General Agreement on Tariff and Trade( GATT):

The GATT, was established on a provisional basis after the Second World War in
the wake of other new multilateral institutions dedicated to international economic
cooperation — notably the “Britton Woods” institutions now known as the World
Bank and the International Monetary Fund.

The original 23 GATT countries were among over 50 which agreed a draft Charter
for an International Trade Organization (ITO) — a new specialized agency of the
United Nations. The Charter was intended to provide not only world trade
disciplines but also contained rules relating to employment, commodity
agreements, restrictive business practices, international investment and services.

In an effort to give an early boost to trade liberalization after the Second World
War and to begin to correct the large overhang of protectionist measures which
remained in place from the early 1930s-tariff negotiations were opened among the
23 founding GATT “contracting parties” in 1946. This first round of negotiations
resulted in 45,000 tariff concessions affecting $10 billion or about one-fifth — of
world trade. It was also agreed that the value of these concessions should be
protected by early and largely “provisional” acceptance of some of the trade rules
in the draft ITO Charter. The tariff concessions and rules together became known
as the General Agreement on Tariffs and Trade and entered into force in January
1948.

Although the ITO Charter was finally agreed at a UN Conference on Trade and
Employment in Havana in March 1948, ratification in national legislatures proved
impossible in some cases. When the United States’ government announced, in
1950, that it would not seek Congressional ratification of the Havana Charter, the
ITO was effectively dead. Despite its provisional nature, the GATT remained the
only multilateral instrument governing international trade from 1948 until the
establishment of the WTO.

Although, in its 47 years, the basic legal text of the GATT remained much as it
was in 1948, there were additions in the form of “plural-lateral” voluntary
membership agreements and continual efforts to reduce tariffs. Much of this was
achieved through a series of “trade rounds”.

The biggest leaps forward in international trade liberalization have come through
multilateral trade negotiations, or “trade rounds”, under the auspices of GATT —
the Uruguay Round was the latest and most extensive.

The limited achievement of the Tokyo Round, outside the tariff reduction results,
was a sign of difficult times to come. GATT’s success in reducing tariffs to such a
low level, combined with a series of economic recessions in the 1970s and early
1980s, drove governments to devise other forms of protection for sectors facing
increased overseas competition. High rates of unemployment and constant factory
closures led governments in Europe and North America to seek bilateral market-
sharing arrangements with competitors and to embark on a subsidies race to
maintain their holds on agricultural trade. Both these changes undermined the
credibility and effectiveness of GATT.

Difference between WTO and GATT:-

The World Trade Organization is not a simple extension of GATT; on the contrary,
it completely replaces its predecessor and has a very different character. Among
the principal differences are the following:

 The GATT was a set of rules, a multilateral agreement, with no institutional

foundation, only a small associated secretariat which had its origins in the
attempt to establish an International Trade Organization in the 1940s. The
WTO is a permanent institution with its own secretariat.
 The GATT was applied on a “provisional basis” even if, after more than
forty years, governments chose to treat it as a permanent commitment. The
WTO commitments are full and permanent.
 The GATT rules applied to trade in merchandise goods. In addition to
goods, the WTO covers trade in services and trade-related aspects of
intellectual property.
 While GATT was a multilateral instrument, by the 1980s many new
agreements had been added of a plural-lateral, and therefore selective,
 nature. The agreements which constitute the WTO are almost all multilateral
and, thus, involve commitments for the entire membership.

Objectives of GATT:
By reducing tariff barriers and eliminating discrimination in international
trade, the GATT aims at:
1. Expansion of international trade,
2. Increase of world production by ensuring full employment in the
participating nations,
3. Development and full utilization of world resources, and
4. Raising standard of living of the world community as a whole

Defects of GATT:
The major defects of GATT are as follows:
1. No Enforcement Authority:
The GATT has attempted to prescribe an international code of conduct in the
sphere of trade. But there was no enforcement authority to oversee the
compliance of GATT regulations by contracting parties and to settle their
trade disputes.
2. Problems in the Formulation of General Rules:
The members of GATT are much diversify in nature, they had varied in
economic and political motives and they were also at different stages of
development. These reasons created difficulty in framing and implementing
uniform general rules of conduct concerning trade, tariffs and payment.
3. Less Benefits for the LDC’s:
The most of the members of GATT were in the category of the LDC’s. The
GATT had provided less benefit to these countries. At present, there are
more restrictive trade arrangements in the world. The Commodity-to-
Commodity based approach has proved to be detrimental to the interests of
LDC’s.
This approach creates difficulty in their future planning of production and
exports. The GATT also not given any compensation to the less developed
countries on account of damage to their economies caused by the actions of
developed countries.
4. Quantitative Trade Restrictions:
The GATT had certainly ensured the sealing down of tariff structure but the
quantitative trade restrictions remained for a long time outside the GATT
ambit. Consequently, the developed countries had used with impunity the
quantitative trade restrictions such, as import quotas, export subsidies,
voluntary export restraints, health and safety regulation etc.