Overview of GATT 1994 | The General Agreement on Tariffs and Trade (GATT)
This article provides a comprehensive overview of GATT 1994, its objectives, structure, key provisions, and impact on global trade.
The General Agreement on Tariffs and Trade (GATT) was originally formulated in 1947 as a multilateral agreement to reduce barriers to international trade. Over time, it played a pivotal role in promoting freer trade by reducing tariffs, quotas, and other trade restrictions. However, as the global economy evolved, it became evident that GATT had limitations in addressing the complexities of modern trade, such as trade in services, intellectual property rights, and dispute resolution.
This culminated in the creation of the World Trade Organization (WTO) and the adoption of a new agreement known as GATT 1994, which came into force on January 1, 1995. GATT 1994 is an updated version of the original 1947 agreement and forms part of the broader framework established by the WTO.
Historical Background
The foundation of GATT dates back to the post-World War II era when global powers sought to create a stable international trading environment to prevent the protectionist policies that contributed to the Great Depression. The original GATT agreement, signed in 1947, was meant to be a temporary arrangement until a permanent International Trade Organization (ITO) was established. However, the ITO failed to materialize due to opposition from various countries, particularly the United States. As a result, GATT became the primary mechanism for regulating international trade.
Between 1947 and 1994, GATT underwent several rounds of negotiations, known as "trade rounds," which aimed to reduce tariffs and other trade barriers. The most notable of these rounds was the Uruguay Round (1986–1994), which led to the establishment of the WTO and the adoption of GATT 1994.
GATT 1994 and the Creation of the WTO
GATT 1994 was one of the key agreements that formed the foundation of the WTO, which was established as a successor to GATT 1947. While GATT 1994 is often considered a continuation of GATT 1947, it introduced significant reforms and expansions to address the changing landscape of international trade.
The WTO, which governs GATT 1994, was created to provide a more comprehensive institutional framework for international trade. Unlike GATT 1947, which lacked an enforcement mechanism and covered only goods, the WTO encompasses agreements on trade in services (General Agreement on Trade in Services or GATS) and intellectual property (Trade-Related Aspects of Intellectual Property Rights or TRIPS). Moreover, the WTO introduced a more structured dispute resolution mechanism, which has since become one of its most important functions.
Objectives of GATT 1994
The primary objectives of GATT 1994 are largely consistent with the original goals of GATT 1947, with some modifications to address new challenges. These objectives include:
Reducing Trade Barriers: GATT 1994 aims to reduce tariffs, quotas, and other trade barriers that hinder the free flow of goods and services between countries. The reduction of these barriers encourages competition, promotes efficiency, and stimulates economic growth.
Ensuring Non-Discrimination: GATT 1994 continues to enforce the principles of non-discrimination, particularly through the Most Favoured Nation (MFN) clause. This principle ensures that countries do not discriminate between their trading partners and that any trade concession granted to one country is extended to all WTO members.
Promoting Fair Competition: GATT 1994 seeks to prevent unfair trade practices such as dumping and subsidies that distort competition. It allows for anti-dumping measures and countervailing duties to be imposed in cases where such practices are proven.
Fostering Development: GATT 1994 recognizes the special needs of developing countries and provides mechanisms to help them integrate into the global trading system. These include special and differential treatment, technical assistance, and capacity-building measures.
Key Provisions of GATT 1994
GATT 1994 is composed of the original GATT 1947 text, along with several additional agreements and modifications that reflect the outcome of the Uruguay Round. Some of the key provisions of GATT 1994 include:
Tariff Reduction: GATT 1994 retains the core focus on reducing tariffs on goods. Countries commit to binding their tariff rates, which means they cannot increase tariffs beyond a certain level without negotiating compensation with their trading partners. This creates a more predictable and stable trading environment.
Non-Tariff Barriers: While the original GATT focused primarily on tariffs, GATT 1994 addresses non-tariff barriers, such as quotas, import licensing, and technical standards. These barriers can often be more restrictive than tariffs, and their regulation is essential for promoting free trade.
Trade in Services: While GATT 1947 focused exclusively on goods, GATT 1994 is part of the broader WTO framework that includes the General Agreement on Trade in Services (GATS). This agreement aims to liberalize trade in services, including sectors such as banking, telecommunications, and transportation.
Intellectual Property Rights: The inclusion of the TRIPS Agreement under the WTO framework extends GATT 1994's scope to intellectual property rights. This agreement sets minimum standards for the protection and enforcement of intellectual property, such as patents, copyrights, and trademarks.
Dispute Resolution: One of the most significant reforms introduced by GATT 1994 is the establishment of a more robust dispute settlement mechanism through the WTO. The Dispute Settlement Understanding (DSU) provides a legal framework for resolving trade disputes between member countries. It ensures that disputes are resolved in a timely and transparent manner, with the possibility of imposing sanctions on non-compliant countries.
Agriculture: GATT 1994 also includes provisions related to agricultural trade, which had previously been excluded from GATT 1947. The Agreement on Agriculture (AoA) aims to reduce protectionism in agricultural markets by cutting subsidies and tariffs, thus allowing for fairer competition in this sector.
Impact of GATT 1994 on Global Trade
Since its adoption, GATT 1994 has had a profound impact on global trade. It has contributed to significant reductions in tariffs and other trade barriers, leading to increased trade flows and economic growth. Some of the key impacts of GATT 1994 include:
Growth in Global Trade: GATT 1994, along with the broader WTO framework, has been instrumental in facilitating the expansion of global trade. By reducing barriers to trade and promoting a rules-based trading system, GATT 1994 has allowed countries to specialize in areas of comparative advantage, leading to increased efficiency and economic growth.
Dispute Resolution: The introduction of a formal dispute resolution mechanism has helped prevent trade disputes from escalating into trade wars. The WTO's dispute settlement system has been used extensively by member countries to resolve disagreements over trade policies and practices.
Integration of Developing Countries: GATT 1994 has provided developing countries with greater access to global markets, enabling them to benefit from trade liberalization. Special provisions, such as technical assistance and capacity-building programs, have helped these countries build the necessary infrastructure and expertise to participate effectively in international trade.
Conclusion
GATT 1994 represents a critical milestone in the evolution of international trade law. By building on the foundation laid by GATT 1947, it has played a crucial role in shaping the modern global trading system. Through its emphasis on reducing trade barriers, ensuring non-discrimination, and promoting fair competition, GATT 1994 has contributed to significant growth in global trade and economic development.
However, as the global economy continues to evolve, the challenges facing the GATT framework must also be addressed, particularly in areas such as environmental sustainability, labour rights, and the equitable distribution of the benefits of trade liberalization. The success of GATT 1994 and the WTO in addressing these challenges will determine the future of the multilateral trading system. Nevertheless, GATT 1994 remains a cornerstone of international trade law, shaping the way countries engage in commerce on a global scale.
References
[1] Srinivasan, T.N., Developing Countries and the Multilateral Trading System: From GATT to the Uruguay Round and the Future, Available Here
[2] The General Agreement on Tariffs and Trade (GATT 1994), Available Here
[3] From GATT 1947 to GATT 1994, Available Here
[4] What Is the General Agreement on Tariffs and Trade (GATT)?, Available Here
