GATT1947 and GATT1994: A

Comparative Overview
Introduction
The General Agreement on Tariffs and Trade was a free trade agreement between
23 countries that eliminated tariffs and increased international trade. It was the first
worldwide multilateral free trade agreement. It was in effect from June 30, 1948
until January 1, 1995. It ended when it was replaced by the more robust World
Trade Organization. 

The GATT 1947 is a defunct international treaty predating the WTO Agreement. 

Originally, the GATT 1947 was to become part of the Havana Charter for an
International Trade Organization that was negotiated during the United Nations
Conference on Trade and Employment held in Cuba from 21 November 1947 to 24
March 1948.  As of 1 January 1948, the GATT 1947 was applied through a
Protocol of Provisional Application.  As the Havana Charter never came into force,
the GATT 1947 remained provisionally in force until its provisions became part of
the GATT 1994, itself a component of the WTO Agreement.

In December 1994 — i.e. following the adoption, but preceding the entry into force
of, the WTO Agreement — the GATT CONTRACTING PARTIES decided that
“[t]he legal instruments through which the contracting parties apply the
GATT 1947 are herewith terminated one year after the date of entry into force of
the WTO Agreement”, i.e. on 1 January 1996.

The WTO Agreement, which established the World Trade Organization, entered

into force on 1 January 1995.  Annex 1A of the WTO Agreement contains the
GATT 1994, which incorporates by reference (and with a few adjustments to
reflect the fact that, contrary to the GATT 1947, the WTO is an authentic
international organization) “the provisions of the GATT 1947”; the GATT 1994
also includes six Understandings on Articles of the GATT 1947, tariffs and
accession Protocols, and GATT decisions adopted between 1948 and 1994 as part
of what is often called the “GATT acquis”.   The GATT 1994 and the GATT 1947
are “legally distinct”, as confirmed by Article II:4 of the WTO Agreement. 

History
GATT grew out of the Bretton Woods Agreement. The summit at Bretton Woods
also created the World Bank and the International Monetary Fund to coordinate
global growth. 

The summit almost led to a third organization. It was to be the highly ambitious
International Trade Organization. The 50 countries that started negotiations wanted
it to be an agency within the United Nations that would create rules, not just on
trade, but also employment, commodity agreements, business practices, foreign
direct investment, and services. The ITO charter was agreed to in March 1948, but
the U.S. Congress and some other countries' legislatures refused to ratify it. In
1950, the Truman Administration declared defeat, ending the ITO.

At the same time, 15 countries focused on negotiating a simple trade agreement.

They agreed on eliminating trade restrictions affecting $10 billion of trade or a
fifth of the world’s total. Under the name GATT, 23 countries signed the deal on
October 30, 1947. It was put into force on June 30,1948. GATT didn’t require the
approval of Congress. It was technically just an agreement under the provisions of
U.S. Reciprocal Trade Act of 1934. It was only supposed to be temporary until the
ITO replaced it.

Throughout the years, rounds of further negotiations on GATT continued. The

main goal was to further reduce tariffs. In the mid-1960s, the Kennedy round
added an Anti-Dumping Agreement. The Tokyo round in the seventies improved
other aspects of trade. The Uruguay round lasted from 1986 to 1994 and created
the World Trade Organization. 
GATT and WTO
GATT lives on as the foundation of the WTO. The 1947 agreement itself is
defunct. But, its provisions were incorporated into the GATT 1994 agreement.
That was designed to keep the trade agreements going while the WTO was being
set up. So, the GATT 1994 is itself a component of the WTO Agreement. 

Member Countries

The original 23 GATT members were Australia; Belgium; Brazil; Burma, now

called Myanmar; Canada; Ceylon; Chile; China; Cuba; Czechoslovakia, now
Czech Republic and Slovakia; France; India; Lebanon; Luxembourg; Netherlands;
New Zealand; Norway; Pakistan; Southern Rhodesia, now Zimbabwe; Syria; South
Africa; the United Kingdom and the United States. The membership increased to
100 countries by 1993. 

Pros
For 47 years, GATT reduced tariffs. This boosted world trade 8 percent a year
during the 1950s and 1960s. That was faster than world economic growth. Trade
grew from $332 billion in 1970 to $3.7 trillion in 1993. 

It was such a success that many more countries wanted to join. By 1995, there 128
members, generating at least 80 percent of world trade. 

By increasing trade, GATT promoted world peace. In the 100 years before GATT,
the number of wars was 10 times greater than the 50 years after GATT. Before
World War II, the chance of a lasting trade alliance was only slightly better than
50/50. 

By showing how free trade works, GATT inspired other trade agreements. It set

the stage for the European Union. Despite the EU's problems, it has prevented wars
between its members. 

GATT also improved communication. It provided incentives for countries to

learn English, the language of the world's largest consumer market. This adoption
of a common language reduced misunderstanding. It also gave less developed
countries a competitive advantage. English gave them insight into the developed
country's culture, marketing, and product needs. 
For example, most Indians know English. It allows them to work in call centers
that support U.S. countries. It has been a major reason for call center outsourcing.

Cons
Low tariffs destroy some domestic industries, contributing to high unemployment
in those sectors. Governments subsidized many industries to make them more
competitive on a global scale. U.S. and EU agriculture were major examples. In the
early 1970s, the textile and clothing industries were exempted from GATT. When
the Nixon Administration took the U.S. dollar off the gold standard in 1973, it
lowered the value of the dollar compared to other currencies. That further lowered
the international price of U.S. exports.

By the 1980s, the nature of world trade had changed. GATT did not address the
trade of services that allowed them to grow beyond any one country's ability to
manage them. For example, financial services became globalized. Foreign direct
investment had become more important. As a result, when U.S. investment bank
Lehman Brothers collapsed, it threatened the entire global economy. Central banks
scrambled to work together for the first time to address the 2008
financial crisis. They were forced to provide the liquidity for frozen credit markets.

Like other free trade agreements, GATT reduced the rights of a nation to rule its
own people. The agreement required them to change domestic laws to gain the
trade benefits. For example, India had allowed companies to create generic
versions of drugs without paying a license fee. This helped more people afford
medicine. GATT required India to remove this law. That raised the price of drugs
to a level out of reach for many Indians.

Trade agreements like GATT often destabilize small, traditional economies.

Countries like the United States that subsidize agricultural exports can put local
family farmers out of business. Unable to compete with low-cost grains,
the farmers migrate to cities looking for work, often in factories set up by multi-
national corporations. Often these factories can move to other countries with
lower-cost labor, leaving the farmers unemployed.

Farmers that stay often grow opium, coca, or marijuana, just because they can't
grow traditional crops and stay in business. Violence from the drug trade may
force them to emigrate to protect themselves and their children.
The provisions of the GATT 1947, incorporated into the GATT 1994, continue to
have legal effect as part of the GATT 1994, itself a component of the WTO
Agreement.

 GATT1947
The GATT 1947 is at the very source of the current WTO system. Its basic
principles applicable to trade in goods have been incorporated into other WTO
agreements dealing with other areas of trade, such as trade in services and trade in
intellectual property products and, it also provided the very first dispute settlement
provisions upon which the WTO dispute settlement system is built.

Although the GATT 1994 is only one of the numerous WTO “goods” agreements,
its importance in the history of the GATT/WTO is undisputable. This Module
provides an overview of the obligations relating to trade in goods in the GATT
1994. The first Section of this Module defines the GATT 1994 and its constituent
elements. The first Section also circumscribes the scope of application of the
GATT 1994, and examines its relationship with other WTO agreements.

The second Section discusses the cornerstone of the entire multilateral trading
system, the principle of non-discrimination in the GATT 1994, and explores its
two facets: the most-favoured-nation treatment obligation and the national
treatment obligation.

The third Section addresses the market access barriers to trade in goods and
presents the obligations relating to the publication and administration of trade
regulations.

The fourth Section deals with the exceptions to the disciplines of the GATT 1994,
namely, the general exceptions, the security exceptions, and the exceptions for the
purposes of applying safeguard measures, balance-ofpayments restrictions, and for
the purpose of carrying out regional trade agreements.

Finally, the Fifth Section analyses the position of developing country Members
under the GATT 1994.
The acronym “GATT” stands for the “General Agreement on Tariffs and Trade”. It
is an agreement between States aiming at eliminating discrimination and reducing
tariffs and other trade barriers with respect to trade in goods. The GATT was
originally, and is still today, only concerned with trade in goods, although its main
principles now also apply to trade in services, and intellectual property rights as
dealt with respectively by the General Agreement on Trade in Services and the
TRIPS Agreement. The GATT is a WTO agreement that deals exclusively with
trade in goods, but it is not the only one. All the agreements listed in Annex 1A to
the Marrakesh Agreement Establishing the World Trade Organization (hereinafter
the “WTO Agreement”) concern particular aspects or sectors of trade in goods.

The GATT was concluded in 1947 and is now referred to as the GATT 1947. The
GATT 1947 was last amended, last in 1965. Later on, additional disciplines were
agreed to in side agreements, such as the Tokyo Round agreements, which did not
amend the GATT 1947 as such, but only bound the GATT Contracting Parties that
became a party to these side agreements.

GATT1994

The GATT 1947 was terminated in 1996. However, the provisions of the GATT
1947 as well as all legal instruments concluded under the GATT 1947 are
integrated into the GATT 1994, subject to clarifications brought about by
Understandings which also form integral parts of the GATT 1994. The acronym
“GATT” is sometimes confusingly used to describe a number of different things. It
is sometimes referred to as the “GATT disciplines”, or “GATT disputes”, to mean
the current WTO obligations or disputes relating to trade in goods.

However, it may also be referred to as the “GATT” to mean the old multilateral
trading system and/or Secretariat preceding the WTO. In this Module, “GATT”
only means the current obligations under the GATT 1994.

The GATT 1994 is one of the multilateral agreements annexed to the WTO
Agreement. It is an international treaty binding upon all WTO Members. The
GATT 1994 is only concerned with trade in goods. The GATT 1994 aims at
further liberalizing trade in goods through the reduction of tariffs and other trade
barriers and eliminating discrimination.
The GATT 1994 is a bizarre agreement. It “assembles” legal provisions from
different sources. It consists of the provisions of the GATT 1947, of legal
instruments concluded under the GATT 1947, of Understandings concluded during
the Uruguay Round on the interpretation of the provision of the GATT 1947, and
of the Marrakesh Protocol of Tariff Concessions.

Part I of the GATT 1994 contains:

Articles I, enshrining the most-favoured nation treatment obligation, and

Article II, sets out the obligations applicable to the Schedules of Concessions each
WTO Member.

Part II of the GATT 1994 comprises Articles III through XXIII.

Article III establishes the national treatment obligation.

Articles IV to Article XIX cover mainly non-tariff measures, such as unfair trade
practices (dumping and export subsidies), quantitative restrictions, restrictions for
balance-of-payments reasons, state-trading enterprises, government assistance to
economic development, and emergency safeguards measures.

Articles XXII and XXIII provide for dispute settlement procedures, which are
further elaborated in the Understanding on the Principles Governing the Settlement
of Disputes (hereinafter the “DSU”).

Part III of the GATT 1994 consists of Article XXIV through Article XXXV.
Article XXIV concerns mainly customs unions and free trade areas and the
responsibility of Members for the acts of their regional and local governments.
Articles XXVIII and XXVIII deals with the negotiation and renegotiation of tariff
concessions.
The General Agreement on Tariffs and Trade 1994 (“GATT 1994”) shall consist
of: … (b) the provisions of the legal instruments set forth below that have entered
into force under the GATT 1947 before the date of entry into force of the WTO
Agreement: (i) protocols and certifications relating to tariff concessions; (ii)
protocols of accession (excluding the provisions (a) concerning provisional
application and withdrawal of provisional application and (b) providing that Part II
of GATT 1947 shall be applied provisionally to the fullest extent not inconsistent
with legislation existing on the date of the Protocol); (iii) decisions on waivers
granted under Article XXV of GATT 1947 and still in force on the date of entry
into force of the WTO Agreement; (iv) other decisions of the CONTRACTING
PARTIES to GATT 1947;

The Governments of the Commonwealth of Australia, the Kingdom of Belgium,

the United States of Brazil, Burma, Canada, Ceylon, the Republic of Chile, the
Republic of China, the Republic of Cuba, the Czechoslovak Republic, the French
Republic, India, Lebanon, the Grand-Duchy of Luxemburg, the Kingdom of the
Netherlands, New Zealand, the Kingdom of Norway, Pakistan, Southern Rhodesia,
Syria, the Union of South Africa, the United Kingdom of Great Britain and
Northern Ireland, and the United States of America:
    Recognizing that their relations in the field of trade and economic endeavour
should be conducted with a view to raising standards of living, ensuring full
employment and a large and steadily growing volume of real income and effective
demand, developing the full use of the resources of the world and expanding the
production and exchange of goods,
    Being desirous of contributing to these objectives by entering into reciprocal and
mutually advantageous arrangements directed to the substantial reduction of tariffs
and other barriers to trade and to the elimination of discriminatory treatment in
international commerce,
Article I: General Most-Favoured-Nation Treatment
1.   With respect to customs duties and charges of any kind imposed on or in
connection with importation or exportation or imposed on the international transfer
of payments for imports or exports, and with respect to the method of levying such
duties and charges, and with respect to all rules and formalities in connection with
importation and exportation, and with respect to all matters referred to in
paragraphs 2 and 4 of Article III,* any advantage, favour, privilege or immunity
granted by any contracting party to any product originating in or destined for any
other country shall be accorded immediately and unconditionally to the like
product originating in or destined for the territories of all other contracting parties.

Article II: Schedules of Concessions

1.   (a)  Each contracting party shall accord to the commerce of the other
contracting parties treatment no less favourable than that provided for in the
appropriate Part of the appropriate Schedule annexed to this Agreement.

Article III*: National Treatment on Internal Taxation and Regulation

1.   The contracting parties recognize that internal taxes and other internal charges,
and laws, regulations and requirements affecting the internal sale, offering for sale,
purchase, transportation, distribution or use of products, and internal quantitative
regulations requiring the mixture, processing or use of products in specified
amounts or proportions, should not be applied to imported or domestic products so
as to afford protection to domestic production.*
2.   The products of the territory of any contracting party imported into the territory
of any other contracting party shall not be subject, directly or indirectly, to internal
taxes or other internal charges of any kind in excess of those applied, directly or
indirectly, to like domestic products. Moreover, no contracting party shall
otherwise apply internal taxes or other internal charges to imported or domestic
products in a manner contrary to the principles set forth in paragraph 1.*

Purpose

The purpose of GATT was to eliminate harmful trade protectionism. That had sent
global trade down 65 percent during the Great Depression. GATT restored
economic health to the world after the devastation of the depression and World
War II.

Three Provisions

GATT had three main provisions. The most important requirement was that each
member must confer most favored nation status to every other member. All
members must be treated equally when it comes to tariffs. It excluded the special
tariffs among members of the British Commonwealth and customs unions. It
permitted tariffs if their removal would cause serious injury to domestic producers.

Second, GATT prohibited restriction on the number of imports and exports. The

exceptions were:

 When a government had a surplus of agricultural products.

 If a country needed to protect its balance of payments because its foreign
exchange reserves were low.
 Emerging market countries that needed to protect fledgling industries.

In addition, countries could restrict trade for reasons of national security. These
included protecting patents, copyrights, and public morals.

The third provision was added in 1965. That was because more developing
countries joined GATT, and it wished to promote them. Developed countries
agreed to eliminate tariffs on imports of developing countries to boost their
economies. It was also in the stronger countries' best interests in the long run. It
would increase the number of middle-class consumers throughout the world.