Difference between GATT and WTO: Comparative Overview

GATT was established in 1947 with the aimed to reduce tariffs and other trade barriers. On the other hand, WTO regulates global trade since 1995. One of the advantages of WTO over GATT is its ability to handle trade disputes more effectively. The article further explores their advantages, disadvantages, and their impact on global trade

General Agreement on Tariffs and Trade as well as World Trade Organization are international trade regulatory bodies. These two bodies have played crucial roles in shaping the global trade landscape. This article will clarify the difference between GATT and WTO.

Table of Contents

• Difference between GATT and WTO
• Introduction to GATT
• Introduction to WTO
• Similarities between GATT and WTO
• Which One is Better?

Difference between GATT and WTO

Before delving into the details, let us look at a tabular comparison of GATT and WTO:

Introduction to General Agreement on Tariffs and Trade (GATT)

GATT refers to a multilateral agreement regulating international trade. Established by 23 nations in 1947, its primary goal was to reduce the tariffs and other trade barriers to facilitate global economic recovery after World War II. GATT was less powerful, as it lacked a structured dispute settlement system and had limited jurisdiction over trade in services and aspects of intellectual property.

Advantages of GATT

1. GATT significantly reduced tariff barriers, promoting international trade.
2. It provided a platform for negotiations to resolve trade disputes.
3. GATT encouraged member countries to adopt non-discriminatory trade policies.
4. It contributed to economic stability by promoting predictable trade rules.
5. GATT strengthened cooperation among member nations, promoting peace and mutual understanding.
6. It laid the foundation for future trade agreements.
7. GATT promoted peace through trade, reducing the chances of war.

Disadvantages of GATT

1. It primarily focused on trade in goods, neglecting trade in services and intellectual property rights.
2. Developing countries often felt disadvantaged in GATT negotiations.
3. GATT was unable to effectively address non-tariff barriers.
4. It struggled to adapt to the rapidly changing global trade environment.
5. GATT was less effective in handling trade disputes due to its weak enforcement mechanism.
6. It had limited control over non-tariff barriers.
7. GATT was less inclusive, with poor representation of developing countries.

Role: Kennedy Round of negotiations (1964-1967)

During the Kennedy Round, GATT provided a platform for member countries to negotiate and make commitments aimed at reducing trade barriers and promoting trade liberalization. GATT played a crucial role in facilitating negotiations among member countries, encouraging them to make reciprocal tariff reductions. This resulted in significant tariff cuts across a broad range of products, promoting trade expansion and economic integration.

GATT also played a role in addressing non-tariff barriers to trade during the Kennedy Round. It provided a forum for discussing and negotiating the reduction of these barriers, with the aim of creating a more open and predictable trading system.

GATT ensured that the outcomes of the Kennedy Round were implemented and enforced. Through its institutional framework, GATT monitored and reviewed the commitments made during the negotiations, helping to ensure compliance with agreed-upon rules and obligations. It contributed in laying the foundation for future rounds of trade negotiations and the eventual establishment of the World Trade Organization in 1995.

Introduction to World Trade Organization (WTO)

The (WTO) replaced GATT in 1995, inheriting GATT’s agreements and principles. However, the WTO has a broader scope, covering trade in goods, trade in services, and aspects of intellectual property. It also has a stronger dispute settlement system, making it more effective in enforcing trade rules.

Advantages of WTO

1. WTO covers a broader range of trade, including services and intellectual property.
2. It has a strong dispute settlement system, ensuring that trade disputes are resolved effectively.
3. WTO promotes fair competition and encourages economic development and reform.
4. It provides a platform for negotiating and formalizing trade agreements.
5. WTO fosters transparency in international trade.
6. WTO provides a strong and structured system for resolving trade disputes.

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Disadvantages of WTO

1. WTO negotiations often take a long time due to the consensus-based decision-making process.
2. The WTO faces criticism for not adequately considering environmental and labor issues.
3. Some argue that WTO’s dispute settlement process is too legalistic and complex for smaller nations.
4. WTO’s decision-making process can be slow and bureaucratic.
5. WTO’s rules may limit a country’s flexibility in adopting domestic policies.
6. It faces challenges in dealing with regional trade agreements.
7. WTO has been less effective in dealing with modern issues like e-commerce and climate change.

Role: US-EU dispute over Banana Imports (1990s)

The conflict centered around the EU’s banana import regime, which the US considered discriminatory against non-European banana producers. WTO established a panel to assess the EU’s banana import regime and determine if it was consistent with WTO rules.

In April 1997, the panel ruled in favor of the United States, finding that the EU’s banana import regime indeed violated WTO rules by granting preferential treatment to certain banana suppliers, mainly former European colonies, at the expense of others. The panel recommended that European Union bring its import regime into compliance with WTO rules.

To resolve the dispute, the EU modified its banana import regime in 1999 to bring it into conformity with WTO rules. It reduced the tariff levels, eliminated certain discriminatory licensing practices, and established a more transparent and non-discriminatory system for banana imports.

Similarities between GATT and WTO

While GATT and WTO are distinct entities, both share the following common goals.

• Both aim to promote international trade, reduce trade barriers, and provide a platform for trade negotiations.
• They also uphold the principle of the most favoured nation, ensuring equal trading opportunities for all member countries.

Which One is Better Between GATT and WTO?

While GATT laid the groundwork for international trade agreements, WTO, with its broader scope and structured dispute settlement mechanism, has proven to be more effective in managing modern trade issues. Therefore, WTO can be considered a more comprehensive and powerful institution for global trade.

Conclusion

In conclusion, both GATT and WTO have significantly shaped the landscape of international trade. While GATT laid the foundation, WTO has taken the baton to navigate the complexities of modern trade. Understanding their differences, similarities, and impacts helps us appreciate the intricacies of global trade dynamics.

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