General Agreement on Tariffs and Trade

Historically, trade treaties were negotiated on a bilateral (between two nations) basis, with little attention given to relationships with other countries. Further, they tended to raise barriers rather than extend markets and restore world trade. The United States and 22 other countries signed the General agreement on Tariffs and Trade (GATT) shortly after World War II. Although not all countries participated this agreement paved the way for the first effective worldwide tariff agreement. The original agreement provided a process to reduce tariffs and created an agency to serve as watchdog over world trade. GATT’s agency director and staff offer nations a forum for negotiating trade and related issues. Member nations seek to resolve their trade disputes bilaterally; if that fails, special GATT panels are set up to recommend action. The panels are only advisory and have no enforcement powers.

The GATT treaty and subsequent meetings have produced agreements significantly reducing tariffs on a wide range of goods. Periodically, member nations meet to re-evaluate trade barriers and establish international codes designed to foster trade among members. In general, the agreement covers these basic elements: (1) trade shall be conducted on a non-discriminatory basis; (2) protection shall be afforded domestic industries through customs tariffs, not through; and (3) consultations shall be the primary method used to solve global trade problems.

Since GATT’s inception, eight rounds of intergovernmental tariff negotiations have been held. The most recently completed was the Uruguay Round (1994), which built on the successes of the Tokyo Round (1974) – the most comprehensive and far reaching round undertaken by GATT up to that time. The Tokyo Round resulted in tariff cuts and set out new international rules of subsidies and countervailing measures, antidumping, government procurement, technical barriers to trade (standards), customs valuation, and import licensing. While the Tokyo Round addressed non-tariff barriers, some areas that were not covered continued to impede free trade.

In addition to market access, there were issues of trade in services, agriculture, and textiles; intellectual property rights; and investment and capital flows. The United States was especially interested in addressing services trade and intellectual property rights since neither has been well protected. Based on these concerns, the eight set of negotiations (Uruguay Round) was begun in 1986 at a GATT Trade Minister’s meeting in Punta del Este, Uruguay, and finally concluded in 1994. By 1995, eighty GATT members, including the United States, the European Union (and its member states), Japan, and Canada had accepted the agreement.

The market access segment (tariff and non-tariff measures) was initially considered to be of secondary importance in the negotiations, but the final outcome went well beyond the initial Uruguay Round goal of a one third reduction in tariffs. Instead virtually all tariffs in 10 vital industrial sectors with key trading partners were eliminated. This resulted in deep cuts (ranging from 50 to 100 percent) in tariffs on electronic items and scientific equipment and the harmonization of tariffs in the chemical sector at very low rates (5.5 to 0 percent).

US exporters of paper products serve as a good example of the opportunities that opened as a result of these changes. Currently US companies competing for a share of the paper products market in the European Union have to pay tariffs as high as 9 percent while European competitors enjoy duty free access within the EU. When the Uruguay Round market access package was implemented these high tariffs were eliminated. Another example is Korean tariffs as high as 20 percent on scientific equipment, which were reduced to an average of 7 percent, permitting US exporters to be more competitive in that market.