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

The General Agreement on Tariffs and Trade (GATT), signed in 1947 by 23 countries, is a treaty
minimizing barriers to international trade by eliminating or reducing quotas, tariffs, and subsidies. It was
intended to boost economic recovery after World War II.1

GATT was expanded and refined over the years, leading to the creation in 1995 of the World Trade
Organization (WTO), which absorbed the organization created to implement GATT. By then, 125 nations
were signatories to its agreements, which covered about 90% of global trade.12

The Council for Trade in Goods (Goods Council) is now responsible for the GATT and consists of
representatives from all WTO member countries. As of September 2022, the chair of the Goods Council
is Etienne Oudot de Dainville. The council has 10 committees that address subjects including market
access, agriculture, subsidies, and anti-dumping measures.34

KEY TAKEAWAYS

 The General Agreement on Tariffs and Trade (GATT) was signed by 23 countries in October 1947,
after World War II, and became law on Jan. 1, 1948.

 The purpose of the GATT was to make international trade easier.

 The GATT held eight rounds in total, from April 1947 to December 1993, each with significant
achievements and outcomes.5

 In 1995, the GATT was absorbed into the World Trade Organization (WTO), which extended it.

Investopedia / Michela Buttignol

Understanding the General Agreement on Tariffs and Trade (GATT)

The GATT was created to form rules to end or restrict the most costly and undesirable features of the
prewar protectionist period, namely quantitative trade barriers such as trade controls and quotas. The
agreement also provided a system to arbitrate commercial disputes among nations, and the framework
enabled a number of multilateral negotiations for the reduction of tariff barriers. The GATT was
regarded as a significant success in the postwar years.

One of the key achievements of the GATT was that of trade without discrimination. Every signatory
member of the GATT was to be treated as equal to any other. This is known as the most-favored-nation
principle, and it has been carried through into the WTO. A practical outcome of this was that once a
country had negotiated a tariff cut with some other countries (usually its most important trading
partners), this same cut would automatically apply to all GATT signatories. Escape clauses did exist,
whereby countries could negotiate exceptions if their domestic producers would be particularly harmed
by tariff cuts.16

Most nations adopted the most-favored-nation principle in setting tariffs, which largely replaced quotas.
Tariffs (preferable to quotas but still a trade barrier) were, in turn, cut steadily in rounds of successive
negotiations.

The GATT instituted the most-favored-nation principle in tariff agreements among members.6
History of the General Agreement on Tariffs and Trade (GATT)

The GATT held eight rounds of meetings—the first beginning in April 1947, the last ending in December
1993. Each of the conferences had significant achievements and outcomes.

 The first meeting was in Geneva, Switzerland, and included 23 countries. The focus of this
opening conference was on tariffs. The members established tax concessions touching more
than US$10 billion of trade around the globe.5

 The second series of meetings began in April 1949 and were held in Annecy, France. Again,
tariffs were the primary topic. Thirteen countries were at the second meeting, and they
accomplished an additional 5,000 tax concessions reducing tariffs.57

 Starting in September 1950, the third series of GATT meetings occurred in Torquay, England.
This time 38 countries were involved, and almost 9,000 tariff concessions passed, reducing tax
levels by as much as 25%.7

 Japan became involved in the GATT for the first time in 1956 at the fourth meeting along with 25
other countries.8 The meeting was in Geneva, and again the committee reduced worldwide
tariffs, this time by US$2.5 billion.5

This series of meetings and reduced tariffs would continue, adding new GATT provisions in the process.
In 1964, the GATT began to work toward curbing predatory pricing policies. These policies are known
as dumping. Then in the 1970s, an arrangement regarding international trade in textiles, known as
the Multifibre Arrangement (MFA), came into force. The next big event was the Uruguay Round, which
lasted from 1986 to 1993, with the agreements signed in 1994, and created the WTO.5

The average tariff rate fell from around 22% when the GATT was first signed in Geneva in 1947 to
around 5% by the end of the Uruguay Round. As the years have passed, the countries continued to
attack global issues, including addressing agriculture disputes and working to protect intellectual
property.9

The latest round of negotiations among WTO members, known as the Doha Development Round, began
in 2001 and is ongoing. Its aim is to improve the trading prospects of developing countries by introducing
lower trade barriers and revised trade rules.10

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

The General Agreement on Tariffs and Trade (GATT) was set up to eliminate protectionism, get countries
trading freely among themselves, and help restore economic prosperity following the devastation of
World War II.

Is the GATT a free trade agreement?

That was essentially its goal. The GATT sought to push the world toward a reality where goods and
services are exchanged among countries without tariffs, quotas, and so forth, and without favoritism
and discrimination.

Why was the GATT replaced by the World Trade Organization (WTO)?
The GATT, though largely successful in its goal, was said to lack a coherent institutional structure. In
short, it was a legal agreement acting as an international organization. The World Trade
Organization (WTO) incorporates the principles of the GATT and is better positioned to carry them out
because, among other things, it is better versed in issues like intellectual property, has a faster dispute
settlement system, and wields more power.1112

The Bottom Line

The world would be a very different place without the GATT. Its free trade ethos put an end to a dark
period of protectionism and economic hardship that led to World War II, paving the way for decades of
economic growth and increased globalization.

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GATT

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The General Agreement on Tariffs and Trade (GATT) is the foundational agreement reached between
many countries after World War II to reduce tariffs, quotas, and other barriers to trade. The agreement
started with 23 nations signing in 1947 but had over 100 signatories by 1973. From its creation to its
evolution into the World Trade Organization (WTO), GATT successfully reduced average tariffs among
member countries from over 20% to around 5% or less.

Prior to GATT, trade barriers had been raised during the Great Depression with many countries having
tariffs of over 40% during the 1930s. In order to counterbalance the harmful effects of these tariffs and
rebuild economies after World War II, many nations participated in discussions to lower many barriers
to trade. The result of the first rounds of discussions was the GATT which successfully lowered many
barriers to trade. While meant as a multilateral treaty, GATT effectively became its own organization for
managing trade issues among members due to the failed International Trade Organization (ITO). After
many more rounds of negotiations, GATT increasingly allowed more beneficial global trade amongst
member states until the Uruguay agreements created the WTO. The WTO became the new forum for
enforcing and changing provisions of the GATT, with negotiations still occurring in the Doha round.
The GATT has many key aspects. One requires member states to apply tariffs in a non-discriminate way,
meaning they should apply to all member states equally with limited exceptions. GATT also limits the
ability of countries to place higher restrictions on goods from other member states than within their
own country. Other major sources of friction for international trade such as quotas, dumping, and
subsidies are very limited under GATT, reducing the ability of countries to be singled out by another
country. For more information on GATT and the WTO.