Sputnik Escalates the Cold War
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General Agreement on Tariffs and Trade (January 1948)

A package of trade rules and tariff concessions that provided the basic legal framework for international commerce throughout the Cold War, from its adoption in 1948 until its replacement by the World Trade Organization (WTO) in 1995. The General Agreement on Tariffs and Trade (GATT) was never intended to be anything more than a temporary arrangement, and its nearly fifty years of life are testament to the difficulties in implementing the ideals of the 1944 Bretton Woods Conference.

Representatives to the Bretton Woods Conference envisioned three institutions that would be responsible for the postwar economic order: the International Monetary Fund (IMF) and the World Bank, which did indeed come into existence shortly after end of World War II; and an International Trade Organization (ITO), an adjunct of the United Nations (UN) that would monitor global trade practices and enforce a sweeping range of business, employment, and investment protocols. Given the devastating effects of protectionism during the Great Depression, a powerful body dedicated to trade liberalization and the reduction—as far as possible—of all remaining tariff barriers held a strong attraction to the Western Allied powers at the end of the war.

Negotiations mapping out the ITO's constitution began shortly after the end of hostilities. As a stop-gap measure until the formal inauguration of the ITO, twenty-three nations met in Geneva in 1947 to pledge 45,000 immediate tariff concessions (affecting approximately 20 percent of all world trade at the time). They also contracted to provisionally accept many of the trade rules embodied in the ITO Charter. This General Agreement came into force in January 1948. Two months later, the ITO proper was officially unveiled at the UN Conference on Trade and Employment in Havana, but the optimistic mood at its birth proved short-lived. Ratification of the charter by the U.S. Senate proved impossible because of aggressive lobbying by hostile American corporate interests, and in 1950 the U.S. government formally withdrew from the organization, leaving it moribund. The premature death of its anticipated successor left GATT the only workable instrument of international trade law.

GATT had scarcely any institutional basis or permanent staff, and it was restricted to questions of trade in merchandise only. With its limited structure and scope, it could not provide the permanent settlement of commercial questions that had been envisaged for the ITO, and from 1949 onward a number of follow-on talks, or trade rounds, occurred, resulting in the amendment and extension of the original rules laid down by the founding twenty-three nations. These lengthy negotiations, often lasting several years, produced a series of supplementary agreements on further tariff reductions, and, from the 1960s onward, new procedures regulating subsidies, licensing, and the dumping of cheap exports on vulnerable domestic markets. Most GATT rules were multilateral and binding on all signatories, although a few were voluntary plurilateral arrangements. By the 1973–1979 Tokyo Round, 102 countries were taking part in GATT negotiations, testifying to their success in overall trade liberalization, but the Tokyo talks also underlined the long-inherent flaws in the GATT model. Too many loopholes were being exploited by signatory nations that allowed protection in all but name, the dispute settlement process was patently broken, and, most critically, the unregulated service and intellectual property sectors were now far more important to the world economy than they had been in the 1940s, leaving GATT ill-equipped to oversee the expanding global marketplace.

Prodded by these inadequacies, the Uruguay Round that opened in 1986 saw an attempt to comprehensively revise and modernize GATT. These talks lasted more than seven years (the longest and largest trade negotiations in history) and came to encompass virtually every aspect of international commerce. Ultimately, after a number of false starts and seeming deadlocks, in 1994 the talks resulted in agreement on a World Trade Organization (WTO), established the following year, that finally realized the vision of the ITO.

GATT was then placed in long-overdue retirement. Its limitations were manifest from the outset, but for an intended temporary measure not designed to carry the burden that history placed upon it, GATT made a significant contribution to the long postwar economic boom by keeping trade tariffs low.

Alan Allport


Further Reading
Hody, Cynthia A. The Politics of Trade: American Political Development and Foreign Economic Policy. Hanover, NH: University Press of New England, 1996.; Zeiler, Thomas W. Free Trade, Free World: The Advent of GATT. Chapel Hill: University of North Carolina Press, 1999.
 

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