General Agreement on Tariffs and Trade (GATT)
[The General Agreement on Tariffs and Trade has been superseded by the World Trade Organization (WTO). The following entry remains for historical purposes. See World Trade Organization (WTO).]
Both a multilateral trade agreement aimed at expanding international trade and the organization which oversees the agreement. The main goals of GATT are to liberalize world trade and place it on a secure basis thereby contributing to economic growth and development and the welfare of the world’s people. GATT is the only multilateral instrument that lays down agreed rules for international trade, and the organization is the principal international body concerned with negotiating the reduction of trade barriers and with international trade relations.
One hundred and seventeen countries accounting for approximately 90 percent of world trade are Contracting Parties to GATT, while some other countries apply GATT rules on a de facto basis. Approximately 2/3 of GATT’s membership consists of developing countries.
The GATT was signed in 1948 by 23 nations as a response to the trade conflicts which contributed to the outbreak of World War II. Originally looked upon as an interim agreement, it has become recognized as the key institution concerned with international trade negotiations. An important element which contributed to GATT’s importance early on came with the United States’ refusal to ratify the Havana Charter of 1948, which would have created an International Trade Organization (ITO) as a Specialized Agency of the United Nations system, similar to the International Monetary Fund and the World Bank. The Interim Commission of the ITO (ICITO), which was established to facilitate the creation of the ITO, subsequently became the GATT Secretariat. One result of the recent Uruguay Round was the decision to replace the GATT Secretariat with a Multilateral Trading Organization (MTO), which will have more authority to enforce free trade rules, as through the assessment of trade penalties. In December, 1993, agreements were reached at the conclusion of the Uruguay Round to revise the framework of GATT. Member nations will sign the agreement in April, 1994, and it will go into effect July 1, 1995.
The purpose of the GATT organization, headquartered in Geneva, is to provide a forum for discussion of world trade issues that allows for the disciplined resolution of trade disputes, based on the founding principles of GATT which include nondiscrimination, national treatment, transparency, and most-favored-nations (MFN) treatment. International negotiations known as “Rounds” are conducted to lower tariffs and other barriers to trade, and a consultative mechanism that may be invoked by governments seeking to protect their trade interests.
A few of the fundamental principles and aims of GATT:
(1) Trade without discrimination–The first principle embodied in the famous “most-favored nation” clause is that trade must be conducted on the basis of non-discrimination. No country is to give special trading advantages to another or to discriminate against it; all are on an equal basis and all share the benefits of any moves towards lower trade barriers.
(2) Protection through tariffs–Ensures that if protection to a domestic industry is given, it should be extended through the customs tariff, and not through other commercial measures.
(3) A stable basis for trade–Provided partly by the binding of the tariff levels negotiated among contracting parties. These bound items are listed, for each country, in tariff schedules which form an integral part of the General Agreement.
(4) Promoting fair competition–Concerns over dumping and subsidies are addressed by the “Anti-dumping Code” which provides rules under which governments may respond to dumping in their domestic market by overseas competitors, and rules for the application of “countervailing” duties which can be imposed to negate the effects of export subsidies.
(5) Quantitative restrictions on imports–A basic provision of GATT is a general prohibition of quantitative restrictions (import quotas). The main exception to the general rule against these restrictions allows their use in balance-of-payments difficulties under Article XII.
(6) The “waiver” and the possible emergency action–Waiver procedures allow a country to seek release from particular GATT obligations, when its economic or trade circumstances so warrant. The “safeguards” rule of GATT (Article XIX) permits members, under carefully defined circumstances, to impose import restrictions or suspend tariff concessions on products which are being imported in such increased quantities and under such conditions that they cause serious injury to competing domestic producers.
(7) Regional trading arrangements –Regional trade groupings, as an exception to the general most-favored-nations treatment, are permitted in the form of a customs union or free trade area. Article XXIV recognizes the value of such agreements, which foster free trade by abolishing or reducing barriers against imports from countries in a particular region.
(8) Settling trade disputes–Consultation, conciliation, and dispute settlement are fundamental aspects of GATT’s work. Countries can petition GATT for a fair settlement of cases in which they feel their rights under the General Agreement are being withheld or compromised by other members. Bilateral consultations are emphasized, but if necessary, unresolved cases go before a GATT panel of experts.
(U.S.) For the United States, the GATT came into existence as an executive agreement, which, under the U.S. Constitution does not require Senate ratification.
See rounds; Tokyo Round; Uruguay Round; multilateral trade negotiations; rollback; standstill; safeguards; special and different treatment.
See World Trade Organization (WTO).