The General Agreement on Tariffs and Trade (GATT) was a set of multilateral trade agreements aimed at the abolition of quotas and the reduction of tariff duties among the contracting nations. When GATT was concluded by 23 countries in Geneva, Switzerland, in 1947 (to take effect on Jan. 1, 1948), it was considered an interim arrangement pending the formation of a United Nations agency to supersede it. When such an agency failed to emerge, GATT was amplified and further enlarged at several succeeding negotiations. By the time GATT was replaced by the World Trade Organization (WTO) in 1995, 125 nations were signatories to its agreements. The organization proved to be an effective instrument of world trade liberalization, playing a major role in the massive expansion of world trade in the second half of the 20th century.
GATT contained general rules that constituted a code of commercial policy. GATT’s most important principle was that of trade without discrimination, in which each member nation opened its markets equally to every other. As embodied in unconditional most-favored-nation clauses, this meant that once a country and its largest trading partners had agreed to reduce a tariff, that tariff cut was automatically extended to every other GATT member. GATT included a long schedule of specific tariff concessions for each contracting nation, representing tariff rates that each country had agreed to extend to others.
Another fundamental principle was that of protection through tariffs rather than through import quotas or other quantitative trade restrictions; GATT systematically sought to eliminate the latter. Other general rules included uniform customs regulations and the obligation of each contracting nation to negotiate for tariff cuts upon the request of another. An escape clause allowed contracting countries to alter agreements if their domestic producers suffered excessive losses as a result of trade concessions. Countries that were members of trade communities, such as the European Union, were allowed to grant special tariff concessions to each other. In 1965 a new principle called nonreciprocity was added: developing nations were not expected to offer favorable trade arrangements to developed countries that offered them such arrangements.
GATT’s normal business involved negotiations on specific trade problems affecting particular commodities or trading nations, but the group also held several rounds of major trade conferences to work out tariff reductions and other issues. Eight such rounds were held from 1947 to 1993, the last of which was known as the Uruguay Round. The worldwide trade treaty adopted at the round’s end slashed tariffs on industrial goods by an average of 40 percent, reduced agricultural subsidies, and included groundbreaking new agreements on trade in services. The treaty also created a new and stronger global organization, the WTO, to monitor and regulate international trade. The principles and the many trade agreements reached under the auspices of GATT were adopted by the WTO. (See also international trade; tariff; World Trade Organization.)