2021-2022 FALL SEMESTER

IBM501 INTERNATIONAL ECONOMICS

General Agreement on Tariffs and Trade (GATT)

MIDTERM ASSIGNMENT

 Date of Submission: 29/11/2021

Running head: INTERNATIONAL ECONOMICS
2

Table of Contents

I. Introduction....................................................................................................3

II. Purpose of GATT........................................................................................4

III. History Of GATT........................................................................................5

IV. Pros Of GATT.............................................................................................7

V. Cons Of GATT............................................................................................8

VI. How GATT Saved the World......................................................................9

VII. Differences Between GATT and WTO.....................................................10

VIII. Conclusion..............................................................................................12

IX. References.................................................................................................13
Running head: INTERNATIONAL ECONOMICS
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I. Introduction

The General Agreement on Tariffs and Trade (GATT), signed on October 30, 1947,

by 23 nations, was a legislative agreement that reduced or eliminated trade barriers by

abolishing or decreasing quotas, tariffs, and subsidies while retaining major restrictions 1. The

GATT was designed to support economic recovery following World War II by rebuilding and

liberalizing global commerce.

On January 1, 1948, the GATT entered into force 2. It has been developed since its inception,

finally resulting to the establishment of the World Trade Organization (WTO) on January 1,

1995, which incorporated and extended it. By this time, 125 countries had signed on to its

accords, which covered around 90 percent of world commerce3.

The previous GATT system, which has since been superseded by the World Trade

Organization and the agreements included in the Uruguay Round package, was focused on

the General Agreement on Tariffs and Trade. The General Agreement, as negotiated in 1947

among its 23 founding members, established core principles to regulate and lead national

trade policies, and served as the foundation for countries to go on and expand their

multilateral trade cooperation. The World Trade Organization has replaced the General

Agreement as the foundation for institutional cooperation and trade dispute resolution among

its members. However, the GATT's essential principles remain in force, and the Uruguay

Round package cannot be understood apart from them.

1
Library of Congress. "General Agreement on Tariffs and Trade," Pages 639–640. Accessed November. 26,
2021.https://www.loc.gov/collections/united-states-treaties-and-other-international-agreements/about-this-
collection/bevans/m-ust000004-0639.pdf
2
World Trade Organization. "The Uruguay Round." Accessed November. 26, 2021.
https://www.wto.org/english/thewto_e/minist_e/min98_e/slide_e/ur.htm
3
Britannica. "General Agreement on Tariffs and Trade." Accessed November. 26, 2021.
https://www.britannica.com/topic/General-Agreement-on-Tariffs-and-Trade
Running head: INTERNATIONAL ECONOMICS
4

This assignment provides an overview of the General Agreement on Tariffs and

Trade, better known as GATT, system. In the first section, I present the purpose of GATT, a

brief history of GATT In the following the advantages and disadvantages of GATT. In the

third section, I explain how GATT saved the World and then describe the differences

between GATT and WTO. Then, I present a short conclusion.

II. Purpose of GATT

GATT’s objective is eliminating dangerous trade protectionism that rendered the

whole global trade downwards at a rate of 65% during the great depression. Nevertheless,

GATT restored economic conditions of the world entire world immediately after the

emergence of the World War II and great depression4.

The detestations and obliteration that was brought about by world WarII wah enormous and it

had an exceptionally adverse consequence on the worldwide economy, and the international

local area observed itself to be answerable for changing the global economy, GATT was the

way that the international cummunity area used to expand international trade through the end

of exchange barrires, mainly Tariffs, GATT was required to increase the expectation of

living, accomplish full business, increment the real income by giving freedoms to global

exchange, notwithstanding productive utilization of assets and supporting the emerging

nations

4
Amadeo, K. (2019). How GATT Saved the World. [online] The Balance. Available at:
https://www.thebalance.com/gatt-purpose-history-pros-cons-3305578 Accessed 23 Nov. 2021.
Running head: INTERNATIONAL ECONOMICS
5

III. History Of GATT

GATT was introduced in regard to the Bretton Woods Agreement. Bretton Woods

summit additionally created the International Monetary Fund (IMF) and the world bank so

that they could coordinate in ensuring global growth. On the same note, it resulted to creation

of another organization. The ITO (international trade organization), which constituted 50

countries whereby negotiations were started within the United Nations for policy

establishment, not only trade, but also employment, business practices, product agreements

services, and foreign direct investments5. ITO treaty was presented in March 1948, though

the US congress alongside other nation legislatures declined in ratifying the rule. During

1950, Truman administration announced the defeat which led to the decline of the ITO.

The success of GATT manifested itself through trade restrictions. During the reign of

GATT, the world experienced significant economic growth. This motivated other countries to

join the agreement making the total number by 1995 to be 128. GATT, through cooperation,

enhanced peace of the world and thus encouraged the emergence of other trade agreements,

especially the European Union (EU). Lastly, an essential success of GATT was the

enhancement of communication which in return reduced disagreements among nations.

6
Although GATT brought an arena full of positivity, there were some setback with the

agreement. The agreement interfered with the sovereignty of the countries. It forced the

change of internal laws to allow nations to benefit from the trade agreement. Through this,

local industries faced destructions as international markets were readily available. Stiff

competition was also experienced, which gave an upper hand to countries like the US to

5
Cynthia Clark Northrup and Elaine C. Prange Turney. "Encyclopedia of Tariffs and Trade in U.S. History:
The Encyclopedia," Page 205. Accessed Nov. 26, 2021.
6
Bhagwati, Jagdish, 1992, “Regionalism versus multilateralism,” The World Economy, Vol. 15, pp. 535–555.
Accessed Nov. 25, 2021.
Running head: INTERNATIONAL ECONOMICS
6

control the trade. Finally with the destruction of local industries people faced adverse

unemployment and plugged countries’ currency into economic turmoil.

The developing nations found agriculture and Singapore issues as two most

contentious issues. The developed nations were adamant regarding the issues of firm

subsidies (which are abnormally high) and also demanded greater market access of their

agriculture into developing countries. They, therefore, asked for absolute equality of opening

of markets in developing nations on equal terms in place of the relative equality because of

the historical and cultural reasons of differences between the developed and developing

nations. However, this conference had one positive outcome in the form of the solidarity

expressed by the developing countries for protecting their interest unitedly despite the

pressure exerted by the developed nations. The role of G-20 in placing the aspirations of the

people of the developing countries depended on agriculture for livelihood, was praiseworthy.

Trade regulations are the main focus of the World Trade Organization which replaced

GATT. So, there exists a close relationship between international economic issues on the area

of trade regulations and GATT. We can understand the process that goes in trade talks and

especially the formation of Doha development round. GATT agreement carries the Tokyo

round, Kennedy round, and Uruguay round. By looking at GATT, us learners will be able to

understand the concept of these round under one sitting7. This week topic focus on

international policies and issues and GATT was the foundation of the World Trade

Organization. The World Trade Organization is a significant body that is mandated to control

international trade among countries in the world. These rules outlined by WTO are core in

contributing to the stability of the economy of the world. GATT has a wealth of resources

regarding the trade barriers like economic sanctions, embargo, and tariffs, which are in

7
Bond, Eric W., and Constantinos Syropolous, 1996, “The size of trading blocs: Market power and world
welfare effects,” Journal of International Economics, Vol. 40, pp. 411–437.
Running head: INTERNATIONAL ECONOMICS
7

relations to international policy and issues. GATT gave a guideline to countries to follow in

international trade, which restructured the general outlook of the trade. We can, therefore,

understand the influence of GATT in reduction or increment of tariffs and how they impact

the global businesses8.

IV. Pros Of GATT

 The General Agreement on Tariffs and Trade minimized tariffs

 It enhanced the world trade by 8% every year in the late 1950s and 1960s. Such was

very fast compared to the world’s economic growth - Trade immensely grew from

about $332 billion during 1970 to almost $3.7 trillion during 1993. Such was

successful since many countries joined.

 Furthermore, by 1995, 128 members resulted to the creation of 80% of the world

trade. Through increasing trade, GATT created room for world peace9.

 For the 100 years prior GATT establishment, war was 10 times much greater

compared to the 50 years after GATT introduction - Prior World War II, the

likelihood for having a lasting trade treaty was slightly much better than 50/50.

Through showcasing how each free trade operates, GATT motivated different trade

agreements. It has set in stages for European Union. Notwithstanding the EU’s issues,

wars were prevented between member countries.

 GATT additionally enhanced communication. It has provided incentives within

countries in understanding English, world’s known language for the consumer market.

The use of common language minimized confusion. English therefore provided an

insight for the development of a nation’s culture, product needs and marketing. For

instance, many Indians understand English. It permits them in working in various call
8
Caves, Richard E., Jeffrey A. Frankel, and Ronald W. Jones, 2002, World Trade and Payments: an
Introduction, (ninth edition), Boston: Addison-Wesley.
9
Clarida, Richard H., 1993, “Entry, dumping, and shakeout,” American Economic Review, Vol. 83, pp. 180–
202.
Running head: INTERNATIONAL ECONOMICS
8

centres which support U.S countries. Such has been the main claim for outsourcing a

call centre.

V. Cons Of GATT

 Minimal tariffs eradicate domestic industries, leading to high unemployment rate

within the prospective sectors.

 The state subsidized majority of the sectors in order for them to be competitive

centered on a global scale.

 EU and the US agricultural system are suitable examples. In the late 70s, textile and

the clothing industries have been an exempt of the GATT.

 In 1980s, the nature of world trade transitioned. In that case, GATT didn’t pinpoint

trade services which permitted them in growing beyond any nation’s ability for

managing each. For instance, financial services tend to be globalized. Whereas

foreign direct investment (FDI) was now crucial10.

Clausing, Kimberly A., 2001, “Trade creation and trade diversion in the Canada–United States Free Trade
10

Agreement,” Canadian Journal of Economics, Vol. 34, pp. 677–696.

Running head: INTERNATIONAL ECONOMICS
9

VI. How GATT Saved the World

The triumph of GATT was revealed through trade limitations. In the period of

GATT’s reign, the entire world encountered massive economic growth. Such gave hope to

many nations to join the agreement hence making the whole number to be 128 by 1995 11.

Through cooperation and continued agreement by GATT, the peace of the world motivated

the development of different trade agreements mostly the EU. An important success of GATT

is based on the improvement of communication channels which minimized the disagreement

within these nations. But GATT presented an arena of positivity, hence setbacks were

presented following the agreements. Each agreement specifically interfered with countries'

sovereignty. Due to this, it compelled changing internal policies to permit countries in

benefiting from the prospective trade agreement. By doing this, local industries encountered

destruction since international markets were available. Rivalry within the market was also

encountered which gave an upper hand for nations such as the US to safeguard the trade.

Consequently, considering the destruction of local industries, many people were faced with

adversative unemployment and hence plugged countries’ currency into an economic turmoil.

11
Amadeo, K. (2019). How GATT Saved the World. [online] The Balance. Available at:

https://www.thebalance.com/gatt-purpose-history-pros-cons-3305578 Accessed 23 Nov. 2021.

 Running head: INTERNATIONAL ECONOMICS
10

VII. Differences Between GATT and WTO

 What is The World Trade Ogrnazition?

The World Trade Organization is an international organization with a global

membership that supports and regulates free trade. It accomplishes this in three ways. First, it

is in charge of overseeing existing multilateral trade agreements. Each member is granted

Most Favored Nation Trading Status. As a result, their exports are immediately subject to

lower duties.

Second, it handles trade issues. The majority of confrontations arise when one member

accuses another of dumping. When a company exports items at a cheaper cost than it pays to

make them. The WTO investigates, and if a breach occurs, the WTO imposes sanctions.

Third, it oversees current talks for new trade treaties. The Doha round in 2006 would have

been the most significant. All members' commerce would have been facilitated as a result. It

underlined the need of growing growth for emerging countries12.

13
The disparity existing between GATT and the WTO have been stated below:

 GATT is an international multilateral treaty which is negotiated amid 23 countries in

order to follow through international commerce and eradicate cross-country trade

obstacles. Whereas WTO is multinational organization that superseded GATT and

focuses on international exchange policies amid member countries.

 GATT constitutes of a clear agreement and no secretariat is involved whereas WTO is

the opposite.

 GATT comprises of negotiations whereas WTO has member states.

12
KIMBERLY AMADEO, May 06, 2021. REVIEWED BY THOMAS J. BROCK The World Trade
Organization and How It Works, https://www.thebalance.com/what-is-the-world-trade-organization-wto-
3306366 Accessed 28 Nov. 2021.
13
Collie, David, 1991, “Export subsidies and countervailing duties,” Journal of International Economics, Vol.
31, pp. 309–324.
 Running head: INTERNATIONAL ECONOMICS
11

 GATT is temporary and can be handled as permanent whilst WTO duties tend to be

permanent within every outset.

 The scope for WTO is narrower compared to WTO in a way that GATT policies will

only apply when trading of products occurs. Unlike WTO policies that are used for

intellectual assets and product services.

 GATT is a multilateral composition, although it can be replaced by plurilateral treaty.

WTO arrangements tend to be multilateral.

 For GATT national policies are allowed to proceed whereas WTO would not happen.

 Rather that the other GATT system, WTO conflicts system is more simple and very

automatic and not vulnerable to various obstacles. It is much easier coming to a

conclusion based on conflict resolution of the WTO14.

VIII. Conclusion

14
Crowley, Meredith A., 2002, “Do antidumping duties and safeguard tariffs open or close technology gaps?,”
Federal Reserve Bank of Chicago, working paper, No. WP-2002-13, July
Running head: INTERNATIONAL ECONOMICS
12

To conclude on the importance of GATT in international economic policies and

issues, it is unjust not to appreciate the immense contribution of GATT around the world.

Without GATT nation’s economy won't be under the regulation of the World Trade

Organization. These regulations are strict, and thus they help in avoiding economic

escalations. In case an escalation occurs, WTO offers a fair method of solving the economic

conflict, thus helping in improving trade arrangements around the world.

Running head: INTERNATIONAL ECONOMICS
13

IX. References

Library of Congress. "General Agreement on Tariffs and Trade," Pages 639–640. Accessed

November. 26, 2021.https://www.loc.gov/collections/united-states-treaties-and-other-

international-agreements/about-this-collection/bevans/m-ust000004-0639.pdf

World Trade Organization. "The Uruguay Round." Accessed November. 26, 2021.

https://www.wto.org/english/thewto_e/minist_e/min98_e/slide_e/ur.htm

Britannica. "General Agreement on Tariffs and Trade." Accessed November. 26, 2021.

https://www.britannica.com/topic/General-Agreement-on-Tariffs-and-TradeAmadeo, K.

(2019). How GATT Saved the World. [online] The Balance. Available at:

https://www.thebalance.com/gatt-purpose-history-pros-cons-3305578 Accessed 23 Nov.

2021.

Baldwin, Robert E., 1985, The Political Economy of U.S. Import Policy. Cambridge, MA:

MIT Press.

Bhagwati, Jagdish, 1992, “Regionalism versus multilateralism,” The World Economy, Vol.

15, pp. 535–555. Accessed 25 Nov. 2021

Bond, Eric W., and Constantinos Syropolous, 1996, “The size of trading blocs: Market power

and world welfare effects,” Journal of International Economics, Vol. 40, pp. 411–437.

Accessed 25 Nov. 2021

Caves, Richard E., Jeffrey A. Frankel, and Ronald W. Jones, 2002, World Trade and

Payments: an Introduction, (ninth edition), Boston: Addison-Wesley.

Clarida, Richard H., 1993, “Entry, dumping, and shakeout,” American Economic Review,

Vol. 83, pp. 180–202. Accessed 24 Nov. 2021

Running head: INTERNATIONAL ECONOMICS
14

Clausing, Kimberly A., 2001, “Trade creation and trade diversion in the Canada–United

States Free Trade Agreement,” Canadian Journal of Economics, Vol. 34, pp. 677–696.

Accessed 25 Nov. 2021

Collie, David, 1991, “Export subsidies and countervailing duties,” Journal of International

Economics, Vol. 31, pp. 309–324. Accessed 24 Nov. 2021

Crowley, Meredith A., 2002, “Do antidumping duties and safeguard tariffs open or close

technology gaps?,” Federal Reserve Bank of Chicago, working paper, No. WP-2002-13, July.

Accessed 26 Nov. 2021