GATT and WTO –

General Agreement on Tariffs and Trade (GATT) –

During the period of Great Depression (1929-1933) and the Second World War various countries imposed high tariffs on the imports to protect domestic industries. They followed what is called ‘Begger Thy Neighbour’ policy. The high tariffs resulted in large shrinking of world trade and caused loss of efficiency in resource use to the world economy. A reaction against this devastation caused by high tariffs during this period, the GATT or General Agreement on Tariffs and Trade was established in 1947 after the Second World War.

GATT aimed at liberalisation of trade between countries by Multilateral Trading Systems and to promote trade between various countries to reduce tariffs significantly. GATT organised various rounds of negotiations between member countries to reduce tariffs. As a result world trade and world GNP increased significantly after 1947.

In the latest round under GATT, Uruguay Round, negotiations started in 1986 and concluded in 1994, in which a comprehensive agreement of 40% reduction in tariffs was reached.

World Trade Organisation (WTO) –

Uruguay Round of talks established a world body called WTO (World Trade Organisation) to achieve further liberalisation of free trade among countries. WTO came into existance in January 1995. The objective of WTO is to ensure efficiency in use of world resources and specialisation of various countries in accordance with their comparative advantage.

WTO is a very important trade organisation to promote free trade among different countries. Protection has harmful effects on economic growth and consumer welfare.

WTO is a permanent organisation created by international treaty ratified by the governments and legislatures of member states. WTO is the principal international body concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations, it has global status similar to the International Monetary Fund and the World Bank.

Objective of WTO –

The objective of WTO is to establish a multilateral trading system in order to promote free and fair trade among countries.

Dunkel Act on which WTO has been founded is wedded to liberalisation of trade based on comparative costs. This provides a multilateral framework for not only trade in industrial and agricultural goods but also in services. It also seeks to protect Trade Related Intellectual Property Rights (TRIPS). By committing the member countries to give Most Favoured Nation (MFN) treatment to all trading partners, it discourages bilateral trading and encourages multilateral trading system.

At present there are 148 member countries of WTO including both developed and developing.