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General Agreement on Tariffs and Trade (GATT)

General Agreement on Tariffs and Trade (GATT) was a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”

It was first discussed during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on 30 October 1947, and took effect on 1 January 1948. It remained in effect until the signature by 123 nations in Marrakesh on 14 April 1994, of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on 1 January 1995. The WTO is a successor to GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.

Objectives of GATT:

By reducing tariff barriers and eliminating discrimination in international trade, the GATT aims at-

(i) Expansion of international trade.

(ii) Increase of world production by ensuring full employment in the participating nations.

(iii) Development and full utilization of world resources, and

(iv) Raising standard of living of the world community as a whole.

However, the GATT do not provide directives for attaining these objectives. These are to be indirectly achieved by the GATT through the promotion of free (unrestricted) and multilateral international trade.

As such, the rules adopted by GATT are based on the following fundamental principles:

(i) Trade should be conducted in a non-discriminatory way.

(ii) The use of quantitative restrictions should be condemned.

(iii) Disagreements should be resolved through consultations.

In short, members of GATT agree to reduce trade barriers and to eliminate discrimination in international trade so that multilateral and free trade may be promoted, leading to wider dimensions of world trade and prosperity.

GATT permits such restrictions only for-

(i) Safeguarding exchange reserves when a country has balance of payments difficulties.

(ii) Restricting imports that would harm domestic price supports and production control programmes of a country.

GATT also lays down that state trading should be non-discriminatory. However, the formation of customs unions or free trade areas are allowed by the General Agreement provided their purpose is to facilitate trade between the constituent territories and not to raise barriers to the trade of other member nations.

(iii) Underdeveloped countries to further their economic development under procedures approved by GATT.

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