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General Agreement On Tariffs And Trade
The General Agreement on Tariffs and Trade (typically abbreviated GATT) was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was formed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995. The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.
Efforts to negotiate international trade agreements began in 1927 at the League of Nations but were unsuccessful. The precursor organization to the GATT, called the International Trade Organization (ITO), was first proposed in February 1945 by the United Nations Economic and Social Council.
The negotiating countries of the ITO began parallel negotiations for the GATT as a way to introduce early tariff cuts. The plan called for the ITO to take control over GATT, once the ITO was finalized. Owing to the United States failing to implement the ITO, GATT was the only organization left.
On 1 January, 1948 the agreement was signed by 23 countries: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, the Czechoslovak Republic, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, the United Kingdom, and the United States. According to GATT's own estimates, the negotiations created 123 agreements that covered 45,000 tariff items that related to approximately one-half of world trade or $10 billion in trade.
The Bretton Woods Conference had introduced the idea for an organization to regulate trade as part of a larger plan for economic recovery after World War II. As governments negotiated the ITO, 15 negotiating states began parallel negotiations for the GATT as a way to attain early tariff reductions. Once the ITO failed in 1950, only the GATT agreement was left. The GATT's main objective was the reduction of barriers to international trade.
This was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of agreements. The GATT was a treaty, not an organization although a small secretariat occupied what is today the Centre William Rappard in Geneva, Switzerland. The functions of the GATT were taken over by the World Trade Organization which was established during the final round of negotiations in early 1990s.
The history of the GATT can be divided into three phases: the first, from 1947 until the Torquay Round, largely concerned which commodities would be covered by the agreement and freezing existing tariff levels. A second phase, encompassing three rounds, from 1959 to 1979, focused on reducing tariffs. The third phase, consisting only of the Uruguay Round from 1986 to 1994, extended the agreement fully to new areas such as intellectual property, services, capital, and agriculture. Out of this round the WTO was born.
GATT signatories occasionally negotiated new trade agreements that all countries would enter into. Each set of agreements was called a ''round''. In general, each agreement bound members to reduce certain tariffs. Usually this would include many special-case treatments of individual products, with exceptions or modifications for each country.
GATT 1947 in the US
The GATT, as an international agreement, is a treaty. Under United States law it is classified as a congressional-executive agreement. Based on the Reciprocal Trade Agreements Act it allowed the executive branch negotiating power over trade agreements with temporary authority from Congress. At the time it functioned as a provisional, but promising trade system.
The agreement is based on the "''unconditional most favored nation principle''" This means that the conditions applied to the most favored trading nation (i.e. the one with the fewest restrictions) apply to all trading nations. In the US, there was large opposition against the International Trade Organization (which had been ratified in several countries), and thus President Truman never even submitted it to the Congress.
GATT held a total of 8 rounds.
Annecy Round - 1949
The second round took place in 1949 in Annecy, France. 26 countries took part in the round. The main focus of the talks was more tariff reductions, around 5000 in total.
Torquay Round - 1950
The third round occurred in Torquay, England in 1950. 38 countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to three-fourths of the tariffs which were in effect in 1948. The contemporaneous rejection by the United States of the Havana Charter signified the establishment of the GATT as a governing world body.
Geneva Round - 1955-1956
The fourth round returned to Geneva in 1955 and lasted until May 1956. 26 countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.
Dillon Round - 1960-1962
The fifth round occurred once more in Geneva and lasted from 1960 to 1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. 26 countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC).
Tokyo Round - 1973-1979
Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $190 billion worth.
Uruguay Round - 1986-1993
The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand the competence of the GATT to important new areas such as services, capital, intellectual property, textiles, and agriculture. 123 countries took part in the round.
Agriculture was essentially exempted from previous agreements as it was given special status in the areas of import quotas and export subsidies, with only mild caveats. However, by the time of the Uruguay round, many countries considered the exception of agriculture to be sufficiently glaring that they refused to sign a new deal without some movement on agricultural products. These fourteen countries came to be known as the "Cairns Group", and included mostly small and medium sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, and New Zealand.
The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade liberalization agreement in agricultural products in the history of trade negotiations. The goals of the agreement were to improve market access for agricultural products, reduce domestic support of agriculture in the form of price-distorting subsidies and quotas, eliminate over time export subsidies on agricultural products and to harmonize to the extent possible sanitary and phytosanitary measures between member countries.
GATT and the World Trade Organization
In 1993 the GATT was updated (''GATT 1994'') to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO). The 75 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO in the following two years (the last being Congo in 1997). Since the founding of the WTO, 21 new non-GATT members have joined and 29 are currently negotiating membership. There are a total of 153 member countries in the WTO.
Of the original GATT members, only the SFR Yugoslavia has not rejoined the WTO. Since FR Yugoslavia, (renamed to Serbia and Montenegro and with membership negotiations later split in two), is not recognised as a direct SFRY successor state; therefore, its application is considered a new (non-GATT) one. The contracting parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31 December, 1995.
Whereas GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.