A Historical Perspective on the Establishment of the GATT and the WTO - Research Paper Example

The General Agreement on Tariffs and Trade (GATT) was to emerge after three decades of troubled trade and monitory relations that had presented a tendency for trying to act in ways that encouraged ‘beggar thy neighbor’ policies and caused the Great Depression. 2 United States of America had tried and tested reciprocal trade agreements for about a decade prior to the outbreak of the Second World War and a multilateral framework could present benefits. It was necessary to encourage a liberal economic order after the Second World War because prior to this World War, protectionism had contributed to a spiraling of international political conflict.

 This added considerably to the economic strain of the Great Depression as trade flows diverted to other markets, and further retaliation ensued to present a domino effect. Economic historians now think that the Smoot-Hawley Tariff Act contributed to the rise of Adolf Hitler in Germany, bank failures in the United States of America and acts of political extremism as well as a loss of confidence on the Wall Street, coupled with US isolationism. 6 In the four years for which this legislation was in force, global trade declined by approximately by two - thirds.

Thus, the protectionist and isolationist regime did not present an encouraging experience for anyone in the world, and it is interesting to note that the then Republican US President, Herbert Hoover had signed the Smoot-Hawley Tariff Act into law despite a petition from more than a thousand economists, urging President Hoover to veto this legislation.