GATT and WTO: A Basic Overview

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Questions and Answers

What problem did the GATT aim to solve?

High tariffs and beggar-thy-neighbor policies of the interwar period

What was the primary objective of the GATT founding nations?

To decrease the high interwar tariffs significantly

How did the Smoot-Hawley Act of 1930 impact international trade?

It triggered a trade war as many European countries increased their tariffs in response.

What role did the GATT negotiations play in international trade?

Decreased the high interwar tariffs significantly Signup and view all the answers

What has been the impact of GATT/WTO on tariffs since their establishment?

Tariffs have decreased significantly Signup and view all the answers

How would you describe the membership of the WTO?

Almost universal Signup and view all the answers

What is the role of the GATT/WTO in trade liberalization?

The GATT/WTO is necessary to bring about trade liberalization by making international cooperation possible. Signup and view all the answers

Why is the GATT/WTO needed to achieve trade liberalizations?

The GATT/WTO is needed to internalize the negative externalities associated with tariffs and tariff wars. Signup and view all the answers

What does the GATT/WTO aim to prevent in international trade?

The GATT/WTO aims to prevent tariffs and tariff wars that would harm everyone involved. Signup and view all the answers

How does the GATT/WTO contribute to global welfare gains?

The GATT/WTO contributes to global welfare gains by facilitating trade liberalization. Signup and view all the answers

What would happen if trade liberalization was not facilitated by the GATT/WTO?

Without the GATT/WTO, trade liberalization would be hindered, leading to tariffs and tariff wars. Signup and view all the answers

In the absence of the GATT/WTO, what challenges would arise in achieving international cooperation for trade?

Without the GATT/WTO, achieving international cooperation for trade would be more difficult. Signup and view all the answers

What is the concept of 'balance of concessions' in international trade?

Achieving balance where changes in the volume of imports equal changes in the volume of exports. Signup and view all the answers

Explain the significance of reciprocity in trade negotiations.

Reciprocity eases the political process and ensures both importers and exporters negotiate. Signup and view all the answers

How does the GATT/WTO deal with Most Favored Nation (MFN) status exceptions?

The GATT/WTO explicitly allows for exceptions to MFN, such as preferential tariffs among countries. Signup and view all the answers

Explain the purpose of the General System of Preferences (GSP) in international trade.

GSP gives developing countries lower-rate access to rich-country markets. Signup and view all the answers

What is the impact of trade liberalization rounds, particularly the Uruguay round?

Trade liberalizations through rounds of negotiations have been gradual and impactful, with the Uruguay round leading to the establishment of the WTO. Signup and view all the answers

How did the GATT evolve into the WTO and what was the significance of this transition?

The GATT, a provisional agreement, evolved into the WTO with the conclusion of the Uruguay round, putting the GATT institutionally on firmer footing. Signup and view all the answers

Study Notes

The General Agreement on Tariffs and Trade (GATT) was established after World War II to undo high tariffs and prevent trade wars like those during the Great Depression, leading to significant tariff reductions.
The World Trade Organization (WTO), the successor to GATT, has a broader agenda covering areas beyond manufacturing like agriculture, services, and intellectual property rights, with a focus on nontariff issues.
The WTO's dispute-settlement resolution is an important innovation meant to formally settle violations of WTO rules and ensure fair trade practices among member countries.
The GATT/WTO is necessary to bring about trade liberalization by facilitating international cooperation and avoiding tariffs and tariff wars that would make everyone worse off.
Trade liberalizations have been gradual and spread over multiple negotiation rounds, with the Uruguay round being the most impactful, leading to the establishment of the WTO on a more solid institutional foundation.

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Description

Learn about the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) in this note. Explore the reasons why these institutions are necessary from an economic perspective and understand the problems they aim to solve in trade liberalization.