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Bretton Woods Revisted: GATT (part 1 0f 4)

© Bryan Johnson

Bretton Woods Revisited: GATT (Part 1 of 4)

(Editors note: This is the first part of a four-part series analyzing the three major international organizations created out of the Bretton Woods agreement in 1944. The first article deals with the General Agreement on Tariffs and Trade, now known as the World Trade Organization (WTO). The second article deals with the International Bank for Reconstruction and Development, commonly known as the World Bank. The third article analyzes the International Monetary Fund. The fourth article in the series will review the criticism of these organization from various perspectives, and the justifications given for their continued existence by proponents.)

The General Agreement on Tariffs and Trade

After World War II, the global economy was rife with high barriers to trade and investment, decimated industries in Europe and Japan, and an exchange rate system where the value of currencies were askew. In 1944, some 24 nations met in Bretton Woods New Hampshire to map out a post war strategy to revitalize the global economy. In 1947, this agreement forged the creation of three international organizations: the General Agreement on Tariffs and Trade (GATT), the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund.

Most Favored Nation. Embodied in the original GATT agreement is the concept of "most favored nation" (MFN) status. This means that every participating nation gets the same trade treatment as that given to the most favored nation. Thus, if barriers are lowered for one nation, all other participating nations automatically have barriers lowered for them. In other words, through the most favored nation concept, each GATT member agrees to give equal access to it markets, without discrimination, to all members (see Kenneth W. Dam, "The GATT: Law and the International Economic Organization," Chicago, University of Chicago Press, 1970).

Building on the Bretton Woods agreement, there have been eight completed rounds of GATT negotiations since 1947. These are:

1) The Geneva Round (1947). There were some 45,000 agreements in this round, reducing tariffs on manufactured goods and some agricultural products.

2) The Annecy Round (1949). This round mainly admitted new members of GATT. The original members also negotiated an additional 13,000 tariff reductions.

3) The Torquay Round (1951). This round too, mainly admitted new members and resulted in some additional tariff reductions.

4) The Geneva Round II (1957). The round admitted even more members, and dealt with the admission of Japan. Several countries opposed the admission of Japan, arguing that its low wages would greatly distort trade. Under Article XXXV of the GATT charter, these countries were allowed to withhold trading privileges with Japan indefinitely. By the late 1960s, most of these countries fully accepted Japan under the MFN status.