General Agreement on Tariffs and Trade

Also called: GATT · Topic: The Making of a Global World · NCERT: Beyond NCERT

Meaning

The General Agreement on Tariffs and Trade (GATT) was a treaty signed in Geneva in 1947 by 23 countries, including India. Its aim was to cut tariffs (taxes on imported goods) and other trade barriers through rounds of bargaining. It came into force on 1 January 1948. It was a set of rules, not a full organisation, and the World Trade Organization (WTO) replaced it on 1 January 1995.

It matters because GATT was the trade part of the post-war world economy. The Bretton Woods twins (the IMF and the World Bank) handled money and lending, and GATT handled trade. It also prepared the ground for the WTO, which shapes India's trade policy today.

Explanation

Background: why a trade agreement was needed

• The 1930s went badly wrong. During the Great Depression, countries raised tariffs to protect their own industries. World trade shrank and jobs were lost everywhere.
• The planners after the war drew lessons from this. They wanted steady incomes and full employment (jobs for everyone who wants one). This needed both government management and a stable world economy.
• Bretton Woods dealt with money, not trade. The United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, USA (1–22 July 1944) brought together 44 nations [1][2]. It set up the IMF and the IBRD (World Bank).
• A third body was planned for trade. This was the International Trade Organization (ITO). Its charter, the Havana Charter, was agreed in 1948.
• The US Congress never approved the Havana Charter, so the ITO was never born.
• GATT had been negotiated alongside the Havana Charter. It was meant to be a stop-gap. Instead it became the only world trade rulebook for almost 50 years.

Main features: how GATT worked

• A treaty, not an institution. Countries that signed it were called "contracting parties", not "members". It had a small office (secretariat) in Geneva.
• Most-Favoured-Nation (MFN) rule. If a country gave a lower tariff to one partner, it had to give the same tariff to all GATT partners. No favourites were allowed.
• National treatment. Once imported goods had entered a country, they had to be treated the same as goods made at home. For example, they could not face a higher local tax.
• Tariff "bindings". A country promised a top limit for its tariff on a product and agreed not to raise it beyond that limit.
• Reciprocity. Countries cut tariffs in exchange for cuts by others. Each side gave something and got something.
• Trade rounds. Countries cut tariffs bit by bit through rounds of negotiation. GATT had eight rounds in all.

How it changed over time: the rounds

Round	Years (approx.)	What stands out
Geneva	1947	The first round, where 23 countries signed the agreement
Annecy, Torquay, Geneva	1949–1956	More tariff cuts and new countries joining
Dillon Round	1960–61	More tariff cuts
Kennedy Round	1964–67	Large tariff cuts, plus the first rules on anti-dumping (selling goods abroad below their fair price)
Tokyo Round	1973–79	Started tackling non-tariff barriers (hidden barriers such as quotas and red tape)
Uruguay Round	1986–94	The biggest round. It brought in agriculture, textiles, services and intellectual property, and it created the WTO

• The Uruguay Round began at Punta del Este, Uruguay, in 1986.
• The Dunkel Draft (1991) was named after Arthur Dunkel, GATT's Director-General. It set out a draft final deal and caused heated debate in India over patents and farming.
• The round ended with the Marrakesh Agreement (1994), which set up the WTO from 1 January 1995.

Results

• Tariffs fell a great deal on manufactured goods traded between industrial countries.
• It helped the post-war boom. Between 1950 and 1970, world trade grew by over 8% a year and incomes by nearly 5% a year.
• The gains were uneven. Rich countries kept high protection in agriculture and textiles, the very areas where poor countries could compete.
• This is one reason developing countries set up UNCTAD and the G-77 in 1964 [3][4].

• They went on to demand a New International Economic Order (NIEO) [5].

• Its legacy lives on. The rulebook, known as "GATT 1994", still survives inside the WTO and still covers trade in goods.

Time, place and evidence

• Period: 1947 to 1994, the years of post-war rebuilding, the Cold War and decolonisation (colonies becoming free nations).
• Place: Signed in Geneva, Switzerland, where its secretariat also sat. The last round began in Punta del Este, Uruguay, and ended in Marrakesh, Morocco.
• Original signatories: 23 countries, including India, Britain, the US, France and China.
• Wider setting: The Bretton Woods system, planned mainly by John Maynard Keynes (adviser to the UK Treasury) and Harry Dexter White (US Treasury) [1].
• Evidence: The GATT treaty text and the official records of each round, the Havana Charter, and the Marrakesh Agreement that set up the WTO.

Don't confuse with

• Bretton Woods twins (IMF and IBRD): These were created at Bretton Woods in 1944 and dealt with money (payment balances and reconstruction loans) [1][2]. GATT was signed separately in Geneva in 1947 and dealt with trade.
• WTO: The WTO (1995) is a permanent organisation with members and a binding system for settling disputes. GATT was a provisional agreement with "contracting parties" and a weak dispute system.
• ITO / Havana Charter: The ITO was the planned trade organisation that never came into being, because the US Congress did not approve it. GATT is the agreement that did work and filled the gap.
• UNCTAD / G-77: UNCTAD is a UN conference, first held in Geneva in 1964, where developing countries formed the G-77 [3][4]. It pushed the interests of poor countries. GATT was a tariff-cutting agreement led by rich countries.

Prelims Hooks

• GATT was signed in 1947 in Geneva by 23 countries, and India was one of the original signatories. It came into force on 1 January 1948.
• GATT was not created at the Bretton Woods Conference (July 1944, 44 nations). That conference created only the IMF and IBRD [1][2].
• Order of the rounds: Geneva (1947) → Dillon → Kennedy → Tokyo → Uruguay (1986–94). The Uruguay Round was the eighth and last.
• The Uruguay Round led to the Marrakesh Agreement (1994) and the WTO (1 January 1995). The Dunkel Draft is linked to Arthur Dunkel.
• MFN means that a tariff cut given to one partner must be given to all partners. National treatment means imported goods are treated like home-made goods once inside the country.
• Common trap: the ITO / Havana Charter never came into force. GATT was the stop-gap that lasted about 47 years.

Mains Points

• GATT was the trade pillar of a managed world order. Bretton Woods dealt with money and GATT dealt with trade. Together they turned the 1930s lessons into rules.
• Steady tariff cuts helped world trade grow over 8% a year (1950–70).
• Countries still kept the freedom to manage jobs at home.

• The system freed trade in goods more than it freed money or people.

• The gains went mostly to the rich countries. This shaped how the Global South responded.

• GATT cut tariffs mainly on factory goods traded between industrial countries.
• Rich countries kept protecting agriculture and textiles.
• In reply, developing countries formed UNCTAD and the G-77 (1964) and pushed for the NIEO (resolution 3201, 1 May 1974) [3][5].

• So for the new nations, political freedom did not bring fair trade.

• From GATT to WTO is a story of continuity and change.

• Continuity: The core principles (MFN, national treatment, bindings) carried over into the WTO.
• Change: The Uruguay Round brought in services, patents and farming, and created binding dispute settlement.
• For India, the Dunkel Draft debates show how trade talks began to affect areas at home, such as seeds, medicines and food security.

Related concepts

• Bretton Woods Conference
• Bretton Woods system
• International Monetary Fund
• World Bank
• Fixed exchange rate
• Marshall Plan
• Multinational corporation
• Group of 77
• New International Economic Order
• Floating exchange rate

Read more

• Rebuilding the world economy: Bretton Woods to globalisation