What is the General Agreement on Tariffs and Trade (GATT)? General Agreement on Tariffs and Trade (GATT) Review

The global economic depression in the 1930s is considered one of the important causes of World War II. The "trade protectionism" that led to the Great Depression was also reflected upon after the war, making it possible to achieve smoother international trade and improve the open policies of various countries. Under the framework of the Bretton Woods Agreement in 1944, with the assistance of the International Monetary Fund and the International Bank for Reconstruction and Development, many countries signed the General Agreement on Tariffs and Trade in October 1947, which officially came into effect the following year (1948).

The principles of the General Agreement on Tariffs and Trade are freedom (Article 11: conversion of trade restrictive measures into tariffs, and reduction of tariff rates), non-discrimination (most-favored-nation treatment, national treatment) and diversity. Free trade must be conducted under these three principles.

Background of the Agreement

In the 1930s and 1940s, world trade protectionism prevailed. Mutual restrictions on international trade were an important cause of the world economic depression. After the end of World War II, solving complex international economic problems, especially formulating international trade policies, became an important task facing all countries after the war.

In February 1946, the first meeting of the United Nations Economic and Social Council was held, which called for the convening of a United Nations Conference on Trade and Employment to draft the Charter of the International Trade Organization and conduct negotiations on global tariff reductions. Subsequently, the Economic and Social Council established a preparatory committee.

In October 1946, the Preparatory Committee held its first meeting to review the draft charter of the International Trade Organization submitted by the United States. The participating countries of the Preparatory Committee agreed to negotiate on issues such as reducing tariffs and other trade restrictions and drafting the "Charter of the International Trade Organization" before the establishment of the "International Trade Organization".

From April to July 1947, the Preparatory Committee held its second plenary session in Geneva to negotiate on tariff issues and discuss and revise the draft "Charter of the International Trade Organization". After many rounds of negotiations, the United States and 23 other countries signed the "General Agreement on Tariffs and Trade" in Geneva on October 30, 1947.

According to the original plan, the GATT was only a transitional step before the establishment of the World Trade Organization, and most of its provisions would be incorporated into the "World Trade Organization Charter" after it was adopted by all countries.

However, given the differences among countries in their foreign economic policies and the legal difficulties that most governments face in approving a treaty as broad-ranging, highly organizational and international as the "International Trade Organization Charter", the Charter is unlikely to be passed in the short term.

Therefore, the 23 founding countries of the GATT signed the Interim Protocol at the end of 1947, promising to follow the provisions of the GATT in future international trade. The Protocol came into force on January 1, 1948.

Since then, the validity period of the GATT has been repeatedly extended and revised several times to adapt to the changing situation. As a result, the GATT has become a trade standard that all countries abide by and the only multilateral international agreement that coordinates international trade and national economic policies.

Purpose of the Agreement

The preamble of the General Agreement on Tariffs and Trade clearly states its purpose: The Contracting Governments consider that in the conduct of their trade and economic affairs their relations should be directed towards raising standards of living, securing full employment, securing a substantial and sustained increase in real income and effective demand, extending the full utilization of the world's resources and developing the production and exchange of commodities.

Contribute to this end by reaching mutually beneficial agreements, substantially reducing tariffs and other trade barriers, and eliminating discriminatory treatment in international trade.

History

The first version of the General Agreement on Tariffs and Trade was signed in 1948 by 23 countries: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, the Republic of China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, New Zealand, Norway, Pakistan, the Netherlands, Syria, Southern Rhodesia, South Africa, the United Kingdom and the United States.

The General Agreement on Tariffs and Trade (GATT) was updated in 1994 (GATT 1994), which included new treaties between the signatories. Most notably, the World Trade Organization was established. On January 1, 1995, 75 GATT signatories and the European Community became the founding members of the WTO. The other 52 GATT members joined the WTO in the following two years (the last being Congo in 1997). Since the establishment of the WTO, 21 non-GATT countries have joined the WTO, and 28 countries are currently in the negotiation stage. Of the original GATT members, only Yugoslavia has not joined the WTO.

Target

1. Trade liberalization is achieved through substantial tariff reductions, elimination of quantity restrictions, and regulation of certain non-tariff barriers.

2. The principle of non-discrimination in trade is achieved through the implementation of the most-favored-nation treatment clause, which promotes regional economic integration, preferential treatment for developing countries, and trade flexibility, and encourages them to join the General Agreement on Tariffs and Trade (Article 24).

3. To establish and consolidate the foundation for the development of trade, and to achieve this goal, it is necessary to ensure that trade is carried out with the greatest degree of transparency (or a certain degree of transparency).

4. Resolve trade frictions through consultation to avoid harming the trade interests among member countries and resolve other related disputes.

Contents of the Agreement

The General Agreement on Tariffs and Trade consists of a preamble and four parts, totaling 38 articles, with several annexes.

Part I, from Articles 1 to 2, stipulates that the contracting parties shall provide each other with unconditional most-favored-nation treatment and tariff concessions in tariffs and trade. Part II, from Articles 3 to 23, stipulates the elimination of quantitative restrictions and the exceptions and emergency measures allowed. Part III, from Articles 24 to 35, stipulates the procedures for acceptance, entry into force, suspension or withdrawal of concessions and withdrawal from this Agreement. Part IV, from Articles 36 to 38, stipulates trade and development issues of developing countries among the contracting parties. This part was added later and came into effect in 1966.

The purpose of the Agreement is to improve the living standards of the people of the contracting parties, ensure full employment, growth in real income and effective demand, and expand the utilization of world resources. The main contents are:

① The most-favored-nation treatment applies. The unconditional most-favored-nation treatment principle shall apply to the import and export of goods and related tariff and fee collection methods, regulations, sales and transportation between the contracting parties. However, customs unions, free trade zones and preferential arrangements for developing countries are exceptions to the most-favored-nation treatment.

② Tariff concessions. The contracting parties reduce each other’s tariffs on a reciprocal basis through negotiations and impose constraints on the results of the concessions to ensure that the export goods of the contracting parties are subject to stable tariff rates.

③ Eliminate import quantity restrictions. The General Agreement stipulates that import quantity restrictions should be abolished in principle. However, there are exceptions due to difficulties in the balance of payments.

④ Protection and emergency measures. If an unexpected situation or a sharp increase in the import volume of a certain product causes serious damage or a serious threat to the producers of the same product or those directly competing with it, the contracting party may suspend the obligations it has undertaken, or withdraw or modify the concessions it has made, to the extent and for the time necessary to prevent or correct such damage.

Differences with the World Trade Organization

1. The General Agreement on Tariffs and Trade is only a multilateral international agreement. Although it has actually performed the functions of an international organization by "borrowing" the secretariat of the ITO Preparatory Committee, it does not have the independent legal personality of an international organization in law. The World Trade Organization explicitly stipulates in Article 8 of its Establishment Agreement that the World Trade Organization is an independent international organization.

2. GATT 1994 itself is an independent agreement; in addition to GATT 1994, the trade agreements under the jurisdiction of the World Trade Organization also include many other agreements, such as the General Agreement on Trade in Services, the Agreement on Trade-Related Aspects of Intellectual Property Rights, and the Understanding on Rules and Procedures Governing the Settlement of Disputes.

3. Since the General Agreement on Tariffs and Trade is not an international organization in itself, its members are called "Contracting Parties"; while the WTO is an international organization, its members are called "Members".

4. The General Agreement on Tariffs and Trade did not establish a permanent organization. Based on pragmatic needs, the resolutions of the General Agreement on Tariffs and Trade use "all the contracting parties" (that is, THE CONTRACTING PARTIES in capital letters) to represent the General Agreement on Tariffs and Trade. The World Trade Organization is a permanent organization with international legal personality. Its resolutions can directly represent the opinions of its members.

5. The General Agreement on Tariffs and Trade applies only on a provisional basis and has not been formally ratified by the parliaments of all contracting parties; the WTO and its agreements are ratified by each member in accordance with its formal domestic procedures for concluding treaties and agreements with foreign countries, and the commitments of each government to the WTO are comprehensive and permanent.

6. The regulations of the General Agreement on Tariffs and Trade only apply to trade in goods; while the regulations of the World Trade Organization, in addition to goods, also include trade in services and trade-related intellectual property rights.

7. Although the General Agreement on Tariffs and Trade has dispute settlement provisions in Article 23, they lack detailed procedural provisions and are difficult to implement. The World Trade Organization's dispute settlement mechanism is more swift than the General Agreement on Tariffs and Trade and is legally binding. The enforcement of cases adjudicated by the WTO Dispute Settlement Body is therefore more certain and definite.

Trade negotiations

GATT countries sometimes coordinate new trade rules that apply to all countries. Each round is called a "round". Usually each round involves reducing tariffs, but it also often includes many special treatments for individual products.

1. Geneva Round (1948): 23 countries reduced tariffs by an average of 35% on goods accounting for 54% of the value of capitalist countries' imports.

2. Annecy Round (1949): 13 countries reduced tariffs by an average of 35% on goods accounting for 56% of the value of dutiable imports.

3. Torquay Round (1951): 38 countries, reduced tariffs by an average of 26% on goods accounting for 11.7% of imports

4. Geneva Fourth Round (1956): 26 countries, reduced tariffs by an average of 15% on goods accounting for 16% of imports

5. Dillon Round (1962): 26 countries, mainly aimed at reducing tariffs. The average tariff reduction for goods accounting for 20% of the import value was 20%.

6. Kennedy Round (1967): 62 countries. A comprehensive reduction in tariffs, different from the previous one targeting each product separately. In addition, this was the first time that anti-dumping policy was proposed.

7. Tokyo Round (1979): 102 countries. Lowered the threshold for tariff-free access, reduced tariffs on a large number of manufactured goods, and revised and expanded the General Agreement on Tariffs and Trade system.

8. Uruguay Round (1994): 125 countries. The World Trade Organization was established to replace the General Agreement on Tariffs and Trade.

9. Doha Round (2001): A new round of multilateral trade negotiations that began at the Fourth Ministerial Conference of the World Trade Organization held in Doha, the capital of Qatar.

limitation

Since the General Agreement on Tariffs and Trade is not a formal international organization, it has many limitations in terms of system and rules.

1. Some of the rules of the GATT lack legal constraints and necessary inspection and supervision means. For example, it is stipulated that dumping is when a country imports products into another country's market at a price lower than the "normal value" and causes "substantial damage and substantial threat" to its industry. However, "normal value", "substantial damage and substantial threat" are difficult to define and quantify, which can easily be distorted by some countries and used to impose anti-dumping duties.

2. There are "grey areas" in the GATT, which makes it difficult to implement many rules. The so-called "grey areas" refer to discriminatory trade policy measures that are on the edge or outside the legal rules and regulations of the GATT and that are taken by contracting parties to circumvent certain provisions of the GATT. The existence of such "grey areas" has undermined the authority of the GATT.

3. The provisions of the GATT are discriminatory against different social and economic systems. For example, many obstacles were set for "centrally planned economies" to enter the GATT.

4. The mechanism for resolving disputes under the GATT is not sound enough. Although the GATT has established a system for resolving international commercial disputes, the main means of resolving disputes under the GATT is mediation, which lacks mandatory nature and can easily lead to disputes being dragged on for a long time.

5. Allowing textile quotas and agricultural subsidies to persist for a long time undermined the free trade principles of the General Agreement.

It is precisely because of the above-mentioned limitations of the General Agreement on Tariffs and Trade that this temporary quasi-international trade organization was eventually replaced by the WTO.