General Agreement on Tariffs and Trade (GATT)

Key takeaways

• GATT was a multilateral treaty signed in 1947 by 23 countries to reduce barriers to international trade.
• It established rules and negotiation rounds that gradually lowered tariffs and constrained discriminatory trade policies.
• GATT’s principles—especially most‑favored‑nation (MFN) treatment—were carried forward into the World Trade Organization (WTO), created in the early 1990s.
• The agreement helped reduce average tariff rates from roughly 22% (1947) to about 5% by the end of the Uruguay Round.

What GATT is and why it mattered

The General Agreement on Tariffs and Trade (GATT) was created after World War II to reverse protectionist policies that had hindered global trade. It provided a common framework for negotiating tariff reductions, replacing many quotas with lower, nondiscriminatory tariffs and establishing procedures for settling trade disputes. By fostering freer trade, GATT aimed to support economic recovery and long‑term growth.

Core principles

• Most‑favored‑nation (MFN) treatment: Signatories agreed that any concession offered to one member (for example, a tariff cut) should generally apply to all other members, preventing discriminatory tariff practices.
• Preferential multilateral negotiation: Tariff and trade concessions were negotiated in rounds involving many countries, rather than through bilateral deals that might favor some partners over others.
• Dispute settlement: GATT provided mechanisms for resolving commercial disputes among members, promoting predictability and rule‑based trade.

How GATT worked

GATT operated mainly through recurring negotiation rounds in which members exchanged tariff concessions and agreed on trade rules. Over successive rounds, tariffs were reduced and new issues—such as anti‑dumping rules, textiles, agriculture, and intellectual property—were brought into multilateral discussions. Committees and working groups examined specific sectors and problems, while the dispute settlement process allowed members to challenge perceived violations.

Historical highlights

• 1947: GATT was signed by 23 countries; the first round in Geneva focused on tariff concessions.
• 1949–1951: Early rounds (Annecy, Torquay) expanded membership and produced thousands of tariff concessions.
• 1956 onward: More countries joined; GATT began addressing anti‑dumping and sectoral arrangements (e.g., textiles).
• 1986–1993 (Uruguay Round): A major negotiating round that extended coverage to services and intellectual property and laid the groundwork for creating the WTO.
• Early 1990s: Agreements resulting from the Uruguay Round were finalized and institutionalized under the World Trade Organization.

Impact

GATT’s multilateral approach contributed to a dramatic liberalization of trade: average tariff rates fell substantially over the postwar decades. Its rules reduced discriminatory practices and provided a stable, predictable environment for international commerce. The negotiation model that GATT established remains the basis for many modern trade discussions.

Transition to the WTO

By the early 1990s, negotiators concluded that a stronger institutional framework was needed to manage an expanding set of trade issues and to strengthen dispute settlement. The World Trade Organization (WTO) was created to incorporate GATT principles within a permanent organization with broader authority over services, intellectual property, and more effective enforcement mechanisms. GATT’s original text continues to apply as the WTO’s Agreement on Trade in Goods.

Ongoing legacy

GATT’s foundational principles—liberalization through negotiated concessions, nondiscrimination (MFN), and rule‑based dispute settlement—remain central to the global trading system. Ongoing WTO negotiation rounds and committees continue to build on the GATT framework to address contemporary trade challenges.