Green Nature

International Trade History: GATT to the WTO

Following the end of WWII, the winning side, the United States and its allies, decided that a prosperous and lasting peace depended not only on the creation of a stable international political order based on principles embedded in the United Nations (UN) Charter, but also on the creation of a stable liberal international economic order.

The twin pillars of the international financial system, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), emerged as the institutional alternative to the regionalism characteristic of international financial practices in the post-WWI era.

An international trading system, built on free trade principles, was also considered as an alternative to the protectionist global trade regime that evolved in the post-WWI era, especially after the depression. During that time period, state foreign economic policies followed the Smoot-Hawley pattern of the United States, promoting high tariffs on imported goods to make local goods more cost efficient.

Originally the International Trade Organization (ITO) which was negotiated in Havana, Cuba was planned to be the formal trade management global organization in the Post-WWII era. Political disagreements ultimately spelled the end of the ITO as a formal organization, yet participants considered trade issues important enough to resurrect portions of the ITO charter and transform them into a less formal, free standing trade agreement known as the General Agreement on Tariffs and Trade. (GATT). Figure 1 briefly outlines the history of GATT activity.

During the first twenty odd years of its existence, members of GATT focused almost entirely on negotiations aimed at reducing tariffs (taxes on imported goods), one of the traditional barriers states enact to protect their markets from import competition. Six rounds of negotiations, through the completion of the Kennedy round in 1967, accomplished substantial tariff reductions in the manufacturing sector among the then most industrialized states, the United States, the member states of the European Economic Community (EEC), the UK and Japan.

Figure 1

RoundDates Achievement
  • GATT entered into force
Annecy (France)1949
  • Tariff reduction
Torquay (England)1951
  • Tariff reduction
  • Tariff reduction
  • Tariff reduction
  • Tariff reduction Anti-dumping code
  • Tariff reduction Non-tariff barrier codes
  • GATT enlargedWorld Trade Organization

By the 1970s, with tariffs on most goods substantially reduced, and the world falling into a depression/hyper-inflation cycle due to the twin oil price shocks, states began implementing other non-tariff policies as a way to protect their industries from import competition. Government policies promoting industry subsidization, export credits and legislative codes and standards as import obstructions, collectively came to be known as non-tariff barriers (NTBs) to trade. An agreement on handling those issues was reached during the Tokyo Round.

As the 1980s came and went and the 1990s dawned, GATT members increasingly became convinced that the increasing complexity of the international economy necessitated a more formal, powerful international trade regime. During the final GATT round, the Uruguay Round (1986-1994), member states completed negotiations leading to the creation of The World Trade Organization, a global trade regime complete with a legally binding dispute resolution mechanism.

© 1999-2005. Patricia A. Michaels. All rights reserved.