General Agreement on Tariffs and Trade

General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade (GATT) was an international agreement, originally between 23 nation-states, resulting from meetings held in Geneva, Switzerland, in 1947. Its goal was to promote global trade through a reduction in tariff barriers and other obstacles to the free flow of goods and services.

Born at the dawn of the cold war (1947–91) and shaped most by the commercial and security concerns of the United States and western Europe, GATT was the principal international agreement governing commercial and tariff policies until its subsumption by the World Trade Organization (WTO) in 1995.

GATT was originally conceived as the International Trade Organization (ITO), which would complement the International Monetary Fund (IMF) and World Bank, both founded at the 1944 Bretton Woods Conference. Because the U.S. Senate refused to ratify the ITO charter, President Harry S. Truman issued an executive order making the United States a signatory to GATT.

Although GATT had no enforcement mechanism to ensure compliance by signatory states, it survived principally through its members’ voluntary adherence to its provisions, and fears of trade retaliation if they did not.

Neither an international body nor a formal treaty, GATT was renegotiated many times, in a series of “rounds” named after the cities or countries in which the meetings took place, or after a country’s leader—for example, the Geneva Round (1955–56); the Kennedy Round, held in Geneva and named after U.S. President John F. Kennedy (1964–67); the Tokyo Round (1973–79); and the Uruguay Round (1986–93).

Among the most important aspects of the resulting agreements concerned the principle of “most favored nation status,” or nondiscrimination, in which no signatory could discriminate against another without discriminating against all.

Typically, the supplier(s) of a particular commodity negotiated with the consumer(s) of that commodity regarding tariffs, regulatory quotas, and related issues. Once an agreement was reached, it became part of GATT, shared by all member nations. As a result, average world tariffs on industrial commodities declined to 13 percent by the mid-1960s.

Critics charged that GATT systematically favored the world’s most advanced industrial countries and locked the producers of primary export products into a permanent subordinate status within the global economic system.

Pointing to the historical example of the United States, in which tariffs were routinely used to promote domestic industries, opponents of GATT accused it of perpetuating global economic inequalities and undermining the principle of national sovereignty.

GATT’s defenders countered that tariffs and quotas constituted unfair trading practices, and that free trade agreements in general increased the world’s wealth by increasing trade and encouraging individual countries to leverage their comparative economic advantages.

GATT’s successor, the WTO, a permanent body of the United Nations, which in 2007 had 145 members, does have enforcement mechanisms. Critics denounce the WTO as a tool of wealthy multinational corporations. Its defenders regard it as essential in ensuring the free flow of goods, services, and ideas. Debates regarding the efficacy and ethics of GATT and the WTO will likely remain heated.