By Charles Benoit, CPA Trade Counsel
There’s a special birthday this year!
The General Agreement on Tariffs and Trade (GATT), signed by 23 nations in Geneva on October 30th, 1947, is turning 75.
It now governs the entire global economy.
You may ask, why don’t I hear more about the GATT? Well, that’s a good question. Perhaps a significant reason is the common misperception that the GATT was somehow replaced by the WTO.
Not to pick on the Wall Street Journal, but even in a love letter specifically to the GATT for its 50th anniversary, the editors managed to convey this mix-up, referring to the WTO as “GATT’s new incarnation”. The Encyclopedia Britannica’s entry for the GATT says “GATT was replaced by the WTO” and uses the past tense to refer to the trade agreement.
That’s not right. The GATT persists as the global free trade agreement it’s always been. The text of the GATT itself hasn’t changed drastically since it was negotiated alongside the now long-dead Bretton Woods financial system. We’ll discuss later how it’s been fleshed out a bit, and married to some other big agreements, but for all intents and purposes it’s the same old GATT.
The GATT is the mother of all free trade agreements.
Don’t let anyone tell you the GATT isn’t a free trade agreement, either. No U.S. free trade agreement has ever eliminated all U.S. tariffs; rather, in our trade agreements, we promise tariff rate thresholds we won’t exceed for every product. To reiterate: trade agreements don’t promise specific tariff rates. They offer promises not to exceed specific tariff rates, depending on the product.
That’s what the GATT does, too. Stapled to the GATT is a ‘Schedule of Concessions’ for each country that signs on. In these Schedules, countries lists the maximum tariff for every conceivable product which a country pledges not to break.
Those looking to export merchandise to a country can look up that country’s Schedule of Concessions, find the listing for the merchandise in question, and see this pledged maximum tariff rate. This is known as the ‘bound rate’ in trade lingo.
The United States’ Schedule of Concessions on goods is the twentieth schedule stapled to the GATT, and so because the GATT uses Roman numerals, we’re “Schedule XX”.
Of all the 164 WTO states, we’ve got the lowest bound rates, averaging at just 3.4%. No one else has given up so much at the negotiating table. India averages 50%, whereas most imported industrial products enter the U.S. totally tariff free. Sugar, tobacco, and peanuts are pretty much the last things the United States maintains high tariffs on.
We’ve been giving away the keys to the kingdom to every GATT country this whole time.
The GATT’s enthusiasts are right about one thing: it shaped the world we live in today.
Celebrating the GATT’s 50th anniversary, President Clinton remarked on the history and significance of the agreement. He was appropriately amazed that all the nations of the world seem to have decided they should get-in on the deal the Bretton Woods brain-trust had cooked up. (Hmmm…??) President Clinton remarked at the time:
“A trading community that began with 23 member nations now embraces 132 economies, and 31 more are working to join. Russia and China, where the shackles of state socialism once choked off enterprise, are moving to join the thriving community of free economies. Trade is creating prosperity among the nations of the Americas and offers hope to emerging economies in Africa.”
For now, never mind that even in 2022 the United Nations doesn’t consider a single country in Latin America or Africa to be “developed”, or that you’d be hard pressed to find anyone calling Russia and China “free economies” despite their accessions to the GATT and WTO.
The fact is, President Clinton was correct in so far as he was conveying that any trade deal which persists decade after decade after decade, to the point that it covers 99%+ of global GDP and the global population, has surely had a pretty big impact.
The GATT at 75: taking a hard look and challenging the prevailing narrative
Over the next year, join us as we expose the history and challenge the long-held assumptions in a “GATT at 75” series. Topics you can expect will include:
- The GATT Prequel: Cordell Hull’s wrecking ball;
- What we’ve lost: smart and long-standing American tariff tools killed by the GATT;
- Safeguards: the mutilation of the GATT’s sole pro-worker remedy;
- Indefensible: sticking with the GATT after Bretton Woods’ collapse, and giving up worrying about Balance of Payments; and
- The GATT and TRIPS: when our leaders stopped even pretending to care where things were made.
- The GATT’s final failure: any child could have predicted the Doha Round’s demise.
- What can the President do to save us? A step-by-step guide to GATT salvation.
Comprehensive ITC Study Finds Little or No Benefit For U.S. From Trade Agreements