Lecture Notes on General Agreement on Tariffs and Trade (GATT)

Introduction
● GATT was established on October 30, 1947, and came into force on January
1, 1948. It was a multilateral treaty designed to provide a framework for
international trade, aiming to promote trade liberalization and reduce trade
barriers such as tariffs, quotas, and subsidies.
● Initially signed by 23 countries, GATT evolved through several rounds of
negotiations, expanding its membership and scope over time. It was the
foundation for regulating international trade until the establishment of the
World Trade Organization (WTO) in 1995.
● The agreement was signed in Geneva, Switzerland.
Objectives of GATT
1. Promotion of Free Trade: By reducing or eliminating tariffs, quotas, and other
trade barriers, GATT sought to encourage global trade and economic growth.
2. Non-Discrimination: Ensuring that all member nations are treated equally in
trade matters through principles like Most-Favored-Nation (MFN) and National
Treatment.
3. Predictability and Stability: Establishing a predictable environment for
international trade, reducing uncertainty and promoting fair competition.
4. Fair Competition: Creating rules to prevent unfair trade practices such as
dumping and subsidies that distort competition.
5. Economic Development: Supporting the economic growth of developing
countries by allowing special concessions and exceptions.
Key Principles of GATT
1. Most-Favored-Nation (MFN) Principle:
Central to GATT, the MFN principle requires that any trade advantage (e.g.,
lower tariffs) given to one member country must be extended to all other
members. This ensures non-discriminatory treatment among members.
2. National Treatment Principle:
Once goods have entered a country, they must be treated equally with
domestic goods. No additional taxes or regulations should discriminate
against imported goods.
3. Reciprocity:
Trade concessions and benefits provided by one country should be
reciprocated by other countries. This principle fosters mutual benefits and
balances the interests of member nations.
 4. Transparency:
Trade policies and regulations must be transparent and predictable. Members
are required to publish their trade regulations and follow established
procedures for trade policy changes.
5. Reduction of Trade Barriers:
GATT promoted the progressive reduction of tariffs and other trade barriers
through multilateral negotiations. The focus was on reducing both tariffs and
non-tariff barriers to facilitate trade.
Rounds of GATT Negotiations
GATT evolved through eight rounds of multilateral negotiations, each aimed at
reducing trade barriers and expanding the scope of the agreement:
1. Geneva Round (1947):
The first round, which led to the signing of GATT. Tariff reductions on 45,000
items, affecting $10 billion in trade, were agreed upon.
2. Annecy Round (1949):
Further tariff reductions were negotiated among the 13 participating
countries.
3. Torquay Round (1951):
Continued the work of tariff reductions with the participation of 38 countries.
4. Geneva Round (1956):
Focused on tariff cuts; 26 countries participated.
5. Dillon Round (1960-1962):
Named after U.S. Treasury Secretary Douglas Dillon, this round focused on
tariff cuts and the addition of new member countries, particularly those
emerging from decolonization.
6. Kennedy Round (1964-1967):
Significant for its emphasis on tariff cuts and the introduction of anti-
dumping measures. It involved 62 countries and resulted in a 35% reduction
in tariffs.
7. Tokyo Round (1973-1979):
Expanded GATT’s scope beyond tariffs to include non-tariff barriers,
subsidies, and countervailing measures. It also introduced plurilateral
agreements, allowing some countries to enter agreements outside of the
main framework.
8. Uruguay Round (1986-1994):
● The most ambitious round, it addressed issues like services, intellectual
property, and agriculture. It led to the creation of the World Trade
 Organization (WTO) in 1995. GATT became the foundation of the WTO’s trade
in goods framework.
● The largest trade negotiation ever, which took place in Punta del Este,
Uruguay in 1986 and covered almost all trade.
Impact and Significance of GATT
●Trade Liberalization: GATT succeeded in reducing average tariff levels from
about 22% in 1947 to 5% by the early 1990s, significantly boosting
international trade.
● Economic Growth: By promoting free trade, GATT contributed to the global
economic recovery after World War II and the rapid growth of the world
economy in the subsequent decades.
● Institutional Legacy: Although replaced by the WTO in 1995, GATT’s legacy
endures. The GATT framework, principles, and many of its agreements were
incorporated into the WTO agreements.
Challenges and Criticisms
● Limited Scope: GATT primarily focused on trade in goods, excluding
services, intellectual property, and investment. This limitation led to the need
for the broader WTO framework.
● Developing Countries' Concerns: Developing nations often felt that GATT’s
emphasis on reciprocal trade concessions did not adequately address their
needs. They argued for more flexibility and special treatment.
● Dispute Settlement: GATT’s dispute resolution mechanism lacked the
binding authority and enforcement mechanisms of the later WTO system,
often leading to prolonged disputes.
Transition to the WTO
● The Uruguay Round concluded with the Marrakesh Agreement in 1994,
leading to the establishment of the WTO on January 1, 1995. The WTO
incorporated GATT’s trade in goods framework, expanded its scope to include
services (GATS) and intellectual property (TRIPS), and strengthened the
dispute settlement system.