GATT

Purpose of GATT

Now, let's have a look at the purpose of GATT.

We know that the major purpose of the establishment of GATT was to promote trade liberalization. For trade liberalization, member countries of GATT used to get together to negotiate on the strategies that are necessary to liberalize trade. Such types of meetings between GATT members were known as trade rounds.

Since GATT's inauguration, eight trade rounds have been conducted, each attempting to liberalize trade. The first five rounds were parallel bilateral negotiations where different countries negotiated with each other by forming pairs.

After the completion of five rounds, the sixth trade round of GATT was known as the Kennedy round, completed in 1967.¹ Unlike the first five rounds, the Kennedy round was a multilateral trade agreement between the member countries. This trade round was primarily concerned with tariff reductions. It was successful in reducing the 50 percent tariff across GATT members with a minimum number of exceptions for some industries.¹

The seventh trade round of GATT was known as the Tokyo round which was completed in the year 1979.¹ GATT's trade round was conducted outside of Europe in Tokyo for the first time. The Tokyo round had a broader view of the trade regulations and resulted in a reduction in customs duties. Further, various agreements were done on non-tariff barriers which were only signed by a few member countries.

Likewise, the eighth GATT trade round, known as the Uruguay round, was the final and biggest trade round. It was held for seven and a half years and was completed in 1994.¹ It was the first time when a trade round was conducted in a developing country (Uruguay). This round focused significantly on developing countries and resulted in the establishment of the World Trade Organization (WTO).

Advantages of GATT in International Business

Now, let's have a look at the advantages of GATT in International Business.

• Some of the advantages of GATT are:- Promotion of international trade- Strong multilateral relationship

Advantages of GATT in International Business: Promotion of International Trade

We know GATT was established to reduce or eliminate international trade restrictions. With each trade round, GATT was able to liberalize and promote international trade. The reduction in tariffs positively impacted international trade as it encouraged many countries to start to trade internationally and join the GATT agreement.

Advantages of GATT in International Business: Strong Multilateral Relationship

With the promotion of international trade, there was a significant movement of products and services across borders. This trade promotion urged numerous countries to build strong multilateral relationships and trade for an extended length of time.

Criticism of GATT

Along with several advantages, there was various criticism of GATT.

Formed to promote trade liberalization, GATT was very successful in what it was doing. But there were some forms of trade that the GATT agreement had not fulfilled. The GATT only specialized in the trade of products. The trade of services like banking and insurance was not agreed upon by the GATT member countries, which had received heavy criticism.

Furthermore, there were no agreements on intellectual property rights. Similarly, the GATT dispute settlement process was lengthy and time-consuming. Some international disputes took years to resolve, which was not something that every country appreciated.

• Some of the criticisms that GATT received were:- No agreement on trade of service- No intellectual property-related agreement- Lengthy dispute settlement process

GATT vs WTO

Now, let's look at the relationship between GATT vs WTO.

We know GATT was a multilateral trade agreement that was formed to promote trade liberalization. Several trade rounds were conducted by GATT in an attempt to reduce tariffs and promote international trade. Whilst GATT was successful in encouraging trade liberalization, a strong body to manage international trade was always necessary. As a result of the Uruguay round of GATT, WTO was formed.

Since the year 1995, GATT was replaced by WTO, which was a strong international organization formed to promote trade liberalization. The updated version (formed in 1994) of the GATT agreement (the initial version of GATT was formed in 1947) is still incorporated in the rules of WTO.¹

There are several administrative reforms brought in by WTO. The GATT agreement was only focused on the trade of goods. The rapid development of the world economy demanded a trade of services that was fulfilled by the WTO. WTO includes the trade of services agreement, known as, the General Agreement on Trade in Services (GATS). Likewise, before WTO, the GATT had no specific agreement on intellectual property rights. To address this issue, WTO has an agreement named Trade-Related Aspects of Intellectual Property (TRIPS).²

Similarly, under GATT, the dispute settlement process was very lengthy and took several years to complete. A trade dispute can arise when a country tries to adopt a certain policy or when they violate a WTO agreement. WTO uses structured procedures for dispute settlement which is quick and extremely effective.