Post World War 2, the economies were drained and needed significant restructuring. Hence, several nations came together to support each other. This is when GATT or General Agreement on Tariffs and Trade came into the picture. GATT was formed when 23 countries joined hands and signed a legal agreement to minimise trade barriers among countries by reducing tariffs, quotas, and subsidies.
Read this blog to learn about GATT, its importance in foreign trade and its principles.
The full form of GATT is the General Agreement on Tariffs and Trade. History beckons that the agreement was signed on 30th October 1947. Twenty-three countries came together post World War 2 to sign the agreement.
The primary objective of the GATT agreement was to reduce trade restrictions by revising or removing certain tariffs, subsidies, and quotas. This was done at a time when international trade was affected by the ills of war.
The GATT aimed to improve existing international relations by making trade easier. It consisted of a set of rules that defined the new trade restrictions that were much more relaxed as compared to the ones that existed before. The agreement also established a system to resolve trade-related disputes among nations.
It is important to note that the World Trade Organization was established because of GATT; which is why, GATT and WTO go hand in hand. The World Trade Organization was established on 1st January 1995, and the body was responsible for extending the application of GATT.
The GATT agreement aimed at resolving a wide variety of issues. However, most of these issues were related to trade and barriers to trade. Some of the major reasons why GATT came into existence are:
The GATT agreement was a successful intervention as several trade reforms were brought about post its implementation.
The primary purpose of GATT was to eliminate different kinds of trade protectionism imposed by nations worldwide. The GATT also contributed to reviving economies dealing with the after-effects of World war 2.
GATT works on three main provisions.
A set of principles governs the GATT. These principles are discussed in detail below.
All the principles stated above are important aspects of GATT. All decisions made under GATT are based on these principles.
The GATT had 23 members when it was established. These countries included Australia, Belgium, Brazil, Burma, Canada, Czechoslovakia, Ceylon (now Sri Lanka), Chile, China, Netherlands, Cuba, France, India, Lebanon, Luxembourg, Norway, New Zealand, Pakistan, Syria, Southern Rhodesia, South Africa, the United Kingdom, and the United States.
The number of members increased from 23 to 128 in 1994 and more countries came under the purview of GATT. Hence, the trade patterns could be standardised at a larger level.
The implementation of GATT was a milestone in World History. However, GATT has its own set of pros and cons. Let’s understand both aspects:
GATT and WTO are related to each other as GATT became a part of WTO post its incorporation. GATT did not cover several aspects of world trade. Therefore, there was a need for a stronger body to take care of the entire aspect of world trade. This led to the establishment of the World Trade Organization.
WTO is a permanent body and GATT came under its umbrella. The WTO took over GATT and came up with overarching principles that covered services and intellectual property apart from goods.
The GATT shaped world trade as it was the first agreement that came into existence to reduce trade barriers. The 23 countries that signed the GATT agreement wanted to promote free trade of goods among nations. The GATT also lived up to its expectations as it conducted several negotiations to improve world trade.
However, due to a lack of coherent structure, it was replaced by the World Trade Organisation. The World Trade Organization has developed several policies that enforce different aspects of GATT. Hence, the GATT still functions under the umbrella of WTO.
Ans. The GATT agreement was signed on 30th October 1947, and 23 countries came together to sign the agreement.
Ans: GATT was established following World War II as a way to help rebuild the global economy and promote international trade. It was originally signed by 23 countries and has since grown to include more than 120 member countries. GATT was replaced by the World Trade Organization (WTO) in 1995.
Ans. The driving principle of GATT is the Most Favoured Nation principle. However, other principles, like the prohibition of quantitative trade restrictions, are important.
Ans. The World Trade Organization (WTO) was formed on January 1, 1995. It was established as a successor to the General Agreement on Tariffs and Trade (GATT), which had been in operation since 1947. The WTO is a global organisation that deals with the rules of trade between nations and is headquartered in Geneva, Switzerland. It provides a forum for governments to negotiate trade agreements and settles trade disputes between member countries.
Ans: GATT promotes free trade by establishing rules and procedures for the settlement of trade disputes and by encouraging countries to lower their trade barriers and reduce their tariffs on imported goods. This helps to create a level playing field for all participating countries and enables them to trade with each other more freely.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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