The 1930s Great depression caused enormous economic damage to several countries. This was mainly due to protection policies followed by almost all the countries. After the world war II,it was realized by the international community that free trade is the ultimate solution to the problems of growth and employment. The USA proposed to establish an International Trade Organization(ITO) in 1945. The idea was removed all trade barriers on merchandise trade slowly. The ultimate object was to usher in free trade to realize the gains of expansion of World trade and output. The proposal was discussed in the International Conference on Trade and employment in 1946 held at Havana. The ITO however became a still born child. It was agreed in the International Conference held at 1947 to establish the General Agreement on Tariffs and Trade (GATT). It came into force on 1 January 1948.
GATT was an international forum for carrying on negotiations on tariff. it was concerned only with tariffs and trade restrictions and related international matters. The member countries meet at regular intervals to negotiate agreements to reduce tariffs, quotas and other restrictions on international trade. As its very name implies GATT is a contractual agreement among parties. Which are to be implemented by them.
Objectives of GATT
- Expansion of international trade.
- Increase in world production by ensuring full employment in participating countries.
- Development and full utilization of World resource and rising standard of living of the world community as a whole.
Fundamental principles of GATT
1. Trade should be conducted in a non-discriminatory way;
2. The use of quantitative restrictions should be condemned; and
3. Disagreements should be resolved through consultations.
In short, members of GATT agree to reduce trade barriers and to eliminate discrimination in international trade so that multilateral and free trade may be promoted, leading to wider dimensions of world trade and prosperity.