Introduction
General Agreement on Trades and Tariffs (GATT) was formed in 1947 as part of the Bretton Woods Agreement. GATT set up a series of negotiating rounds, which were primarily intended to reduce and gradually eliminate quotas, duties, and tariffs in respect of trade in goods. The basic objective of the GATT was to progressively reduce national barriers to international trade; (a) initially through across-the-board tariff reduction, (b) later the removal of non-tariff measures, and (c) eventually, the development of global standards for fair trade. The fundamental promise of the GATT in pursuing its objectives was: 1) to reduce trade barriers and; 2) to facilitate trade liberalization and; 3) expansion through multilateral consensus in a global forum bringing together all nations, developed and developing, rich and poor.
ORIGINS OF THE GATT
The economy of pre-World War II was dominated by US and its major trading partners. This process took place in the form of bilateral agreements between them. The US in order to secure more open markets offered its own tariff cuts. Subsequent to World War II, diverse measures were adopted to liberalize trade between various nations to ensure close economic co-operation between them.
Hence, the wartime scenario made the groundwork for the concept of liberalization of international trade. This was by and large initiated by the United States of America. However, the major obstacle towards achieving this objective was the existence of multifarious trade barriers. This in turn called for a universal set of regulations, which would be applicable to all the nations. In order to necessitate an overall international progress in the economic order, it was necessary that a substantial improvement be achieved in three major domains i.e., investment, trade and exchange policy.
After several rounds of discussions between the United States of America, the United Kingdom and Canada in the Bretton Wood Conference; it was agreed that the world economy would be organized around three institutions’:
- International Monetary Fund
- The International Bank for Reconstruction and Development or the World Bank
- International Trade Organization
International Monetary Fund
It was formulated to look after the short-term problems relating to international liquidity and International Bank for Reconstruction and Development to take care of international investments. Likewise International Trade Organization was to take care of the ‘actual’ trade relationship.
International Trade Organization
However, the International Trade Organization never came to see the light of the day. This was due to the non-ratification of the agreement relating to International Trade Organization or ITO; especially by United States, to which 53 states were signatories. Although the failure of establishing the ITO was a major setback to the international trade. Its contribution to the movement on international trade regulation cannot be overlooked. The establishment of the ITO brought into existence the ITO Charter; which laid down the foundations not only for GATT but also for the present WTO Agreement. The resultant impact of the ITO was that even after its failure to take off as an organization, the ITO Charter was used to formulate GATT.
This started when some of the participants at the London Conference on Trade and Employment recommended that the tariff negotiation be initiated in the Charter at Geneva. Those regulations, which were required to protect the integrity of the trade and concessions, were included and those relating to employment investment etc. were disregarded.
As a result of these discussions; participated by 23 nations, the General Agreement on Tariffs and Trade (GATT) came into being in 1947. It came into force in 1948. The agreement was intended to provide a temporary international medium. It encourages free trade between member states by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes. However, GATT surpassed expectations. Despite an intention to make it a temporary Agreement; GATT 1947 became operational for almost fifty years providing the only international forum and framework (other than regional arrangements) for carrying forward the objectives of free and fair trade. Its popularity grew over the years and GATT membership finally was comprised of more than 125 countries.
Conclusion
GATT was thus established, on a temporary basis to break down trade barriers in the form of tariffs, quotas, preferential trade agreements between countries, etc.; to make the flow of commodities and capital, less restricted by national government influence. It is for its temporary nature that a signatory to the agreement is known as a Contracting Party; since it is not an organization. Hence, the origin of GATT traces back to 1947; which governed most of the world’s trade in goods for almost, half a century. It was the foremost step towards liberalization of global trade. Its importance may be highlighted as a multilateral agreement; which facilitated liberalization of trade by reducing tariffs, opening markets and framing rules for free and fair trade. The original signatories to GATT in 1947 were 23 nations. The GATT 1947 covered only trade in goods.
It is pertinent to note that GATT 1947, unlike GATT 1994, did not cover trade in Trade in Services, Agriculture, Textile and Apparel. This Agreement could also not justify the inclusion of intellectual property rights regime within its ambit and neither did it regulate the foreign investment that is incidental to the free movement of goods.
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Written By : Abhishek Khare Advocate