GENERAL AGREEMENT ON TARIFFS
AND TRADE (GATT)



General Agreement On Tariffs And Trade Gatt 650
Photo by: Beboy

The General Agreement on Tariffs and Trade (GATT) is one of several major international agreements that seek to liberalize trade by removing protective tariffs, quotas, and other barriers. GATT is only concerned with merchandise trade; other agreements address services and intellectual property. While different forms of GATT have existed since 1947, since 1995 it has been administered through the newly formed World Trade Organization (WTO), which subsumed some of GATT's functions as a trade dispute and negotiation mediator. The most recent GATT, sometimes known as 1994 GATT, was officially signed in Marrakech, Morocco, on 13 April 1994 by 121 countries. These countries automatically became founding members of the WTO. As of 1999 a total of 134 nations participated in the WTO, and therefore in GATT, with a waiting list of approximately 30 others that did not yet meet the WTO's membership requirements.

The 1994 GATT is more an outline of trade principles than a list of specific requirements. It is used in conjunction with annex agreements dealing with particular trade issues, such as export subsidies or problems specific to the textile trade, and schedules of market access commitments pledged by each participating country. The schedules actually spell out each country's obligations and the dates by which the countries plan to meet them. Many of these take the form of a gradual lifting of tariffs or a reduction of subsidies in scheduled increments until the trade barriers are completely removed.

THE FIRST GATT

Before the creation of the WTO in 1995, GATT was both a trade agreement and an ad hoc organization. The roots of the GATT organization are in the Bretton Woods Conference of 1944, from which emerged a supranational body, the International Trade Organization (ITO). The role of the ITO was to monitor economic policy —that is, tariffs and trade—among economic partners in the West. In 1947, the GATr organization was established. In the immediate aftermath of World War II and the debilitating economic nationalism that preceded it in the 1930s, the United States in particular anticipated the creation of a new economic order and an international treaty and institution to monitor economic policy. However, the ITO was doomed because, ironically, the United States never joined.

The original GATT membership consisted of 23 nations, but it soon swelled to 84. Under GATT, trade barriers were to be torn down through multilateral negotiations. As barriers came down, international trade and production would supposedly increase. The GATT first secured these gains through reciprocity, i.e., when one country lowers its tariffs to another country's exports so that the other country will in turn lower its tariffs. Second, GATT implemented the "most-favored-nation" status, which is accorded to member countries that do not grant one member or a group of members preferential trade treatment. Trade negotiations since World War II have indeed reduced average tariffs on manufactured and semi-manufactured goods from 40 percent in 1947 to less than 10 percent by the mid-1970s. During the early 1990s, that tariff figure dropped to approximately 5 percent. These reductions helped world trade to surge from $94 billion in 1955 to over $2 trillion in 1980. By 1997 it would reach upwards of $6.6 trillion.

After the late 1970s, however, global trade output grew at a much slower pace. The recession of the early 1990s hindered trade cooperation between GATr member countries. During this time three preferential trading blocks arose: the European Union, the North American Free Trade Agreement, and the Association of South East Asian Nations (ASEAN). These trading blocks foreshadowed future foreign policy tensions. For example, the United States and Europe, original framers of the GATT, now impose protectionist measures on entire industrial sectors like steel, chemicals, and electronics at the time that formerly protectionist nations of the developing world embrace free market principles and look to join GATT's supposedly open international trading system. Thus despite GATT's aims and past accomplishments, antidumping and countervailing-duty measures of member countries—especially through the increasing use of Section 301 of the U.S. Trade Law, as well as tariff walls thrown up around the European Community—resulted in not less but more protectionism in the 1980s and early 1990s.

THE URUGUAY ROUND

Meanwhile, beginning in 1986, a new set of trade talks known as the Uruguay Round of Multilateral Trade Negotiations had begun. They would eventually lead to the 1994 GATT. These negotiations were intended to reverse the trends toward protectionism and better integrate the emerging economies into the trade system of the major industrial countries. The eight-year talks proved to be a long, drawn-out process, with the concerns of developing nations that wanted to join GATT and attain export-led economic growth often ignored. Instead, the United States fought to secure significant reforms of Europe's Common Agricultural Policy, which originally aimed to protect the continent's farmers against hardship, but which led in time to massive over-production of food and growing government subsidies. Although agriculture is only a small part of economic production among developed nations, the United States saw multilateral farm trade reform—progressively cutting farming subsidies and price supports—as the litmus test for whether other, more contentious trade liberalizations could be achieved. If the West could liberalize its farm and textile sectors, the United States reasoned, developing countries would in turn open their markets to services and capital of developed economies and offer better protection for intellectual property. If such an agreement could be negotiated, the World Bank forecast a $300 billion annual boost to global income.

As many predicted, once American and European Union negotiators reached their own private agreement on trade reform in Brussels on 15 December 1993, the GATT of 13 April 1994, was possible. The final agreement signed in Marrakech was voluminous. In addition to the many specific trade issues it encompassed, its most important feature was the creation of the WTO to provide a forum for future negotiations and dispute resolution.

GATT UNDER THE WTO

Under the aegis of the WTO, GATT became bundled with not only the annexes and commitment schedules of its contracting nations, but also with parallel agreements modeled after GATT: in services, the General Agreement on Trade in Services (GATS), and in intellectual property, the Trade-Related Aspects of Intellectual Property Rights (TRIPS). All members of the WTO participate in all three agreements, although not all countries have identical obligations. Countries' specific requirements come in large part from bilateral negotiations they undertake with interested partners. Once a bilateral agreement has been reached, it must be extended to all WTO members, all of which are considered "most-favored nations." Commitments under this system are considered legally binding, and when trade disputes arise the WTO's judgment is to be taken as the final authority.

The WTO system has thus far had few opportunities to prove whether it can be as effective as its framers intended. A few late-1990s disputes between the European Union and the United States—involving bananas, beef, and a controversial U.S. policy on international business dealings with Cuba—are likely to serve as an early test of the WTO's judicial mettle. Already in 1998 the WTO had decided disputes against both the EU and United States, but neither was quick to comply with the rulings, calling into question the usefulness of the new system.

FURTHER READING:

Bagwell, Kyle, and Robert W. Staiger. "Will Preferential Agreements Undermine the Multilateral Trading System?" Economic Journal, July 1998.

Barshefsky, Charlene. "Taking the Message to Main Street." Financial Times, 18 May 1998.

De Jonquieres, Guy. "Bananas and Beef Take Trade Conflict to the Brink." Financial Times, 22 October 1998.

Hoekman, Bernhard M., and Michel Kostecki. The Political Economy of the World Trading System: From GATT to WTO. New York: Oxford University Press, 1996.

Parry, John. "WTO Test Case Could Open Up Pandora's Box." European, 10 October 1996.

Ruggiero, Renato. "A Structure on Which to Build." Financial Times, 18 May 1998.

World Trade Organization. "About the WTO." Geneva, Switzerland, 15 January 1998. Available from www.wto.org .



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