The Role of the General Agreement on Tariffs and Trade (GATT)

The Role of the General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT) was a multilateral trade treaty between countries to regulate international trade and tariffs in accordance with specific rules, norms or code of conduct. GATT was set up in 1948 in Geneva to follow the objectives of free trade in order to encourage growth and development of all member countries. There are 117 member nations in GATT. The principal purpose of GATT was to ensure competition in commodity trade through the removal of or reduction in trade barriers.

GATT served as an important international forum for carrying on negotiations on tariffs. Under GATT, member nations met at regular intervals to negotiate agreements to reduce quotas, tariffs and such other restrictions on international trade. GATT became a permanent international trade institution for the multilateral expansion of trade until it was replaced by World Trade Organisation (W.T.O) in 1995.

Objectives of GATT

Expansion of international trade;

Increase of world production by ensuring full employment in the participating nations.

Development and full utilization of world resources; and

Revising standard of living of the world community as a whole.

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

Trade should be conducted in a non-discriminatory way;

The use of quantitative restrictions should be condemned; and

Disagreements should be resolved through consultations.

Methods of achieving the objectives

The GATT proposed to achieve the objectives through the following methods:

1) Most favoured Nation clause

The clause is also known as elimination of discrimination clause. This clause is to be adopted to avoid discrimination in international trade. The clause implies that each country shall be treated as the most favoured nation. Any particular trade concession offered by a member country to her trading partner should also be available to all the members of the GATT at the same time.

2) Quantitative restrictions on Imports

The GATT rules prohibited the use of import quota fixation. But three important exceptions were allowed to this rule:

Countries, which are facing balance of payments difficulties, may use the device of input quota fixation.

Developing countries may resort to quota fixation but only under procedure accepted by the GATT.

Quotas may be applied to agricultural and fishery products if domestic production is subject to equally restrictive controls.

3) Tariff negotiations and Reduction of Tariff

The GATT recognized that tariffs are often an important obstacle to international trade. Hence, the GATT would encourage negotiations for tariff reduction to be conducted on a reciprocal and mutually advantageous basis, taking into consideration the varying needs of individual contracting parties.

The Uruguay Round of talks 1993 was most ambitious and complex. Apart from the traditional tariff and non-tariff measures, new areas such as Trade related Intellectual property Rights (TRIPS), Trade Related Investment Measures (TRIMS) and Trade in services were taken up for discussion. There were differences among members countries in areas such as agriculture, textiles, TRIPS and anti-dumping. The Uruguay Round has enlarged the scope of GATT to include services and agriculture. The Uruguay Agenda wanted to remove all trade barriers.