GATT
The General Agreement on Tariffs and Trade (GATT) The General Agreement on Tariffs and
Trade (GATT) was an international organization, created in 1947 and headquartered in
Geneva (Switzerland), devoted to the promotion of freer trade through multilateral trade
negotiations. Originally, it was thought that GATT would become part of the International
Trade Organization (ITO), whose charter was negotiated in Havana in 1948 to regulate
international trade. When the ITO was not ratified by the U.S. Senate and by the governments
of other nations, GATT (which was less ambitious than ITO) was salvaged.
GATT rested on three basic principles:
1. Non-discrimination: This principle refers to the unconditional acceptance of the most-
favored-nation principle (The Trade Agreements Act of 1934 authorized a nation to negotiate
mutual tariff reductions of up to 50 percent under the most-favored-nation principle). The
only exceptions to this principle are made in cases of economic integration, such as customs
unions, and in the trade between a nation and its former colonies and dominions.
2. Elimination of nontariff trade barriers (such as quotas), except for agricultural products and
for nations in balance-of-payments difficulties.
3. Consultation among nations in solving trade disputes within the GATT framework.
By 1993, a total of 123 nations (including the United States and all major countries, with the
exception of the countries of the former Soviet Union and China) were signatories of the
GATT, and 24 other nations had applied for admission. The agreement covered over 90
percent of world trade. Under the auspices of GATT, tariffs were reduced by a total of about
35 percent in five different trade negotiations between 1947 and 1962. In 1965 GATT was
extended to allow preferential trade treatment to developing nations and to allow them to
benefit from tariff reductions negotiated among industrial nations without reciprocity.
Greater success in tariff reductions was not achieved before 1962 because tariff negotiations
were conducted on a product-by-product basis and because in the 1950s the U.S. Congress
attached serious protectionist devices to the periodic renewals of the Trade Agreements Act.
These protectionist devices were:
1. Peril-point provisions, which prevented the president from negotiating any tariff reduction
that would cause serious damage to a domestic industry.
2. The escape clause, which allowed any domestic industry that claimed injury from imports
to petition the International Trade Commission (the U.S. Tariff Commission until 1975),
which could then recommend to the president to revoke any negotiated.
The Uruguay Round
In December 1993, the Uruguay Round, the eighth and most ambitious round of multilateral
trade negotiations in history, in which 123 countries participated, was completed after seven
, years of tortuous negotiations. The Round had started in Punta del Este in Uruguay in
September 1986 and had been scheduled to be completed by December 1990, but
disagreements between the United States and the European Union (EU), especially France, on
reducing agricultural subsidies delayed its conclusion for three years. The aim of the Uruguay
Round was to establish rules for checking the proliferation of the new protectionism and
reverse its trend; bring services, agriculture, and foreign investments into the negotiations;
negotiate international rules for the protection of intellectual property rights; and improve the
dispute settlement mechanism by ensuring more timely decisions and compliance with GATT
rulings. The agreement was signed by the United States and most other countries on April 15,
1994, and took effect on July 1, 1995.
The major provisions of the accord were the following:
1. Tariffs. Tariffs on industrial products were to be reduced from an average of 4.7 percent to
3 percent, and the share of goods with zero tariffs was to increase from 20–22 percent to 40–
45 percent; tariffs were removed altogether on pharmaceuticals, construction equipment,
medical equipment, paper products, and steel.
2. Quotas. Nations were to replace quotas on agricultural imports and imports of textiles and
apparel (under the Multifiber Agreement) with less restrictive tariffs by the end of 1999 for
agricultural products and by the end of 2004 for textiles and apparel; tarrifs on agricultural
products were to be reduced by 24 percent in developing nations and by 36 percent in
industrial nations, and tariffs on textiles were to be cut by 25 percent.
3. Antidumping. The agreement provided for tougher and quicker action to resolve disputes
resulting from the use of antidumping laws, but it did not ban their use.
4. Subsidies. The volume of subsidized agricultural exports was to be reduced by 21 percent
over a six-year period; government subsidies for industrial research were limited to 50
percent of applied research costs.
5. Safeguards. Nations could temporarily raise tariffs or other restrictions against an import
surge that severely harmed domestic industry, but it barred countries from administering
health and safety standards unless based on scientific evidence and not simply to restrict
trade. For example, a nation could only keep out beef imports from cattle raised with growth
hormones by showing that the beef so produced was unsafe for human consumption.
6. Intellectual property. The agreement provided for 20-year protection of patents,
trademarks, and copyrights, but it allowed a 10-year phase-in period for patent protection in
pharmaceuticals for developing countries.
7. Services. The United States failed to secure access to the markets of Japan, Korea, and
many developing nations for its banks and security firms, and did not succeed in having
France and the European Union lift restrictions on the showing of American films and TV
programs in Europe.
8. Other industry provisions. The United States and Europe agreed to continue talking about
further limiting government subsidies to civil aircraft makers, opening up the distance
telephone market, and limiting European subsidies to steelmakers; the United States also
indicated that it intended to continue negotiating the further opening of the Japanese
computer chip market.
The General Agreement on Tariffs and Trade (GATT) The General Agreement on Tariffs and
Trade (GATT) was an international organization, created in 1947 and headquartered in
Geneva (Switzerland), devoted to the promotion of freer trade through multilateral trade
negotiations. Originally, it was thought that GATT would become part of the International
Trade Organization (ITO), whose charter was negotiated in Havana in 1948 to regulate
international trade. When the ITO was not ratified by the U.S. Senate and by the governments
of other nations, GATT (which was less ambitious than ITO) was salvaged.
GATT rested on three basic principles:
1. Non-discrimination: This principle refers to the unconditional acceptance of the most-
favored-nation principle (The Trade Agreements Act of 1934 authorized a nation to negotiate
mutual tariff reductions of up to 50 percent under the most-favored-nation principle). The
only exceptions to this principle are made in cases of economic integration, such as customs
unions, and in the trade between a nation and its former colonies and dominions.
2. Elimination of nontariff trade barriers (such as quotas), except for agricultural products and
for nations in balance-of-payments difficulties.
3. Consultation among nations in solving trade disputes within the GATT framework.
By 1993, a total of 123 nations (including the United States and all major countries, with the
exception of the countries of the former Soviet Union and China) were signatories of the
GATT, and 24 other nations had applied for admission. The agreement covered over 90
percent of world trade. Under the auspices of GATT, tariffs were reduced by a total of about
35 percent in five different trade negotiations between 1947 and 1962. In 1965 GATT was
extended to allow preferential trade treatment to developing nations and to allow them to
benefit from tariff reductions negotiated among industrial nations without reciprocity.
Greater success in tariff reductions was not achieved before 1962 because tariff negotiations
were conducted on a product-by-product basis and because in the 1950s the U.S. Congress
attached serious protectionist devices to the periodic renewals of the Trade Agreements Act.
These protectionist devices were:
1. Peril-point provisions, which prevented the president from negotiating any tariff reduction
that would cause serious damage to a domestic industry.
2. The escape clause, which allowed any domestic industry that claimed injury from imports
to petition the International Trade Commission (the U.S. Tariff Commission until 1975),
which could then recommend to the president to revoke any negotiated.
The Uruguay Round
In December 1993, the Uruguay Round, the eighth and most ambitious round of multilateral
trade negotiations in history, in which 123 countries participated, was completed after seven
, years of tortuous negotiations. The Round had started in Punta del Este in Uruguay in
September 1986 and had been scheduled to be completed by December 1990, but
disagreements between the United States and the European Union (EU), especially France, on
reducing agricultural subsidies delayed its conclusion for three years. The aim of the Uruguay
Round was to establish rules for checking the proliferation of the new protectionism and
reverse its trend; bring services, agriculture, and foreign investments into the negotiations;
negotiate international rules for the protection of intellectual property rights; and improve the
dispute settlement mechanism by ensuring more timely decisions and compliance with GATT
rulings. The agreement was signed by the United States and most other countries on April 15,
1994, and took effect on July 1, 1995.
The major provisions of the accord were the following:
1. Tariffs. Tariffs on industrial products were to be reduced from an average of 4.7 percent to
3 percent, and the share of goods with zero tariffs was to increase from 20–22 percent to 40–
45 percent; tariffs were removed altogether on pharmaceuticals, construction equipment,
medical equipment, paper products, and steel.
2. Quotas. Nations were to replace quotas on agricultural imports and imports of textiles and
apparel (under the Multifiber Agreement) with less restrictive tariffs by the end of 1999 for
agricultural products and by the end of 2004 for textiles and apparel; tarrifs on agricultural
products were to be reduced by 24 percent in developing nations and by 36 percent in
industrial nations, and tariffs on textiles were to be cut by 25 percent.
3. Antidumping. The agreement provided for tougher and quicker action to resolve disputes
resulting from the use of antidumping laws, but it did not ban their use.
4. Subsidies. The volume of subsidized agricultural exports was to be reduced by 21 percent
over a six-year period; government subsidies for industrial research were limited to 50
percent of applied research costs.
5. Safeguards. Nations could temporarily raise tariffs or other restrictions against an import
surge that severely harmed domestic industry, but it barred countries from administering
health and safety standards unless based on scientific evidence and not simply to restrict
trade. For example, a nation could only keep out beef imports from cattle raised with growth
hormones by showing that the beef so produced was unsafe for human consumption.
6. Intellectual property. The agreement provided for 20-year protection of patents,
trademarks, and copyrights, but it allowed a 10-year phase-in period for patent protection in
pharmaceuticals for developing countries.
7. Services. The United States failed to secure access to the markets of Japan, Korea, and
many developing nations for its banks and security firms, and did not succeed in having
France and the European Union lift restrictions on the showing of American films and TV
programs in Europe.
8. Other industry provisions. The United States and Europe agreed to continue talking about
further limiting government subsidies to civil aircraft makers, opening up the distance
telephone market, and limiting European subsidies to steelmakers; the United States also
indicated that it intended to continue negotiating the further opening of the Japanese
computer chip market.
