General Agreements on Tariffs and Trade - Case Study Example

GATT Name Name of Institution GATT Introduction International trade has thrived over the years, and it has provided the global population with numerous benefits. It has enhanced competitiveness across the world and ensured that consumers get the products they desire (Economy Watch 2010). However, international trade has not always been effective. Events like the two World Wars and protectionist measures by governments hindered trade to a significant degree. These problems were overcome through negotiations and the signing of agreements that provided guidelines on how countries should engage in international trade. The General Agreement on Tariffs and Trade (GATT) is an example of an agreement that was created to assist in the regulation of international trade in goods (World Trade Organization 2015a). This paper will examine the state of international trade after Second World to build an understanding of the conditions that led to the realization of GATT. A review of GATT and a discussion of some of its accomplishments will follow. The essay will conclude with an explanation of the differences between GATT and the now functional World Trade Organization. The General Agreement on Tariffs and Trade The period between the two World Wars convinced policy makers in the US that international trade was one of the key factors that can lead to world peace (Office of the Historian, 2015). The Great Depression occurred during this period, and one of its consequences was the adoption of protectionist policies by governments. Policies such as high tariffs worsened the economic situation, and the start of the Second World War resulted in the further destruction of economies. After the conclusion of the war, the US and its allies wanted to ensure that they would recover from the effects of the war and the Great Depression in the shortest time possible. They agreed that the liberalization of international trade was the way forward. This would be achieved through three main steps. The first step concerned the creation of the International Monetary Fund to facilitate the transfer of international payments. The formation of the World Bank, which would assist Europe and Japan to recover from the desolation of the war, was the second step. The third step involved the creation of an international trade organization to facilitate free trade. GATT arose out of the third step. The treaty was agreed upon during an international conference that was held in Geneva in 1947. The treaty acted as the draft agreement that would be in place until the nations agreed on the structure of the eventual international trade organization that would regulate global trade (Choi 2015). This agreement covered a total of 23 countries, and it led to promises to control 45,000 tariff rates (BBC 1998). The agreement became effective on January 1, 1948 when the 23 countries signed the agreement. A total of 53 countries signed the agreement in a subsequent UN conference that was held in Havana in March 1948 (Office of the Historian, 2015). However, there was strong opposition in the US Congress that meant that the proposed International Trade Organization was never created. Eight further negotiations allowed GATT to regulate international trade for a period of around 50 years before the World Trade Organization’s formation (Sharma n.d). The General Agreement on Tariffs and Trade had a number of major provisions. As stated, the initial agreement led to 23 countries to committing to regulate a total of 45,000 tariffs. This indicates that one of the major provisions of the treaty was the commitment to give signatories better treatment when it comes to tariffs and quotas. The second major provision addressed general quantitative restrictions of exports and exports. These restrictions hindered international trade and GATT banned them, but there were a few exceptions that addressed national security, surpluses, developing countries, and balance of payments (Choi 2015). The agreement also contained other minor provisions that created an environment in which international trade would thrive. Accomplishments of GATT As stated, the American leadership acknowledged that international trade was one of the means of achieving world peace (Office of the Historian, 2015). They had witnessed the effects of the Great Depression in the 1930’s and the devastating impact of World War II. It can, therefore, be argued that one of the reasons for the establishment of GATT was to promote world peace as a more integrated global community is unlikely to declare wars (Office of the Historian, 2015). Therefore, the first accomplishment of GATT is that it created an environment that did not support conflict. There have been no major global wars since the implementation of the agreement in 1948 (Choi 2015). Instead, governments eliminated tariffs and quotas and also created policies that allowed developing countries also to start benefiting from international trade. The other accomplishment of the General Agreement on Tariffs and Trade is promoting and securing the liberalization of trade. In this case, the term liberalization defines the elimination of restrictions that hinder the free exchange of goods and services between nations (IMF 2001). As stated, countries that adopted severe protectionist policies came to realize that such policies were ineffective. GATT brought order to a chaotic system where countries approached international trade in different ways. There was a continuous reduction in tariffs despite the fact that GATT was a provisional agreement that would be replaced by an international trade organization. The pace of trade liberalization ensured that the growth in international trade was faster than the growth in production (Choi, 2015). The benefits of the treaty can be seen in the fact that it initially covered 23 countries, but this number increased to over 100 member countries after the Uruguay Round of negotiations. The final and greatest achievement of GATT is that it led to the formation of an International Trade Organization. The world had succeeded in creating the United Nations, The World Bank, and the IMF. However, the international body that was supposed to regulate international trade was not established with the same ease as countries had to address a wide range of issues related to trade. The GATT performed the role of an international trade organization with relative success for 47 years. It created an environment where countries could come together and engage in trade negotiations (Stewart, 1999). The culmination of these negotiations was the 1995 formation of the World Trade Organization after the completion of the Uruguay Round of negotiations. The world finally had the institution that would handle the task of regulating international trade as a result of the presence of GATT. Differences between GATT and the World Trade Organization The World Trade Organization is a product of the rounds of negotiations that took place between signatories to GATT. The majority of its current work arises out of the negotiations that took place between 1986 and 1994 in what is referred to as the Uruguay Round (Dunkley, 2000). The organization still engages in constant negotiations that are aimed at eliminating some of the remaining barriers to international trade (World Trade Organization 2015b). However, it is worth mentioning that there are instances where the organization supports the retaining of trade barriers. An example would be the prevention of the spread of disease through trade. The WTO is currently headquartered in Geneva, and the current membership comprises of 161 countries (World Trade Organization 2015b). Its functions include handling trade disputes, offering technical assistance in developing countries, administering agreements, monitoring trade policies, partnering with other global organizations, and facilitating trade negotiations (World Trade Organization 2015b). In summary, the organization stands for a more open world, environmental protection, more competition, predictable and transparent trade, non-discrimination, and the protection of less developed countries. It is clear that the WTO differs from GATT in a number of areas. The first difference is evident in the coverage of GATT and the WTO. It is evident that there were considerable developments in technology and trade between the signing of GATT in 1948 and the formation of the WTO in 1995. For this reason, the new global trade organization had to expand its coverage from goods to trade in services, intellectual property, and international investments. Therefore, the difference between GATT and the WTO is that GATT covered trade in goods while the WTO covered cross-border trade in goods and services as well as intellectual property rights and international investments (Choi, 2015). The wider scope allowed the World Trade Organization to be in a position to regulate all aspects of global trade. Further negotiations are bound to increase this scope as the world advances. The complexity of international trade means that problems are bound to occur. Despite signing the trade agreements, some countries might find ways of inhibiting international trade or awarding unfair preferential treatment to some countries. Similarly, developed countries can attempt to take advantage of some of the less developed countries that do not have the political or financial might to defend themselves. One of the failures of the General Agreements on Tariffs and Trade is that it did not create a means of dispute resolution. The WTO differs from GATT because it set up a dispute resolution body (Choi, 2015). At present, all 161 states have the means to register disputes with the body and have them settled in a short time. The third difference comes in the legal status of the GATT and WTO. As stated, the end of World War to confirmed the need for the formation of a global government that would consist of the United Nations, IMF, World Bank, and an international trade organization (Office of the Historian, 2015). The formation of the international trade organization became the most complex task as countries wanted to retain their sovereignty and determine how they would approach international trade (Jain, 2010). The GATT was signed by 23 countries that appreciated the need to reduce tariffs. But the agreement had no legal force as seen in the fact that the US Congress did not ratify GATT. Further negotiations across five decades eventually led to the creation of the international trade organization. However, it differed from GATT as it was a binding and permanent agreement (Choi, 2015). Conclusion In conclusion, the current level of international trade is only possible as a result of the trade liberalization policies that GATT and WTO advocated. While GATT was a provisional measure, it had a lot of accomplishments with the most significant being the formation of the World Trade Organization. However, the presence of the international trade organization that was envisioned at the end of World War 2 does not mean that all is well. International trade still faces a wide number of challenges that need to be addressed. It is recommended that all member countries should continue to participate in negotiations that will lead to free trade. However, such negotiations should consider the needs of developing countries as well as the needs of emerging countries like China instead of concentrating on Japan, the US, and other advanced countries in Europe. References Benefits of International Trade. (2010). Economy Watch. Retrieved 30 April 2015 http://www.economywatch.com/international-trade/benefit.html Bretton Woods-GATT, 1941-1947. (2015). US Department of State Office of the Historian. Retrieved 30 April 2015 https://history.state.gov/milestones/1937-1945/bretton-woods Choi, E. K. (2015). General Agreements on Tariffs and Trade. Iowa State University. Retrieved 30 April 2015 http://www2.econ.iastate.edu/classes/econ355/choi/gatt.htm Dunkley, G. (2000). The Free Trade Adventure: The WTO, the Uruguay Round and Globalism A Critique. London: Zed Books GATT and the Goods Council. (2015a). World Trade Organization. Retrieved 30 April 2015 https://www.wto.org/english/tratop_e/gatt_e/gatt_e.htm Global Trade Liberalization and the Developing Countries. (2001). International Monetary Fund. Retrieved 29 April 2015 http://www.imf.org/external/np/exr/ib/2001/110801.htm Jain, T.R. (2010). Public Finance and International Trade. New Delhi: VK Publications. Sharma, R. (n.d.). Agriculture in the GATT: A Historical Account. Food and Agriculture Organization. Retrieved 29 April 2015 http://www.fao.org/docrep/003/x7352e/x7352e04.htm Stewart, T. P. (Ed.). (1999). The GATT Uruguay Round: The end game (part I) (Vol. 4). Kluwer Law International. The Guardian of Free Trade. (1998). BBC NEWS. Retrieved 29 April 2015 http://news.bbc.co.uk/2/hi/business/96032.stm Understanding the WTO. (2015b). World Trade Organization. Retrieved 30 April 2015 https://www.wto.org/english/thewto_e/whatis_e/tif_e/tif_e.htm Read More