General Agreement on Tariffs and Trade

An agreement signed in 1947 whose purpose was to promote global trade between members through a reduction in tariffs.

Investopedia Says:
The formation of GATT - and its subsequent amendments up to 1994 - laid the framework for the creation of the WTO in 1995.

Related Links:
The WTO sets the global rules of trade. But what exactly does it do and why do so many oppose it? What Is The World Trade Organization?

Institutional framework signed in 1948 by 23 nations, including the United States, for the purposes of fostering multilateral trade agreements among members. A basic tenent of GATT is the most-favored nation principle, which allows every nation within the framework the best contract terms received by any single nation within the framework. GATT provides a set of rules and principles that are committed to the liberalization of trade between member nations, and the member nations meet every two years to negotiate new tariff agreements. As of 1991, 108 nations were participating in GATT, representing over 80% of the total volume of international trade.

An international agreement to encourage trade by the reduction of tariffs and quotas on foreign goods and services.

An agreement between noncommunist nations with economic interests in international trade relations. It is dedicated to encouraging mutually beneficial bilateral agreements that focus upon reducing tariffs, restrictions, and barriers. Established in 1948, GATT also acts as international arbitrator with respect to trade agreement abrogation.

An agreement to implement a post- World War II global trade organization and treaty, which was signed by twenty-three nations on October 30, 1947, and enacted in January 1948. It was established during the Cold War to facilitate international and preferential trade agreements between countries, thereby strengthening the economies and political stability of participant nations. In 1995 it became the World Trade Organization.

See the Introduction, Abbreviations and Pronunciation for further details.

Was set up in 1947 as an arrangement between the states of the free world to encourage the gradual abolition of trade barriers, and replaced in 1995 by the World Trade Organization.

For more information on General Agreement on Tariffs and Trade, visit Britannica.com.

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.

The General Agreement on Tariffs and Trade (GATT) originated with a meeting of twenty-two nations meeting in 1947 in Geneva, Switzerland. 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.

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)