General Agreements on Tariffs and Trade - International Business Management

What are the General Agreements on Tariffs and Trade?

It was believed in the recent past that protectionism is the best practice for all the countries and states within the countries to develop their economies. But of lately it is realized that the perception need to be changed. During the mid of 20th century, the practice of protectionism is completely removed and thereby introducing the concept of liberalization. Initially liberalization was taken care of GATT and after some period of time it was handed over to WTO.

In order to eliminate some of the quotas and thus diminish the different tariffs for all the countries that are participating, some of the agreements of trade are being formulated by General Agreement on Tariffs and Trade (GATT). GATT was formulated in the year 1947 and the agreement was signed by 23 different countries.

The second half of the 20th century experienced an expansion of world trade and for which all the credit goes to GATT. In 1995, GATT was being replaced by WTO and when it was taken over the number of countries, signing the agreement reached to 125.

What are the main principles of GATT?

One of the major principles of GATT is to do trade without any discrimination. All the countries participating in GATT and who have signed the agreement has to open their markets for all other countries. According to the GATT principles, if the trade tariffs is reduced by any one of the country and the sane tariffs will be applicable to all other member countries.

  • The import quotas and other quantitative trade restrictions were being eliminated by GATT and GATT always believed in the concept of protection through tariffs.
  • The regulations related to customs were being homogenised by GATT. The member countries have to negotiate for reductions in tariff, for which the request can be made by any one country.
  • When a country experiences losses by their domestic producers, the nations can modify the agreements.

What is the role of GATT in promoting International Trade?

With regard to promoting of the International Trade, GATT has the following role to play -

  • The countries willing to participate in International trade are being guided and directed by certain standards that are being set by GATT. The standards include some of the basic principles for the new participants.
  • In order to increase the trade liberalization between countries, the tariff rates were cut by GATT. For instance, in Tokyo and Kennedy rounds a huge reduction of about 35% was practiced.
  • In order to reduce the trade barriers, the discrimination in the tariffs, if any was brought down and regulations were made such that the participating countries should not increase the tariff without the concern of GATT.
  • With respect to international trade the countries that were willing to do international trade were being encouraged by GATT. For some of the select industries, special measures were being established by GATT and care was taken to ensure that preference was always given to the developing countries.

It can be concluded that GATT is considered as “court of international trade”. The main objective of GATT is to settle the disputes if any between two participating countries.

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