Learn The Truth About GATT AND WTO In The Next 60 Seconds.

The General Agreement on Tariffs and Trade (GATT) was established in 1945 as a provisional agreement pending the creation of an International Trade Organization (ITO).

The ITO draft charter, which was the result of trade negotiations at the Havana Conference of 1948, never came into being due to the failure of the U.S. Congress to approve it.

Other countries also declined to proceed with the ITO without the participation of the United States.

Thus, the GATT continued to fill the vacuum as a de facto trade organization, with codes of conduct for international trade but with almost no basic constitution designed to regulate its international activities and procedures.

The GATT, in theory, was not an “organization,” and participating nations were called “contracting parties” and not members (Jackson, 1992; Hoekman and Kostecki, 1995).

Since its inception, the GATT has used certain policies to reduce trade barriers between contracting parties (CPs):

Nondiscrimination :

All CPs must be treated in the same way with respect to import-export duties and charges. According to the most favored nation treatment, each CP must grant to every other CP the most-favorable tariff treatment that it grants to any country with respect to imports and exports of products. Certain exceptions, however, are allowed, such as free trade areas, customs unions, or other preferential arrangements in favor of developing nations. Once imports have cleared customs, a CP is required to treat foreign imports the same way as it treats similar domestic products (the national treatment standard).

Trade liberalization:

The GATT has been an important forum for trade negotiations. It has sponsored periodic conferences among CPs to reduce trade barriers (see International Perspective 2.1). The Uruguay Round (1986-1993) gave rise to the establishment of a permanent trade organization (World Trade Organization or WTO). The most recent round (the Doha Round) hopes to reach agreement on other trade distortions, such as agricultural subsidies and trade barriers imposed by developing countries on imports of manufactured goods.

Settlement of trade disputes:

The GATT/WTO has played an important role in resolving trade disputes between CPs. In certain cases where a party did not follow GATT’s recommendations, it ruled for trade retaliation that is proportional to the loss or damage sustained. It is fair to state that the existence of the GATT/WTO has been a deterrent to damaging trade wars between nations.

Trade in goods:

The GATT rules apply to all products both imported and exported, although most of the rules are relevant to imports. It was designed primarily to regulate tariffs and related barriers to imports such as quotas, internal taxes, discriminatory regulations, subsidies, dumping, discriminatory customs procedures, and other nontariff barriers. The Uruguay Round (1994) resulted in a new general agreement on trade in services, trade-related aspects of intellectual property (TRIPs) and traderelated investment measures (TRIMs). Thus, CPs have moved beyond the original purpose of the GATT to achieve unrestricted trade in goods, to reduce barriers to trade in services, investment, and to protect intellectual property (Collins and Bosworth, 1995).