During the period 1930 to 1940, The Great Depression started in the United States and spread rapidly to the rest of the world. To protect their domestic industries, nearly all countries put up tariff barriers to discourage the import of foreign goods. The result was a serious decline in world trade. A number of international trade bodies and agreements have been established over the years to address these negative trade patterns and in many respects they have influenced much of the thinking on and practice of world trade.
GATT and the WTO
One of the most important of these is GATT, initiated in 1995 and now administered by the WTO. The GATT is a multilateral agreement committed to achieving less restricted international trade. Although it was fairly successful in encouraging a substantial worldwide reduction in tariffs throughout the post-War period, it was less successful in preventing the establishment, and eliminating the existence, of non-tariff barriers such as quotas. The 1970’s and 1980’s, in particular, saw governments starting to circumvent GATT rules, with the subsidisation of domestic industries and other discriminatory and/or protectionist practices becoming increasingly common.
The main activities of the GATT secretariat were the multilateral negotiations which took place at international conferences or ’rounds’, where the signatories to the GATT discussed and made decisions regarding trade. These negotiations eventually led to the establishment of the World Trade Organisation (WTO) in January 1995. Unlike the GATT, which had no institutional foundation, the WTO is a permanent institution with its own secretariat. The WTO also covers trades in services and trade-related aspects of intellectual property. These functions include:
- Administering and implementing multilateral and plurilateral trade agreements
- Acting as a forum for multilateral trade negotiations
- Seeking to resolve trade disputes
- Overseeing national trade policies
- Co-operating with other international institutions involved in global economic policy-making
The WTO rests on the same fundamental principles underlying the original GATT. They include:
- Trade without discrimination among members – covered by the most-favoured-nation clause (MFN) and between imported and domestically produced merchandise (national treatment) clause. According to the MFN clause, any WTO member country extending special trading advantages to another member country, must extend that preference to all member countries. The exceptions cover customs unions and free trade areas. ‘National treatment’ requires that once goods have entered a market they must be treated no less favourably than the equivalent domestically produced goods.
- Secure and predictable market access. While quotas are generally outlawed, tariffs are permitted for the protection of domestic industries and to raise revenues. However, they may not be discriminatory among imports and WTO members may not increase certain tariffs above their present levels without negotiations. WTO contracting parties must also commit to a progressive reduction of tariffs and other trade restrictions over a period of time.