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What was the General Agreement on Tariffs and Trade (GATT)? List its main accomplishments and discuss how it differed from the now functional World Trade Organisation.
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What was the General Agreement on Tariffs and Trade (GATT)? List its main accomplishments and discuss how it differed from the now functional World Trade Organisation.
After the First World War, in the decades of 1920s and 1930s, various major countries have adopted trade policy choices marked by high and increasingly restraining trade barriers. These policies are commonly marked as 'beggar-thy-neighbor' policies (Crowley 2003, p. 42). As part of these policies, economies enforce strict trade barriers to achieve economic stability at the cost causing instabilities in other economies. These trade barriers reached to an extreme level when the United States passed the Smoot-Hawley Tariff Act of 1930 (Staiger 2000, p. 1). With the enactment of this Act the world trade volume got completely devastated, that reached its height levels in the late 1800s (Wild et al. 2009, p. 191). This resulted in the Great Depression in the world economy and another devastating World War. The World War II made the decisive push in terms of revising these economic policies and ultimately paved the way for the emergence of The General Agreement on Tariffs and Trade.
Post World War II, in the year 1944, The Bretton Woods Conference marked the emergence of two major international economic institutions: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (the World Bank) (Crowley 2003, p. 42). Recognizing the ineffectiveness of the restricting trade barriers or 'beggar-thy-neighbor' polices, ministers of different major countries contemplated the need for another postwar international institution as the International Trade Organization (ITO). The primary rationale behind formation for this institution was to ensure free trade among countries so that countries don't need to adopt detrimental trade barriers.
The General Agreement on Tariffs and Trade or commonly known at GATT was formulated on 30 October 1947, just six months before the more comprehensive and rather ambitious Harvana Charter. The main objective of this charter was to form the already discussed International Trade Organization. Hence, GATT was conceived as an interim agreement that will successfully culminate in the formation of ITO, which will eventually incorporate GATT into its structure (Sukla 2000, p.8). However, the reality was completely different and the Harvana Charter didn't really see its success as the support for the formation ITO at the US Congress was waning. This made GATT as the only international agreement on ensuring free trade among various member countries. In its inception, 23 countries were part of the GATT and agreed to sign this treaty to a set of rules for governing trade with one another and also guaranteed reduced import tariffs for other members. Adopting from Sukla (2000, p.8), in the following the key 8 points about GATT will be discussed.
Reciprocity: The principle of reciprocity ensures that when one country offers a reduction in trade barriers then a second country should 'reciprocates' that in reducing some of its trade barriers. Thus reciprocity and non-discrimination together extend the benefit of reciprocal tariffs reductions to all the member countries of the GATT. These two in tandem will eventually create a downward moving spiral of reducing trade barriers and will ensure comparatively freer trade in the world.
