OVERVIEW OF GENERAL AGREEMENT ON TARIFFS AND TRADE

WHAT IS GATT?[i]

The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”

The GATT was first discussed during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). It was signed by 23 nations n Geneva on October 30th, 1947, and was applied on a provisional basis January 1st, 1948. It remained in effect until January 1st, 1995, when the World Trade Organization (WTO) was established after agreement by 123 nations in Marrakesh on April 15th, 1994, as part of the Uruguay Round Agreements. The WTO is the successor to the GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.

The original 23 GATT members were Australia, Belgium, Brazil, Burma (now Myanmar), Canada, Ceylon (now Sri Lanka), Chile, China, Cuba, Czechoslovakia (now the Czech Republic and Slovakia), France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia (now Zimbabwe), Syria, South Africa, the United Kingdom, and the United States. The membership increased to 128 countries by 1994.

GATT AND WTO[ii]

  • GATT can be described as a set of rules, multilateral trade agreement, that came into force to encourage international trade and remove cross-country trade barriers. Whereas, WTO is an international organization whose role is to oversee and liberalize trade between countries.
  • GATT has a small secretariat with no institutional existence, whereas WTO has permanent institution along with a secretariat.
  • GATT has provisional commitments. WTO has full and permanent commitments.
  • GATT’s agreements are originally multilateral, but plurilateral agreement are added to it later. Whereas WTO’s agreements are purely multilateral.
  • GATT’s dispute settlement system is slow and ineffective whereas WTO’s dispute settlement system is fast and effective.

ADVANTAGES OF GATT[iii]

The pros/advantages of GATT are as follows:

  • By reducing tariffs, GATT boosted world trade 8 percent a year during the 1950s and 1960s. Trade grew from $332 billion in 1970 to $3.7 trillion in 1993. 
  • More countries wanted to join GATT. By 1995, it had 128 members, generating at least 80 percent of world trade.
  • By increasing trade, GATT promoted world peace. Before World War II, a trade alliance had a 50 percent chance of succeeding. GATT’s success led to other trade agreements. Notably it led to the European Union, which has prevented wars between its members.
  • GATT also improved communication by providing incentives for smaller countries to learn English, the language of the world’s largest consumer market. Understanding English gave them a competitive advantage through insight into the developed countries’ cultures, marketing practices, and product needs.
  • Membership of WTO is a step towards globalisation with a potential of accelerated economic growth and gains from trade and capital flow

DISADVANTAGES OF GATT

The cons/disadvantages of GATT are as follows:

  • It is only a provisional agreement.
  • Less or minimal gains to less developed countries.
  • There are not benefits in commodity-wise negotiation.
  • The formation of Regional Trading Blocks undermines GATT.
  • There is a lack of legal status.
  • It has a diverse membership because of which arriving at consensus was difficult. Formulation of general rules was fraught with difficulties owing to the diverse nature of membership.

SOURCES


[i] Kimberly Amadeo, What was the GATT, THEBALANCE, https://www.thebalance.com/ (last visited Dec 10, 2021, 11:11 AM).

[ii] WIKIPEDIA, https://www.wikipedia.org/ (last visited Dec 10, 2021).

[iii] Dignath Raj Sehgal, What are the general provisions regarding export and import in India, IPLEADERS, https://blog.ipleaders.in/ (last visited Dec 10, 2021, 12 PM).

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