What is... | June 5, 2018

What is GATT?

Trade agreements are important when exporting and importing – but countries don’t always agree on the best deal.

The General Agreement on Tariffs and Trade (GATT) governed much of world trade from 1 January 1948 to 14 April 1994. But it was a compromise, emerging from a failed attempt to set up a much more ambitious, truly international trade organisation.

GATT was signed by 23 nations in Geneva, Switzerland on 30 October 1947.

Why does it matter?
This old agreement is still relevant today because the GATT wording and text was incorporated into the new World Trade Organisation (WTO) from 1995, including some changes made to GATT in 1994. You can read more about the changes to GATT here.

Some 123 countries have signed up to the WTO. Find out more about the WTO in this article.

GATT’s stated purpose was to reduce barriers to exports and imports, such as tariffs. Making it easier for countries to trade means that companies and their customers, in principle, can negotiate a fairer deal. The most obvious effect on the average person’s life is that it affects the prices paid for goods and services – if tariffs are high, suppliers may have to increase their prices (all else being equal) to cover any extra cost.

What did it achieve?
The first round of GATT negotiations resulted in 45,000 tariff concessions affecting about $10 billion in exports/imports – accounting for about 20% of world trade since World War II ended in 1945.

The most obvious effect on the average person’s life is that it affects the prices paid for goods and services

A lot of countries had high barriers to trade at that time, and many experts such as economists wanted to reduce these “protectionist” measures, which they saw as major contributors to the Great Depression of the 1930s.

The WTO today concedes also that sometimes trade barriers can be needed to protect, for example, the environment. Yet the GATT decades resulted in a general reduction of trade tariffs from about 22% to less than five percent. World trade grew, on average, about eight percent every year over that time.

So why change it?
It became clear that reforms were still needed following the economic recessions in the 1970s and 1980s. World trade had become more complicated over time, and there were many loopholes in the deal which some countries had exploited – to their own gain and others’ losses. GATT did not cover services, which were becoming more important to many countries’ economies.

GATT member states therefore decided to hold new trade talks – with the Uruguay Round in particular key to the design of GATT’s successor, the WTO, from 1995.


eZonomics team
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