GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT). The main multilateral institution overseeing international trade since 1947.
During World War II, the Western leaders identified the trade protectionism characterizing the 1930s as a major cause of hostilities. The result was a proposal to subject postwar international trade to systematic control under an international trading organization ( ITO). Disagreement over the remit of the ITO precluded agreement, and what survived was the GATT -- a compromise that included a procedural base and guiding principles for tariff negotiations. The GATT, concluded in 1947, was considered an interim arrangement, but when the ITO failed to emerge, it was further amplified and extended through a serious of negotiating rounds, becoming by default the world's trading organization.
The GATT reflects the view that open trade allows countries to specialize according to their comparative advantage, thus promoting higher levels of international growth and economic well-being. To achieve these aims the GATT has operated on three basic principles. First, signatory states accept not to increase tariffs (duties levied against imports). Second, they agree not to impose quotas (quantative restrictions on imports). Finally, the Most-Favored Nation (MFN) principle, contained in Article 1 of the GATT agreement, holds that trade concessions realized by bilateral agreement among GATT parties are automatically extended to all signatories. Collectively, the rules are designed to restrain increases in trade restrictions and generalize any liberalization that may occur.
From the outset there were important exceptions to these principles, including special dispensations for agricultural products and trade in textiles from developing countries; nontariff measures; the permissibility of customs unions and free trade areas (e.g., the European Economic Community [EEC]); exemptions for developing countries from GATT obligations; and waiver arrangements for derogation from a GATT provision ( Robertson 1992). Moreover, chapter 4 of the GATT enables signatories to accept and negotiate reductions in trade barriers without jeopardizing their domestic industrial objective.
In the two decades after its inception the GATT was successful in achieving a dramatic decline in tariff barriers and significant growth in world trade. Early negotiating rounds at Geneva ( 1947-1948), Annecy ( 1949), Torquay ( 1951), Geneva ( 1956, 1960-62, and 1964-1967) gradually reduced product-specific tariffs. The sixth meeting, the Kennedy round ( 1964-1967), produced agreement for a further average one third cut in tariff barriers. By 1967, the GATT had contributed to a growth in trade between industrialized countries at an average of 8 percent per annum.
Since the late 1960s the GATT's achievements in liberalizing international trade have come under increasing attack from new protectionist policies. Protectionism has stemmed from a number of sources. First, the Oil Producing and Exporting Countries ( OPEC) crisis and global stagflation of the 1970s resulted in slower growth and higher unemployment than in previous decades. As a result, governments have adopted discriminatory trade practices to protect jobs and domestic industries. Second, the growth in competition from Japan and the Newly Industrialized Countries (NICs), the shift to floating exchange rates, and the relative decline of U.S. manufacturing provided additional pressure for anticompetitive trade protection.
The "new protectionism," as it is commonly referred to, has not been based on tariffs but on devices that are much less visible and hence more difficult to detect. The success of the GATT in reducing tariff barriers led to widespread introduction of nontariff barriers (NTBs) to protect domestic economies (e.g., government procurement policies, national standards, and regulations). In addition, barter and export restraints agreements (exports or imports limited to an agreed number of units, or a percentage of the importing country's market share) have been adopted in direct conflict with the liberalization objectives of the GATT. Finally, states have adapted domestic industrial policies (e.g., subsidies and tax preferences) to protect indigenous industries from foreign competition.
In response to new protectionism, the GATT negotiations entered a new phase in the Tokyo ( 1974-1979) and Uruguay ( 1986-1994) rounds. The outcome has been gradual extension of traditional tariff reductions coupled with new GATT codes to address the new challenges.
The Tokyo round's major achievements were further tariff cuts of 35 percent, "codes of good behavior" regarding NTBs, and clarification of international norms concerning government regulations and subsidies. In general, as Robert Gilpin( 1987) has pointed out, the negotiations "sought to make more 'transparent' . . . those nontariff barriers and other national practices associated with what is called New Protectionism" (p. 197). However, agreement was not reached on proposals to reform GATT agriculture arrangements, provisions for dispute settlement, and