Definition
The General Agreement on Tariffs and Trade (GATT) is an international treaty that was established in 1947 to reduce and eliminate tariffs and other trade barriers, promoting international trade. It was the foundation of the World Trade Organization (WTO), which replaced it in 1995. The GATT principles and agreements are now the WTO’s core rules.
Key Takeaways
- The General Agreement on Tariffs and Trade (GATT) was an international treaty conceived in 1947, aimed at promoting international trade by reducing or eliminating trade barriers like tariffs or quotas.
- Over its lifespan, the GATT treaty has been revised or updated through multiple rounds of negotiations, the most significant of which was the Uruguay Round that established the World Trade Organization (WTO) in 1995. Since then, the WTO has taken over most of the GATT’s roles and responsibilities.
- Although GATT is no longer in existence, it laid an important foundation for the WTO and continues to serve as integral framework of principles and procedures for present-day trade negotiations and dispute resolution in international trade.
Importance
The General Agreement on Tariffs and Trade (GATT) is a vital international finance term due to its significant role in regulating international trade.
Established in 1947, GATT aimed to reduce tariffs and trade restrictions globally to encourage free and multilateral trade between nations.
It’s importance stems from how it shaped global economic policies for decades, facilitating economic cooperation, growth, stability, and promoting economic interdependence.
Despite being replaced by the World Trade Organization (WTO) in 1995, GATT’s principles continue to form the basis of international trade regulation, illustrating its enduring and significant impact on global commerce and finance.
Explanation
The General Agreement on Tariffs and Trade (GATT) was an international treaty established after World War II with the principal purpose of promoting international trade through reducing trade barriers such as tariffs. In essence, it was intended to foster economic recovery post-war and subsequently facilitate economic growth globally.
GATT sought to stimulate economic activity through the removal of trade barriers, thus encouraging a multilateral trading system. This encouraged increased exchanges of goods, providing a platform for negotiation of reduced tariffs, and inhibiting discriminatory treatment in international commerce.
The GATT was used primarily for trade negotiations which occurred in different rounds. These rounds had specific objectives aimed predominantly at the reduction of tariffs and other trade barriers.
Other secondary focus areas included the establishment and enforcement of members’ right and commitments. By consistently reducing tariffs and increasing the predictability of market opportunities around the globe, GATT paved the way for an explosion in world trade, significantly influencing the world’s economic landscape.
Examples of General Agreement On Tariffs And Trade (GATT)
Uruguay Round of GATT: One of the most significant examples of GATT was the Uruguay Round which lasted from 1986 to
This was the eighth round of multilateral trade negotiations (MTN) conducted within the framework of GATT, aimed at increasing international trade by reducing or eliminating trade barriers such as tariffs or quotas. The Uruguay Round led to the creation of the World Trade Organization, with GATT remaining as an integral part of its agreement.
Agreement on Textile and Clothing (ATC): The ATC was a result of negotiations under GATT, which aimed to bring the textile trade under the jurisdiction of the World Trade Organization. The agreement came into effect on 1 January 1995, and resulted in the progressive liberalization of trade in textiles and clothing, until it was fully integrated into the WTO Trading System on 1 January
The Kennedy Round (1962-1967): This negotiation was named after President John F Kennedy, which was launched in the context of the General Agreement on Tariffs and Trade (GATT). The meeting included discussions aimed at tariff concessions worth $40 billion of world trade, negotiated by some 66 nations in Geneva, Switzerland. This round achieved tariff concessions and the creation of the anti-dumping agreement.
FAQs on General Agreement on Tariffs and Trade (GATT)
1. What is the General Agreement on Tariffs and Trade (GATT)?
The General Agreement on Tariffs and Trade (GATT) is a treaty created following the conclusion of World War II. It was intended to help reduce tariffs and other trade barriers and to help facilitate international trade.
2. When was GATT created?
GATT was created in 1947 and was enforced on January 1, 1948. It was later refined and updated in many rounds of negotiations, the most extensive and final of which were in the Uruguay Round from 1986 to 1994.
3. What are the primary objectives of GATT?
The main objectives of GATT are to expand international trade by lifting unnecessary trade restrictions, protecting and preserving the economic interests of member countries, enhancing their economies and ensuring a level playing field for all, thus boosting global prosperity.
4. How many countries are part of the GATT?
Initially, GATT had 23 countries that are deemed contracting parties. By the time it was replaced by the World Trade Organization in 1995, it had increased to 125 member nations.
5. How is GATT different from the World Trade Organization (WTO)?
The WTO replaced the GATT in 1995. The significant difference between GATT and WTO is that while GATT was a set of rules, the WTO is an institution. Another difference is that GATT rules applied to trade in merchandise goods only, while WTO rules cover trade in goods, trade in services, and intellectual property rights.
Related Entrepreneurship Terms
- World Trade Organization (WTO)
- Tariffs
- International Trade
- Trade Liberalization
- Multilateral Trade Negotiations
Sources for More Information
- World Trade Organization (WTO): The WTO site is a reliable source for information on the General Agreement on Tariffs and Trade as it is the organization that replaced the GATT.
- Encyclopedia Britannica: This source offers reliable, well-researched encyclopedia entries about numerous topics, including finance and economics.
- Investopedia: Investopedia is a valuable resource for understanding finance and investment terms and concepts such as GATT, providing clear, easy-to-understand definitions and explanations.
- International Monetary Fund (IMF): The IMF site offers insights into international economics and finance, including information about international agreements such as GATT.
