The General Agreement on Tariffs and Trade (GATT) is an international treaty, signed in Geneva on 30 October 1947 by 23 countries, that set rules for trade in goods and provided a forum for cutting tariffs. For almost half a century it served as the de facto organisation of world trade, overseeing eight rounds of negotiations that sharply reduced barriers on manufactured goods. On 1 January 1995 it was absorbed into the new World Trade Organization (WTO).
The GATT is often described as the third pillar of the postwar order created alongside the Bretton Woods System, whose institutions were the International Monetary Fund (IMF) and the World Bank. Its text, updated as "GATT 1994", remains the WTO's core agreement on trade in goods, so the term refers both to a historical institution and to rules still in force.
The GATT in plain terms
Imagine a group of neighbours who keep raising the fences between their gardens, so swapping vegetables becomes harder for everyone. After a bad few years they sit down and agree to lower the fences a little at a time, to treat all neighbours in the group equally, and not to build new fences once they have agreed to take them down.
The GATT was that agreement among countries. It did not remove every barrier at once. Instead it created a habit of regular talks in which countries traded promises to lower their tariffs, and a rulebook that made those promises hard to take back.
Origins
The GATT grew out of the experience of the 1930s, when tariff wars such as the US Smoot–Hawley Tariff Act of 1930 and the retaliation that followed helped deepen the Great Depression and shrink world trade. Planners at the end of the Second World War intended to create an International Trade Organization (ITO). While its charter was being drafted, a group of countries negotiated tariff cuts and wrote them into the GATT, which began to apply provisionally in 1948. The ITO charter, agreed in Havana in 1948, was never ratified, chiefly because the US Congress did not approve it, so the "provisional" GATT carried on for 47 years with a small secretariat in Geneva.
Core rules
- Most-favoured-nation treatment (Article I). Any tariff advantage given to one member must be extended to all, the principle of most-favored-nation treatment (MFN).
- Tariff bindings (Article II). Members list maximum tariff rates that they agree not to exceed.
- National treatment (Article III). Once imported goods have cleared customs, they must be treated no worse than domestic goods under internal taxes and rules.
- Limits on quotas (Article XI). An import quota and other quantity limits are generally banned, with exceptions.
- Trade remedies. Article VI allows duties against dumping and subsidised goods, and Article XIX allows temporary safeguards against import surges.
- Exceptions. Article XX covers measures to protect health, conservation and other policy goals, Article XXI covers national security, and Article XXIV permits a free trade area or customs union, the legal basis for each trade bloc.
Negotiating rounds
The GATT's work proceeded through rounds, in which members exchanged tariff concessions:
| Round | Years | Participants | Main focus |
|---|---|---|---|
| Geneva | 1947 | 23 | Founding tariff cuts |
| Annecy | 1949 | 13 | Tariffs |
| Torquay | 1950–51 | 38 | Tariffs |
| Geneva | 1956 | 26 | Tariffs |
| Dillon | 1960–61 | 26 | Tariffs |
| Kennedy | 1964–67 | 62 | Tariffs and anti-dumping |
| Tokyo | 1973–79 | 102 | Tariffs and non-tariff measures |
| Uruguay | 1986–94 | 123 | Created the WTO; added services and intellectual property |
According to the WTO, the Tokyo Round alone cut customs duties in nine major industrial markets by about a third, bringing the average tariff on manufactured goods to 4.7%. The Uruguay Round ended with the Marrakesh Agreement of 15 April 1994, which set up the WTO and brought services (GATS), intellectual property (IP) (TRIPS), agriculture and a stronger dispute system under one roof.
Gaps and criticism
The GATT left large areas of trade outside its disciplines. Agriculture was riddled with exceptions, allowing rich countries to keep high farm support and import barriers, a grievance for developing countries. Textiles and clothing were managed for three decades by quota systems, including the Multi-Fibre Arrangement from 1974, which were phased out only on 1 January 2005. Services were not covered at all.
Dispute settlement was weak: because decisions were taken by consensus, the country found at fault could block the adoption of a panel report. Developing countries argued that the system reflected the priorities of industrial nations, which led to the addition of a chapter on trade and development in 1965 and preferences for poorer members. From a different direction, critics of free trade argued that tariff cutting exposed workers and infant industries to competition too quickly, while advocates credited the GATT with the long postwar expansion of trade and with keeping protectionism in check during the recessions of the 1970s and early 1980s.
Legacy
The GATT's principles of non-discrimination, bound tariffs and negotiated reciprocity remain the foundation of the WTO and of most bilateral and regional deals, including the North American Free Trade Agreement (NAFTA) and its successor. Its history of step-by-step liberalisation is also a reference point in today's debates over globalization and the revival of tariffs. Membership grew from 23 to 128 contracting parties by 1994; the WTO now has 166 members.