General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT), signed in 1947 by 23 nations, is a pact that lowers restrictions on international trade by getting rid of or cutting back on quotas, tariffs, and subsidies. Its goal was to accelerate the post-World War Two economic recovery.

What is GATT?

The International Trade Organization was never created due to the failure of the negotiating states to establish it, so the GATT was first addressed during the United Nations Conference on Trade and Employment (ITO). On October 30, 1947, at Geneva, it was signed by 23 countries and went into effect on January 1, 1948, with provisos only. The World Trade Organization (WTO) was founded on January 1, 1995, as part of the Uruguay Round Agreements after 123 countries signed off on them in Marrakesh on April 15, 1994. It was in place up to that point.

The World Trade Organization (WTO), which incorporated the body established to execute GATT, was founded in 1995 as a result of the expansion and improvement of GATT throughout the years. Its agreements, which at the time encompassed 90% of international trade, had 125 signatories.

Why GATT replaced by WTO?

There are some reasons due to which it was replaced by WTO −

• GATT lacked a well-defined institutional framework. The World Trade Organization (WTO) embraces the GATT principles and offers a more institutionalized structure for doing so.

• Ad hoc and provisional in nature, the GATT was never adopted by the legislatures of the member nations.

• Ad hoc and provisional in nature, the GATT was never adopted by the legislatures of the member nations.

• GATT only dealt with trade in goods; the WTO also deals with services and intellectual property.

• WTO dispute resolution is quicker, and its decisions are unassailable.

Pros and Cons of the GATT

There are some pros and cons of GATT, as given below

Pros	Cons
Encourages trade between nations	Local industries might have trouble competing
Decreases the possibility of war	Increases the risk exposure of the entire world to a certain home business
Makes communication better	Countries give over some of their control to a global agreement

Purpose of GATT

An international trade pact known as the General Agreement on Tariffs and Trade (GATT) was signed in 1947. The signatories to this trade pact were 23 countries with the purpose of −

• GATT was established and its objective were to liberalize trade among its member nations by lowering tariffs and restrictions.

• All trade discrimination was to be eliminated by the member countries.

• Average industrial product tariffs were lowered from 40% to 5% during the course of seven rounds of talks between 1947 and 1993.

• The GATT's decisions paved the way for economic globalization.

Some Other Facts of GATT

A multilateral trade agreement is the General Agreement on Tariffs and Trade. Nine rounds of international trade discussions took place between 1947 and 1995, and they resulted in updates to the document. In 1995, the World Trade Organization essentially took over its function in global trade.

• In the 1940s, the United States sought to create a number of post-war multilateral institutions, one of which would be devoted to the revival of international trade.

• The United States took active measures to create such an organization in 1945 and 1946 by proposing a conference to develop a charter for a trade organization.

• The International Trade Organization (ITO), one of the ideas put forth during the UN Conference on Trade and Employment (UNCTE), when the GATT was first created, was one of the conference's outcomes. It had been envisioned that the ITO would function in tandem with the World Bank and the International Monetary Fund (IMF).

• The International Trade Organization (ITO) was organized through negotiations involving more than 50 countries, but these talks broke down when the United States withdrew.

Conclusion

The most significant GATT tenet was the prohibition of trade discrimination, which required that each member state open its markets to all others equally. This was reflected in the most-favorable nation clauses, which said that once a nation and its biggest trade partners agreed to lower a tariff, such tariff reduction was immediately applied to every other GATT member.

Frequently Asked Questions

Q1. Why is WTO better than GATT?

Ans. Because of the following reasons, WTO is believed to be better han GATT −

• The WTO covers services and intellectual property.

• The WTO dispute settlement system is faster, more automatic than the old GATT system.

• Its rulings cannot be blocked.

Q2. What is the General Agreement on Tariffs and Trade (GATT)?

Ans. The General Agreement on Tariffs and Trade (GATT), which was ratified by 23 nations in 1947, lowers trade restrictions by doing away with or reducing quotas, tariffs, and subsidies. After World War II, it was designed to accelerate economic recovery.

Q3. What happened to GATT?

Ans. The General Agreement, which was modified as a result of the Uruguay Round discussions, continues to exist as the WTO's overarching treaty for trade in goods, even though the GATT was superseded as an international organization by the WTO.

Q4. Was India a member of GATT?

Ans. India was a member of GATT from 1947 itself.

Q5. What are the benefits of GATT to India?

Ans. Due to India's participation, a number of nations are now trading with it, raising output, employment, and living standards while also giving the chance to make the best use of the world's resources.

Q6. Why GATT is created?

Ans. The GATT was created in 1947 to regulate international trade. It was developed to fasten the post-second world war economic recovery by lowering or removing trade taxes, quotas, and subsidies.