General Agreement on Tariffs and Trade

General Agreement on Tariffs and Trade (GATT), treaty and international trade organization in existence from 1948 to 1995. GATT members, known as contracting parties, worked to minimize tariffs, quotas, preferential trade agreements between countries, and other barriers to international trade. In 1995 GATT's functions were taken over by the World Trade Organization (WTO), an international body that administers trade laws and provides a forum for settling trade disputes among nations.

GATT was founded on the principle of nondiscrimination. Member nations were bound by the treaty's most-favored-nation clause, which required members to treat all other contracting parties equally. Once a member reduced a tariff for another member country, that reduction applied to all member countries. However, an escape clause allowed a nation to withdraw its tariff reduction if it seriously harmed the country's domestic producers.

GATT members sponsored eight specially organized rounds of trade negotiations. The last round of negotiations, called the Uruguay Round, began in 1986 and ended in 1994. At the end of the negotiations, the members of GATT, as well as representatives from seven other nations, signed a trade pact that will eventually cut tariffs overall by about one-third and reduce or eliminate other obstacles to trade. The pact also took steps toward opening trade in investments and services among member nations and strengthening protection for intellectual property—that is, creative works that can be protected legally. The 1994 trade agreement officially took effect in January 1995, but it will be years before its provisions are fully implemented.

The 1994 GATT pact also provided for establishment of the WTO. Throughout 1995, GATT and the WTO coexisted while GATT members sought their governments' approval for WTO membership. After the transition period, GATT ceased to exist. All of the 128 nations that were contracting parties to the 1994 GATT agreement eventually transferred membership to the WTO. Although the WTO operates a dispute settlement process similar to the one under GATT, it has stronger power to enforce agreements, including authority to issue trade sanctions against a country that refuses to revoke an offending law or practice.

The 1994 GATT treaty was one of the most ambitious international trade agreements to be signed by such a large number of nations. In the United States, supporters of the agreement said it would create jobs and improve business. Opponents claimed that the new GATT treaty would lead to massive losses of jobs in manufacturing and that the powerful WTO would threaten American independence. A number of groups, including environmentalists, human-rights activists, and labor organizations in the United States and other countries, argued against the treaty, claiming that it failed to link trade preferences to protections for the environment and workers' rights. The Congress of the United States approved U.S. participation in the treaty—including membership in the WTO-in December 1994.

GATT originated after World War II (1939-1945) as a charter for the International Trade Organization (ITO), a proposed specialized agency of the United Nations. GATT was signed by 23 nations at a trade conference in 1947 and became effective in January 1948. Although the ITO failed to win ratification by the United States Congress in 1950 and never came into being, the GATT remained in use to govern international trade.

See also Commercial Treaties; Foreign Trade; Free Trade; Tariff.