Legal Definitions - General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT) was an international legal agreement, first signed in 1947, that aimed to reduce barriers to international trade. Its primary goal was to lower tariffs (taxes on imported goods) and eliminate other restrictions on trade among member countries on a reciprocal basis. This was intended to boost global economic recovery and foster greater prosperity after World War II.

Although an agreement, GATT functioned much like an international organization, providing a forum where member countries could negotiate to reduce trade barriers. Over several decades, GATT successfully led to significant reductions in average tariff rates worldwide. Its work eventually culminated in the 1994 Uruguay Round agreement, which led to the creation of the World Trade Organization (WTO). The WTO effectively absorbed and expanded upon GATT's principles, becoming the primary international body overseeing global trade rules today.

Here are some examples illustrating the impact and function of GATT:

• Reducing Import Taxes on Goods: In the 1950s, "Vineland," a country known for its wines, faced high import tariffs (e.g., 40%) when trying to sell its products in "Gastronomia," a major market. Through a GATT negotiation round, Vineland agreed to lower its tariffs on Gastronomia's manufactured goods. In return, Gastronomia reduced its import tax on Vineland's wines to 15%. This made Vineland's wines more affordable and competitive in Gastronomia, increasing trade between the two nations.

  This example demonstrates GATT's core function of facilitating reciprocal tariff reductions, making goods cheaper for consumers and boosting international trade.

• Addressing Non-Tariff Barriers: "Agri-Nation" was a major exporter of fresh produce, but "Urbania" had very complex and time-consuming customs inspection procedures for all imported agricultural products, effectively slowing down trade and increasing costs for Agri-Nation. During a GATT discussion, Agri-Nation argued that these procedures were an unnecessary barrier. Urbania agreed to streamline its inspection process, adopting more efficient, standardized checks, provided Agri-Nation also simplified its own import licensing requirements for Urbania's processed foods.

  This illustrates how GATT went beyond just tariffs to address other forms of trade barriers, such as cumbersome regulations, and promoted fairness through reciprocal concessions.

• Paving the Way for Modern Global Trade: Consider a small developing country, "Islandia," which joined the World Trade Organization (WTO) in the early 2000s. Thanks to the decades of tariff-cutting negotiations conducted under GATT, the average global import taxes on goods like textiles and handicrafts (Islandia's main exports) had already been significantly reduced. This meant that when Islandia entered the global trading system, its products could immediately access major international markets with much lower barriers than would have existed before GATT's influence.

  This example highlights GATT's long-term legacy, showing how its foundational work in lowering tariffs created a more open and accessible global trading environment that continues to benefit countries even after its evolution into the WTO.