An Introduction to General Agreement on Tariffs and Trade

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GATT: General Agreement on Tariffs and Trade

The General Agreement on Tariffs and Trade (GATT) is considered as multilateral agreement regulating international trade. The General Agreement on Tariffs and Trade (GATT) was signed on Oct. 30, 1947, by 23 countries, was a legal agreement for minimizing the barriers to international trade by eliminating or reducing quotas, tariffs, and subsidies while preserving significant regulations. The GATT was intended to boost economic recovery after World War II through reconstructing and liberalizing global trade. Under GATT, member nations meet at regular intervals to negotiate agreements to reduce quotas, tariffs, and such other restrictions and barriers on international trade. GATT, by its nature, is a contractual agreement among parties (or the nations). It is a treaty that is collectively administered by the contracting nations. However, it has become a permanent international organization for safeguarding the conduct of international trade and an institution for the multilateral expansion of trade.

Objectives of GATT:

By reducing tariff barriers and eliminating discrimination in international trade, the aims & objectives of GATT are as follows:

1. To expand international trade,

2. To encourage full employment and a large and steadily growing volume of real income and effective demand.

3. To improve the world production and exchange of goods.

4. To ensure the full use of world resources.

5. To ensure a steady improvement in the living standards of people in member countries.

6. To settle the disputes through consultation within the framework of GATT.

The rules which are adopted by GATT are based on the following fundamental principles are as follows:

1. Trade should be conducted in a non-discriminatory way;

2. The use of quantitative restrictions should be condemned; and

3. Disagreements should be resolved through consultations.

Most Favored Nations Clause:

The members of GATT agree that reduction in tariffs and elimination of discrimination in international commerce should be on a reciprocal and mutually advantageous basis.

To ensure Non-discrimination, members agree to grant to each other unconditional most favored nation status in all import and export duties, with certain exceptions. Article I of the Agreement deals with the ?most favored nation clause which means that any advantage, favor, privilege or immunity granted by a contracting party to any product originating in or designed for any other country shall be accorded immediately and unconditionally to a like product originating in or destined for the territories of all other contacting parties.

Tariff Negotiations:

GATT recognizes that tariffs are the main impediments to the growth of international trade. Thus, the contracting parties are authorized to negotiate for a substantial reduction of tariffs occasionally.

GATT and WTO

GATT lives on the foundation of the WTO. The 1947 agreement itself is considered defunct. But, its provisions were incorporated into the GATT in the year 1994 agreement. That was designed to keep the trade agreements going while the WTO was being set up. So, the GATT 1994 is itself a component of the WTO Agreement.

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