General Agreement on Tariffs and Trade
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."
|Signed||30 October 1947|
|Location||Geneva, Geneva Canton, Switzerland|
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 in Geneva on 30 October 1947, and took effect on 1 January 1948. It remained in effect until the signature by 123 nations in Marrakesh on 14 April 1994, of the Uruguay Round Agreements which established the World Trade Organization (WTO) on 1 January 1995. 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. Nations that were not party in 1995 to the GATT need to meet the minimum conditions spelled out in specific documents before they can accede; in September 2019, the list contained 36 nations.
The GATT, and its successor the WTO, have successfully reduced tariffs. The average tariff levels for the major GATT participants were about 22% in 1947, but were 5% after the Uruguay Round in 1999. Experts attribute part of these tariff changes to GATT and the WTO.
The General Agreement on Tariffs and Trade is a portmanteau for a series of global trade negotiations which were held in a total of nine rounds between 1947 and 1995. The GATT was first conceived in the aftermath of the Allied victory in the Second World War at the 1947 United Nations Conference on Trade and Employment (UNCTE), at which the International Trade Organization (ITO) was one of the ideas proposed. It was hoped that the ITO would be run alongside the World Bank and the International Monetary Fund (IMF). More than 50 nations negotiated ITO and organizing its founding charter, but after the withdrawal of the United States these negotiations collapsed.
|April 1947||7 months||23||Tariffs||Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade|
|April 1949||5 months||34||Tariffs||Countries exchanged some 5,000 tariff concessions|
|September 1950||8 months||34||Tariffs||Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%|
|January 1956||5 months||22||Tariffs, admission of Japan||$2.5 billion in tariff reductions|
|September 1960||11 months||45||Tariffs||Tariff concessions worth $4.9 billion of world trade|
|May 1964||37 months||48||Tariffs, anti-dumping||Tariff concessions worth $40 billion of world trade|
|September 1973||74 months||102||Tariffs, non-tariff measures, "framework" agreements||Tariff reductions worth more than $300 billion achieved|
|September 1986||87 months||123||Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc.||The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights.|
|November 2001||?||159||Tariffs, non-tariff measures, agriculture, labor standards, environment, competition, investment, transparency, patents etc.||The round has not yet concluded. The last agreement to date, the Bali Package, was signed on 7 December 2013.|
Preparatory sessions were held simultaneously at the UNCTE regarding the GATT. After several of these sessions, 23 nations signed the GATT on 30 October 1947 in Geneva, Switzerland. It came into force on 1 January 1948.
Annecy Round: 1949
Torquay Round: 1951
The third round occurred in Torquay, England in 1951. Thirty-eight countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana Charter signified the establishment of the GATT as a governing world body.
Geneva Round: 1955–56
The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.
Dillon Round: 1960–62
The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twenty-six 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).
Kennedy Round: 1964–67
The sixth round of GATT multilateral trade negotiations, held from 1964 to 1967. It was named after U.S. President John F. Kennedy in recognition of his support for the reformulation of the United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave the President the widest-ever negotiating authority.
As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it became clear, long before the Round ended, that a more comprehensive approach was needed to deal with the emerging challenges resulting from the formation of the European Economic Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international trader more generally.
Japan's high economic growth rate portended the major role it would play later as an exporter, but the focal point of the Kennedy Round always was the United States-EEC relationship. Indeed, there was an influential American view that saw what became the Kennedy Round as the start of a transatlantic partnership that might ultimately lead to a transatlantic economic community.
To an extent, this view was shared in Europe, but the process of European unification created its own stresses under which the Kennedy Round at times became a secondary focus for the EEC. An example of this was the French veto in January 1963, before the round had even started, on membership by the United Kingdom.
Another was the internal crisis of 1965, which ended in the Luxembourg Compromise. Preparations for the new round were immediately overshadowed by the Chicken War, an early sign of the impact variable levies under the Common Agricultural Policy would eventually have. Some participants in the Round had been concerned that the convening of UNCTAD, scheduled for 1964, would result in further complications, but its impact on the actual negotiations was minimal.
In May 1963 Ministers reached agreement on three negotiating objectives for the round:
- Measures for the expansion of trade of developing countries as a means of furthering their economic development,
- Reduction or elimination of tariffs and other barriers to trade, and
- Measures for access to markets for agricultural and other primary products.
The working hypothesis for the tariff negotiations was a linear tariff cut of 50% with the smallest number of exceptions. A drawn-out argument developed about the trade effects a uniform linear cut would have on the dispersed rates (low and high tariffs quite far apart) of the United States as compared to the much more concentrated rates of the EEC which also tended to be in the lower held of United States tariff rates.
The EEC accordingly argued for an evening-out or harmonization of peaks and troughs through its cerement, double cart and thirty: ten proposals. Once negotiations had been joined, the lofty working hypothesis was soon undermined. The special-structure countries (Australia, Canada, New Zealand and South Africa), so called because their exports were dominated by raw materials and other primary commodities, negotiated their tariff reductions entirely through the item-by-item method.
In the end, the result was an average 35% reduction in tariffs, except for textiles, chemicals, steel and other sensitive products; plus a 15% to 18% reduction in tariffs for agricultural and food products. In addition, the negotiations on chemicals led to a provisional agreement on the abolition of the American Selling Price (ASP). This was a method of valuing some chemicals used by the noted States for the imposition of import duties which gave domestic manufacturers a much higher level of protection than the tariff schedule indicated.
However, this part of the outcome was disallowed by Congress, and the American Selling Price was not abolished until Congress adopted the results of the Tokyo Round. The results on agriculture overall were poor. The most notable achievement was agreement on a Memorandum of Agreement on Basic Elements for the Negotiation of a World Grants Arrangement, which eventually was rolled into a new International Grains Arrangement.
The EEC claimed that for it the main result of the negotiations on agriculture was that they "greatly helped to define its own common policy". The developing countries, who played a minor role throughout the negotiations in this round, benefited nonetheless from substantial tariff cuts particularly in non-agricultural items of interest to them.
Their main achievement at the time, however, was seen to be the adoption of Part IV of the GATT, which absolved them from according reciprocity to developed countries in trade negotiations. In the view of many developing countries, this was a direct result of the call at UNCTAD I for a better trade deal for them.
There has been argument ever since whether this symbolic gesture was a victory for them, or whether it ensured their exclusion in the future from meaningful participation in the multilateral trading system. On the other hand, there was no doubt that the extension of the Long-Term Arrangement Regarding International Trade in Cotton Textiles, which later became the Multi-Fiber Arrangement, for three years until 1970 led to the longer-term impairment of export opportunities for developing countries.
Another outcome of the Kennedy Round was the adoption of an Anti-dumping Code, which gave more precise guidance on the implementation of Article VI of the GATT. In particular, it sought to ensure speedy and fair investigations, and it imposed limits on the retrospective application of anti-dumping measures.
Kennedy Round took place from 1962–1967. $40 billion in tariffs were eliminated or reduced.
Tokyo Round: 1973–79
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 $19 billion worth of trade.
Formation of Quadrilateral Group: 1981
Uruguay Round: 1986–94
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. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role.
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 76 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. The other 51 GATT members rejoined the WTO in the following two years (the last being Congo in 1997). Since the founding of the WTO, 33 new non-GATT members have joined and 22 are currently negotiating membership. There are a total of 164 member countries in the WTO, with Liberia and Afghanistan being the newest members as of 2018.
Of the original GATT members, Syria, Lebanon and the SFR Yugoslavia have not rejoined the WTO. Since FR Yugoslavia,(renamed as 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 General Council of WTO, on 4 May 2010, agreed to establish a working party to examine the request of Syria for WTO membership. The contracting parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31 December 1995. Montenegro became a member in 2012, while Serbia is in the decision stage of the negotiations and is expected to become a member of the WTO in the future.
Whilst GATT was a set of rules agreed upon by nations, the WTO is an intergovernmental organization with its own headquarters and staff, and its scope includes both traded goods and 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.
Effects on trade liberalization
The average tariff levels for the major GATT participants were about 22 percent in 1947. As a result of the first negotiating rounds, tariffs were reduced in the GATT core of the United States, United Kingdom, Canada, and Australia, relative to other contracting parties and non-GATT participants. By the Kennedy round (1962–67), the average tariff levels of GATT participants were about 15%. After the Uruguay Round, tariffs were under 5%.
In addition to facilitating applied tariff reductions, the early GATT's contribution to trade liberalization "include binding the negotiated tariff reductions for an extended period (made more permanent in 1955), establishing the generality of nondiscrimination through most-favored nation (MFN) treatment and national treatment status, ensuring increased transparency of trade policy measures, and providing a forum for future negotiations and for the peaceful resolution of bilateral disputes. All of these elements contributed to the rationalization of trade policy and the reduction of trade barriers and policy uncertainty."
The prosperity of the world economy over the past half century owes a great deal to the growth of world trade which, in turn, is partly the result of farsighted officials who created the GATT. They established a set of procedures giving stability to the trade-policy environment and thereby facilitating the rapid growth of world trade. With the long run in view, the original GATT conferees helped put the world economy on a sound foundation and thereby improved the livelihood of hundreds of millions of people around the world.
Following the United Kingdom's vote to withdraw from the European Union, supporters of leaving the EU suggested that Article 24, paragraph 5B of the treaty could be used to maintain a "standstill" in trading conditions between the UK and the EU in the event of the UK leaving the EU without a trade deal, hence preventing the introduction of tariffs. According to proponents of this approach, it could be used to implement an interim agreement pending negotiation of a final agreement lasting up to ten years.
This claim formed the basis of the so-called "Malthouse compromise" between Conservative party factions as to how to replace the withdrawal agreement. However, this plan was rejected by parliament. The claim that Article 24 might be used was also adopted by Boris Johnson during his 2019 campaign to lead the Conservative Party.
The claim that Article 24 might be used in this way has been criticised by Mark Carney, Liam Fox and others as being unrealistic given the requirement in paragraph 5c of the treaty that there be an agreement between the parties in order for paragraph 5b to be of use as, in the event of a "no-deal" scenario, there would be no agreement. Moreover, critics of the GATT 24 approach point out that services would not be covered by such an arrangement.
- "WTO legal texts: The Uruguay Round agreements". World Trade Organization.
- "Uruguay Round - General Agreement on Tariffs and Trade 1994". World Trade Organization.
- "ACCESSIONS: Protocols of accession for new members since 1995, including commitments in goods and services". World Trade Organization. Retrieved 5 September 2019.
- Bown, Chad P.; Irwin, Douglas A. (December 2015). "The GATT's Starting Point: Tariff Levels circa 1947". NBER Working Paper No. 21782. doi:10.3386/w21782.
- Tomz, Michael; Goldstein, Judith L; Rivers, Douglas (2007). "Do We Really Know That the WTO Increases Trade? Comment". American Economic Review. 97 (5): 2005–2018. doi:10.1257/aer.97.5.2005. ISSN 0002-8282.
- Goldstein, Judith L.; Rivers, Douglas; Tomz, Michael (2007). "Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade". International Organization. 61 (1): 37–67. doi:10.1017/S0020818307070014. ISSN 1531-5088.
- Irwin, Douglas A. (9 April 2007). "GATT Turns 60". Wall Street Journal. ISSN 0099-9660. Retrieved 28 October 2017.
- "General Agreement on Tariffs and Trade (GATT)". The Canadian Encyclopedia. 6 June 2017.
- The GATT years: from Havana to Marrakesh, World Trade Organization
- Timeline: World Trade Organization – A chronology of key events, BBC News
- Brakman-Garretsen-Marrewijk-Witteloostuijn, Nations and Firms in the Global Economy, Chapter 10: Trade and Capital Restriction
- "The WTO and GATT: A Principled History" (PDF). Brookings Institution.
- "WTO | Understanding the WTO - The GATT years: from Havana to Marrakesh". www.wto.org. Retrieved 6 July 2017.
- Michael Hudson, Super Imperialism: The Origin and Fundamentals of U.S. World Dominance, 2nd ed. (London and Sterling, VA: Pluto Press, 2003), 258.
- "The GATT Uruguay Round". ODI briefing paper. Overseas Development Institute. Archived from the original on 3 August 2012. Retrieved 28 June 2011.
- "Fiftieth Anniversary GATT". Wto.org. Retrieved 16 August 2013.
- "Understanding the WTO - members". WTO. Retrieved 16 August 2013.
- "Withdrawal of the Government of the Lebanon" (PDF). Wto.org. Retrieved 20 February 2019.
- "Accession status: Syrian Arab Republic". WTO. Retrieved 16 August 2013.
- "2010 News items – Working party established on Syria's membership request". WTO. Retrieved 16 August 2013.
- What is the WTO? (Official WTO site)
- Leroux, Marcus (21 March 2017). "Trade rules that would mean no tariffs for decade". The Times. Retrieved 15 July 2019.
- Paterson, Owen (13 March 2019). "Here's our plan for an orderly no-deal Brexit, and delivered on time". The Guardian. Retrieved 15 July 2019.
- O'Carroll, Sinead (13 March 2019). "British MPs have voted against a no-deal Brexit. So, what now?". MSNBC. Retrieved 15 July 2019.
- Morris, Chris (24 June 2019). "Gatt 24: Would obscure trade rule help with no-deal Brexit?". BBC. Retrieved 13 July 2019.
- Wood, Vincent. "What is GATT 24: What is the WTO clause at the centre of Andrew Neil's grilling of Boris Johnson". The Independent. Retrieved 13 July 2019.
- Aaronson Susan A. Trade and the American Dream: A Social History of Postwar Trade Policy & co (1996)
- Irwin, Douglas A. "The GATT in Historical Perspective," American Economic Review Vol. 85, No. 2, (May, 1995), pp. 323–28 in JSTOR
- McKenzie, Francine. "GATT and the Cold War," Journal of Cold War Studies, Summer 2008, 10#3 pp. 78–109
- Zeiler, Thomas W. Free Trade, Free World: The Advent of GATT (1999) excerpt and text search