General Agreements On Tariffs & Trade

In the 18th and 19th century, almost all nations and nation-states believed that protectionism is a must for the well-being of domestic economies. However, with passing time, this idea started to change. The idea of liberalizations and thereby abolishment of protectionist measures peaked in the middle half of the 20th century. The epitome of liberalism took the first palpable shape as GATT, which was later replaced by the WTO.

General Agreements on Tariffs and Trade

General Agreement on Tariffs and Trade (GATT) includes some multilateral trade agreements formed to abolish the quotas and reduce various tariffs among the participating nations. GATT was formed by 23 countries signing the agreement at Geneva, in 1947. It was aimed to offer an interim arrangement which could be replaced by a United Nations agency soon.

GATT played a hero’s role in expanding the world trade in the latter half of the 20th century. 125 nations had already become signatories to GATT when it was replaced by the WTO in 1995.

GATT – Major Principles

GATT’s major principle was trade without discrimination. The participating nations opened the markets impartially to every other member. According to GATT, once a nation and its largest trade allies had agreed to reduce a tariff, that reduction automatically became applicable to all other GATT members.

  • GATT preferred protection through tariffs and by leveraging on it, GATT systematically tried to eliminate the import quotas or other quantitative trade restrictions.

  • GATT also had homogenous customs regulations and the obligation of the participating nations in negotiating for tariff reductions on any other nation’s request.

  • The escape clause was also in place for contracting nations to modify the agreements when their domestic producers suffered excessive losses due to the trade concessions.

Role of GATT in Promoting International Trade

GATT’s role was instrumental in the following aspects −

  • GATT formulated standards to direct the contracting nations to take part in international trade. As mentioned above, GATT stipulated some basic principles for the contracting parties.

  • GATT cut tariffs for the mutual benefit of an accelerated trade liberalization. There was a palpable reduction, about 35% on average, in both Kennedy and Tokyo Rounds.

  • GATT brought discrimination in tariff down to promote reducing other trade barriers. GATT had regulated that the participating nations cannot increase tariffs at will.

  • GATT, in its progressive days, tried to protect the desires of the developing countries in terms of international trade. It established some special measures, including the tariff protection for select industries. GATT made sure that the developing countries got a preferential treatment.

Finally, GATT was the “court of international trade.” Settling the disputes between two or more parties was one of its primary objectives. GATT had become a legal guardian of nations for settling trade disputes.