaceuticals. Finally, some contend that the GATT process is undemocratic because agreements are negotiated by unelected officials.

In light of this controversy, it is worth noting that the GATT is not a supranational policymaking body but rather an institutional forum within which governments negotiate agreements via a consensus decision-making process. Hence, while GATT agreements do constrain policies, no member is constrained without its consent. Moreover, because GATT agreements must be ratified by national governments, the GATT process remains under the control of elected representatives. The GATT is thus not qualitatively different from many other international agreements, all of which constrain national policies. For this reason, the controversy surrounding the GATT probably has less to do with procedural concerns than with disagreements about the substantive content of GATT rules. Finally, it is worth noting that empirical studies have found little evidence that the GATT affects either trade or trade policies. Such research suggests that both supporters and critics of the GATT may have overstated its true importance.

SEE ALSO Uruguay Round; World Trade Organization

BIBLIOGRAPHY

Hoekman, Bernard M., and Michel M. Kostecki. 1995. The Political Economy of the World Trading System: From GATT to WTO. New York: Oxford University Press.

Jackson, John H. 1997. The World Trading System: Law and Policy of International Economic Relations. 2nd ed. Cambridge, MA: MIT Press.

Rose, Andrew K. 2004. Do We Really Know That the WTO Increases Trade? American Economic Review 94 (1): 98114.

Daniel Y. Kono

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General Agreement on Tariffs and Trade

General Agreement on Tariffs and Trade (GATT), former specialized agency of the United Nations. It was established in 1948 as an interim measure pending the creation of the International Trade Organization. However, plans for the latter were abandoned and GATT continued to exist until the end of 1995. Members of GATT were pledged to work together to reduce tariffs and other barriers to international trade and to eliminate discriminatory treatment in international commerce. The most important service of GATT was to negotiate multilateral extensions of tariff reductions through the application of the most-favored-nation clause. GATT also provided for regular meetings to consider other problems of international trade. An important GATT principle was that protection of domestic industries was to be done strictly through tariffs and not measures such as import quotas. The only exceptions permitted to GATT rules were those dealing with balance of payments difficulties, and these exceptions are carefully supervised. GATT provided the framework for most important international tariff negotiations from 1947 until 1994. The eighth, or Uruguay round, of GATT negotiations, which began in 1986 with 15 negotiating groups, was long stalemated by the issue of agricultural subsidies maintained by the European Community. The agreement that resulted (1994) from the Uruguay round led to the creation (1995) of the more powerful World Trade Organization (WTO) as a replacement for GATT. However, the GATT framework remained in place for a 12-month transition period.

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General Agreement on Tariffs and Trade

GENERAL AGREEMENT ON TARIFFS AND TRADE

The General Agreement on Tariffs and Trade (GATT) originated with a meeting of 22 nations meeting in 1947 in Geneva, Switzerland. By 2000, there were 142 member nations, with another 30 countries seeking admission. The detailed commitments by each country to limit tariffs on particular items by the amount negotiated and specified in its tariff schedule is the central core of the GATT system of international obligation.

The obligations relating to the tariff schedules are contained in Article II of GATT. For each commodity listed on the schedule of a country, that country agrees to charge a tariff that will not exceed an amount specified in the schedule. It can, if it wishes, charge a lower tariff.

The World Trade Organization (WTO) heavily influences the workings of the GATT treaties through the efforts of various committees. Representatives of member countries of the WTO comprise the Council for the Trade in Goods (Goods Council), which oversees the work of 11 committees responsible for overseeing the various sectors of GATT. The committees focus on such issues as agriculture, sanitary measures, subsidies, customs valuation, and rules of origin.

further readings

Bagwell, Kyle. 2002. The Economics of the World Trading System. Cambridge, Mass.: MIT Press.

cross-references

Commodity; Tariff.

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General Agreement on Tariffs and Trade

General Agreement on Tariffs and Trade (GATT) United Nations agency of international trade, subsumed into the new World Trade Organization in 1995. Founded in 1948, GATT was designed to prevent ‘tariff wars’ (the retaliatory escalation of tariffs) and to work towards the reduction of tariff levels. Most non-communist states were party to GATT.

http://www.wto.org

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