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GATT & WTO January 30, 2011 GATT & WTO People of the late 20th and 21st century understand world trade as a large part of the US economy and have not known a world without trade among many countries. This has not always been the case, however. Schaffer, Agusti & Earle (2009) explain that shortly after World War I, the Herbert Hoover administration passed the US Smoot-Hawley Tariff Act of 1930. This act attempted to limit the importing of goods to the US by charging high tariff rates on those goods. Other countries responded by charging high tariffs on goods imported into their county.
The combination of the Smoot-Hawley Act and other country’s responses slowed world trade dramatically and showed how interrelated all of the world’s economies had become. Then, in 1947 the General Agreement on Tariffs and Trade (GATT) was created to help eliminate trade barriers worldwide. As the world saw in the 1930s, world trade is a key aspect of economies around the world. Although it is important, it also needs to be regulated in order to protect a nation’s industries from too much foreign competition. Regulating imports can help a nation in many other ways also.
Schaffer, Agusti ; Earle (2009) explain many reason that it is important for a nation to regulate imports: the taxation of imports will help raise revenue, the country can regulate what is imported and protect domestic production, they can prohibit imports of goods from countries that go against their beliefs, protect natural resources and ban imports that are bad for the environment and keep products up to a certain safety standard. There are also direct and indirect non-tariff barriers to trade. Direct non-tariff barriers to trade include things like embargoes and quotas.
Embargos are “either a complete ban on trade with a certain foreign nation or a ban on the sale or transfer of specific products or technology” (Schaffer, Agusti ; Earle, 2009 p. 290). Quotas are restrictions on imports either based on the value of goods or the quantity (Schaffer, Agusti ; Earle, 2009). Indirect non-tariff barriers to trade include “laws, administrative regulations, industrial or commercial practices and even social and cultural forces” (Schaffer, Agusti ; Earle, 2009 p. 294). Trade barriers can have an mpact on decisions made by management of foreign businesses. They have to be aware of the regulations of the foreign country to make sure their product can be imported, marketed and sold effectively. GATT is an “international legal system that handles trade matters, complete with laws, dispute settlement mechanisms and agreed-upon codes for regulating trade” (Schaffer, Agusti ; Earle, 2009 p. 295). GATT 1947 was the original agreement between 23 nations that helped to reduce tariffs and open world market and was in effect until 1994 when a new GATT agreement was adopted.
GATT 1994 had rules and regulations that were broader than GATT 1947 and also created the World Trade Organization (WTO). The WTO replaced the original GATT organization and its role is to provide a forum for members to negotiations of future trade and to settle disputes (Schaffer, Agusti ; Earle, 2009). The process of settling disputes starts when countries’ attempts at settlement are unsuccessful. A panel then hears both sides of the dispute and makes a decision on the resolution of the issue.
Under GATT 1947, resolutions were only available to view by the counties involved in the dispute. Also, one party would veto the panel’s decision before it was sent to the council to decide on. Now, under GATT 1994, the WTO has much more authority, neither party can block the decision and there is a time limit to make sure disputes are handled in a timely fashion. References: Schaffer, R. , Agusti, F. , ; Earle, B. (2009). International business law and its environment (7th ed. ). Mason, OH: Cengage.