General Agreement on

Tariffs
and Trade (GATT)
 GATT

>Out come of the failure of negotiating

governments to Create the international trade
organization(ITO).
>Negotiated during the UN conference on Trade
and Employment.
>Formed in 1947 and Transformed to world Trade
Objective

• Reduction of Barriers to international

trade.
• Achieved through reduction of tariff
barriers, quantitative restrictions and
subsidies on trade through a series of
agreements.
• It was a treaty, not an organization.
•The General Agreement Tariffs and Trade (GATT)
was first signed in 1947
Was designed
* To provide an international Forum
* That encouraged free trade between member
states.
* By regulating and reducing tariffs on traded
goods.
* Providing a common mechanism for resolving
trade disputes.
GATT?
A Treaty, not an organisation
• Was the out come of failure of negotiating governments
to create the ITO.
• The Bretton Woods Conference introduced the idea for
an organization to regulate the trade as part of a larger
plan for economic recovery after world war II.
• As government negotiated states began parallel
negotiations for the GATT as a way to attain early tariff
reductions.
• Once the ITO failed in 1950 the only GATT agreement was
left.
History
Divided into 3 phases:
* First:
•From 1947 until the Torquay Round
Largely concerned which commodities would be covered bythe
agreement
Freezing existing tariff levels
* Second:
• From 1959 to 1979
• Focused on reducing tariffs
* Third:
• Consists only of the Uruguay Round from 1986 to 1994
• It extended the agreement to new areas such as intellectual property,
services, capital, and agriculture
• Final outcome was creation of WTO
History Contd..
• GATT Signatories occasionally negotiated new
trade agreements that all countries would enter into
• Each set of agreements was called a round
• In general, each agreement bound members to
reduce certain tariffs. Usually this would include many
special-case or modifications for each country.
 Trade Barriers
Tariff and Non-Tariff Barriers
While free-trade maximizes world welfare, most nations
impose some trade restrictions that benefit special groups in
the nation. The most important type of trade restriction
historically is the tariff.
• This is a tax or duty on the imports or exports.
When a small nation imposes an import tariff, the domestic
price of the importable commodity rises by the full amount of
the tariff for individuals in nation. As a result, domestic
production of the importable commodity expands while
domestic consumption and imports fall. However, the nation
as a whole faces the unchanged world price since the nation
Tariffs
• Tariffs can be ad-Valorem, specific, or compound.
• Ad-Valorem tariff is expressed as a fixed percentage
of the
value of the traded commodity.
•Specific tariff is expressed as a fixed sum per
physicalunit of the traded commodity.
• A compound tariff is a combination of an Ad
Valoremand a specific tariff.
Trade Barriers
• An import tariff is a duty on the imported commodity,
while an export tariff is a duty on the exported
commodity.
• Export tariffs are prohibited by the U.S. Constitution but
often applied by developing countries on their
traditional exports (such as Ghana on it’s cocoa and Brazil
on it’s coffee) to get better prices and revenues.
• Developing nations rely heavy on export tariff to raise
revenues because of their ease of collection.
Non-Tariff Barrier
• International trade also hampered
by numerous
Technical, administrative, and other
regulations.
• These include safety regulations
for automobile and electrical
Non-Tariff Barrier(Subsidies)
• National government sometimes grant
subsidies to
domestic producers to help improve their
trade
position. Such devices are indirect form of
protection
provided to domestic businesses, whether
Success of GATT
• Huge increases in world trade
• New members: 23 to 110
• Enormous reductions in tariffs