General Agreement on Tariffs and Trade

Also called: GATT · Topic: International Trade: Patterns, Ports and the WTO · NCERT: Class 12, Ch 8 "International Trade"

Meaning

The General Agreement on Tariffs and Trade (GATT) was a deal between many countries to cut customs tariffs (taxes on goods crossing a border) and other limits on trade in goods. It was signed on 30 October 1947 by 23 countries and came into force in 1948 [2]. It was a set of shared rules, not a permanent organisation.

GATT was the first big step from scattered trade towards rules agreed by many countries. Its last round of talks, the Uruguay Round, created the WTO, which replaced GATT on 1 January 1995.

Explanation

Why GATT was formed (cause → process → result)

Cause: high trade barriers after the Second World War

• Countries charged high customs tariffs on goods coming in.
• They also used other limits on trade, such as quotas (a fixed upper limit on how much of a good can come in).

Process: countries agreed on common rules

• Some countries came together to free trade from these barriers.
• The deal was signed on 30 October 1947. The 23 countries that signed it are called its founding "contracting parties" (the countries bound by the agreement) [2].

Result: GATT came into force in 1948

• Members agreed to keep cutting tariffs step by step, through negotiation.

How GATT worked: negotiating rounds

• A round is a long set of talks. In it, members swap tariff cuts with each other.
• The first round was held in Geneva in 1947 with 23 countries [2].
• GATT held eight rounds in all.
• The Uruguay Round (1986–94) was the eighth and last. It led to the creation of the WTO [2].
• It ended at Marrakesh (Morocco) in April 1994 with the Marrakesh Agreement, which set up the WTO.
• It also brought new areas under trade rules for the first time: GATS (services), TRIPS (intellectual property, meaning ownership of ideas such as patents and copyrights) and the Agreement on Agriculture (farm subsidies, market access and export support).

Weaknesses that ended GATT

1. It was only temporary

• GATT was an agreement with temporary arrangements, not a permanent organisation.

2. It had a narrow scope

• It covered trade in goods only. Services and intellectual property were left out.

3. It had weak dispute settlement

• It had no strong system to settle fights between members.

The fix: in 1994, members decided to set up a permanent institution for free and fair trade. GATT became the WTO on 1 January 1995.

Where it occurs

• Geneva (Switzerland): host of the first GATT round in 1947 [2]. It is now also the headquarters of the WTO.
• Uruguay Round (1986–94): the eighth and last GATT round [2].
• Marrakesh (Morocco): the Uruguay Round ended here in April 1994 with the Marrakesh Agreement, which set up the WTO.
• Members worldwide: membership grew from 23 under GATT to 166 under the WTO. Together, these economies now carry out about 98% of world trade [2][3].
• India: a founder member of the WTO, the body that took over from GATT (NCERT).

Don't confuse with

• WTO (World Trade Organization): GATT was an agreement covering only goods. The WTO (from 1 January 1995) is a permanent organisation. It covers goods, services and intellectual property, and it has formal dispute panels and an Appellate Body (an appeal court).
• GATS (General Agreement on Trade in Services): the names sound alike, but GATS covers services such as telecom, banking and transport. It came out of the Uruguay Round. GATT covered goods.
• Marrakesh Agreement (April 1994): this is not GATT itself. It is the agreement that ended the Uruguay Round and set up the WTO.
• Doha Development Round (2001): a WTO round held at Doha (Qatar), not a GATT round. The last GATT round was the Uruguay Round.

Prelims Hooks

• GATT was signed on 30 October 1947 by 23 contracting parties and came into force in 1948. The WTO replaced it on 1 January 1995 [2].
• First GATT round: Geneva, 1947, with 23 countries [2].
• GATT held eight rounds. The last was the Uruguay Round (1986–94), which ended with the Marrakesh Agreement (Morocco, April 1994) [2].
• Trap: GATT covered goods only. Services (GATS) and intellectual property (TRIPS) came in only with the WTO.
• Members grew from 23 (GATT) to 166 (WTO), covering about 98% of world trade [2][3].
• Trap: GATT was an agreement, not an organisation. The WTO is the permanent organisation, with its headquarters in Geneva.

Mains Points

• Why GATT turned into the WTO:
• GATT was temporary, covered only goods and had a weak dispute system.
• The WTO added a permanent body, rules for services (GATS) and intellectual property (TRIPS), and binding dispute settlement.

• The WTO is now the only global rule-maker for trade.

• GATT's role in the geography of world trade (GS-I):

• Trade moved in stages: barter, then long routes such as the Silk Route, then rules agreed by many countries.
• GATT's rounds steadily lowered post-war tariff walls.

• Membership grew from 23 to 166 economies, which together carry about 98% of world trade [2][3].

• What changed for developing countries:

• The Uruguay Round brought farm trade (Agreement on Agriculture) and ideas (TRIPS) under trade rules.
• NCERT notes that developed countries have still not fully opened their markets to goods from developing countries.
• This unfair access, first set out in GATT's last round, still shapes India's positions at the WTO.

Related concepts

• World Trade Organization
• Criticism of the WTO

Read more

• GATT and the World Trade Organization