The General Agreement on Tariffs and Trade

The General Agreement on Tariffs and Trade

In the period between the First and the Second World Wars there was a marked deterioration in international economic relations. In the 1920s an attempt was made to go back to 'normal' conditions. This meant the gold standard, as far as international monetary co-operation is concerned. An attempt was also made to organize world trade on a liberal basis.

This system did not function well and when the depression came at the beginning of the 1930s, the system broke down. At the end of the Second World War, the memory of the inter-war period was still fresh. The victorious countries, especially Britain and the United States, started to plan for new, more viable relations in the international economy. The starting point was the Bretton Woods conference, held in 1944, where the world economy was organized around three cornerstones: the International Monetary Fund(IMF), the International Trade Organization(ITO) and the International Bank for Reconstruction and Development(IBRD).

In 1946, while negotiations on the charter of the ITO were taking place, a group of countries came to a consensus that there was a need for immediate tariff reductions. The United States took the initiative and a group of 23 nations concluded a set of mutual tariff reductions which were codified as the GATT. The agreement was supposed to be a 'stepping stone' en route to the establishment of the ITO. However, the ITO never came into existence due to some disagreements between the United States and Britain. This left the GATT as the framework for trade relations. It had, however, many of the principles that would have formed the basis of the ITO. In particular, the member countries of the GATT were to meet in Geneva and negotiate multilaterally on matters of trade policy. It was also to act as a forum for the settlement of disputes between nations.

The influence of the United States was an important factor that contributed to the failure to establish the ITO. The structure of the GATT and the timing and progress of negotiations are closely linked to the role of the United States as the dominant trading country.

Today 100 countries are 'contracting parties' to the GATT, accounting for some 80 per cent of world trade. An additional 29 countries have agreed to abide by the GATT rules until such time as they establish their own trade policies. Taiwan, China and the former USSR are not however members.

Perhaps the most important objective of the GATT was to provide a framework for the conduct of trade relations. Furthermore, it had to provide a framework for, and to promote in the same time, the progressive elimination of trade barriers and finally, it had to provide a set of rules that would inhibit countries from taking unilateral action. It was successful in meeting the first two objectives, most notably in securing substantial reductions in tariffs. The recent actions of the United States in taking unilateral action against countries that are trading 'unfairly' provide the most obvious example of failure regarding the third objective.

Regarding the structure of the GATT, the agreement takes the form of 38 articles, organized into 4 parts. Part I (Article I and II) deals with the obligations of the contracting parties. Part II (Articles III - XXIII) provides the code for 'fair' trade, such as various technical procedures and conditions under which tariffs may be employed. Part III (articles XXIV - XXXV) details the procedures for the application and amendment of the Agreement. Part IV (an amendment under Part