The General Agreement on Tariffs and Trade

A multilateral effort to reduce trade barriers, the General Agreement on Tariffs and Trade (GATT), has been a prominent force in the postwar economic environment. It is the outgrowth of an attempt to form an international trade organization (ITO), intended to move the world's nations closer to global free trade. The draft charter of the ITO ran into trouble in the U. S. Congress and was never ratified. The series of interrelated bilateral trade agreements that were subsequently negotiated in a series of rounds are collectively known as GATT.

GATT's rationale follows the principle of "most-favored-nation" trade clauses. A most-favored-nation clause to a trade agreement provides that two countries will grant each other whatever trade concessions might be granted to third parties. The bilateral trade agreements underlying GATT are supplemented by a series of procedures intended to lower tariffs and eliminate other restrictions on international trade. These procedures include bans on discriminatory trade practices, unwarranted collusion, and dumping (selling export goods below cost to influence world market prices).

There is little doubt that GATT has been instrumental in encouraging world trade. Indeed, it has been estimated that 85 percent of the world's international trade is conducted under GATT procedures. GATT also has been an underlying factor contributing to the success of the EC in eliminating European trade barriers.

Despite these successes, some important and challenging issues must be resolved if GATT will continue to be as successful as it has been during the past few decades. The GATT agreements focus primarily on trade in manufactured goods; generally, they do not deal with other forms of trade. The problems of dealing with trade in agricultural products and services remain largely unresolved. In recent years, the growth of the service sector has resulted in an enormous expansion in international trade in tourism, communications, computer software, insurance, and banking. Similarly, GATT has yet to deal with international trade in intellectual property including patents, trademarks, and copyrights.

Recently, several European countries have been reluctant to import American beef products because many American cattle are fed steroids and other growth-enhancing substances. In 1989 the EC imposed sanctions that virtually eliminated the import of American beef into Europe. The United States responded by imposing a 100 percent tariff on Danish hams, French cheeses, and other European agricultural products. Some Americans have expressed fear that integration of the EC will lead to further conflict surrounding trade between Europe and the United States.

Critics of GATT also point to potential harm to the natural environment. A Danish government requirement that beer and soft drinks be sold only in returnable containers was regarded by some other European countries as an unfair restraint on free trade. The International Court of Justice ruled that Denmark could not require foreign companies to provide soft drinks and beer in returnable containers. Similarly, critics of GATT have argued that this agreement has forced individual countries to sacrifice their sovereignty over environmental protection.