General Agreement on Tariffs and Trade

The General Agreement on Tariffs and Trade (GATT) was established in 1948. During World War II it became evident to the allies that after hostilities ceased it would be desirable to have a multilateral institutional framework within which world trade could be conducted and progressively liberalized, consultation on trade problems among member nations could take place and be resolved, and data on world trade characteristics and trends could be collected and disseminated. Accordingly, after several preparatory sessions, Canada and 22 other nations signed the General Agreement on Tariffs and Trade on 20 October 1947. The agreement came into effect on 1 January 1948.

As part of the preparation for this agreement the 23 signing nations carried out negotiations among themselves to reduce some tariffs and other barriers to trade. Canada negotiated with 7 of the countries. Its discussions with the US were the most extensive of any that took place at that time. Canada had negotiated trade agreements with the US in 1935 and 1938, but once both nations signed GATT it became the basic agreement governing trade relations between them, superseding the 1938 agreement. GATT rules (Article I) required that any member country must give all other members the same privileges regarding tariffs or other commercial policy measures that it gives to the most favoured nation with which it negotiates - the most-favoured-nation principle (MFN).

Some exceptions were permitted, and Canada has been a beneficiary of several of them. The US received a waiver from the MFN rules to enter the CANADA-US AUTOMOTIVE PRODUCTS AGREEMENT in 1965 (Autopact). Canada did not need to get a waiver because it allowed firms from any country to participate, provided they adhered to the rules set forth. Canada, like other developed countries, also received waivers to grant tariff preferences to developing countries on a range of products under the Generalized System of Preferences (GSP). It is also a party to the Multifibre Agreement (MFA) which, until it is phased out by the year 2005 in accordance with the Uruguay Round provisions, allows a number of developed countries to impose quantitative import restrictions on textile imports from developing countries. Finally, FREE TRADE arrangements among countries were expressly allowed under Article XXIV of GATT.

Quantitative limits on imports and export subsidies are generally prohibited by GATT (Articles XI and XVI), but exceptions were permitted in certain circumstances. The 2 most important exceptions for Canada were the MFA and the arrangements for agricultural products. These latter products were excluded from the trade liberalization framework of GATT, primarily because of US insistence. Canada and other major agricultural exporters vigorously objected. Canada also subsequently objected to the special waiver which the US received in 1955 to enable it to restrict imports of dairy products, even though it had no domestic production controls. Subsequently, Germany and Switzerland, after much controversy, got other waivers to restrict agricultural imports.

Canada, too, developed its own share of restrictions on imports of grains and of dairy and poultry products, as well as export subsidies of some dairy products and eggs to dispose of surpluses. Thus, the early exclusions and waivers from GATT have produced a maze of restrictions on agricultural imports and export subsidies that have plagued world production and trade in these product lines ever since. These restrictions are only beginning to be dismantled as a result of the provisions agreed upon in the Uruguay Round of GATT.

GATT also condemned dumping - selling products abroad for less than they are sold domestically (Article VI). Antidumping duties could be applied against countries that engage in these practices if material injury to domestic industry occured or was threatened, or if a domestic industry could not be established because of them.

Eight rounds of GATT negotiations have taken place, of which by far the most important has been the Uruguay Round, which commenced September 1986. It was concluded on 15 April 1994 after nearly 8 years of negotiations, and came into effect on 1 January 1995. The resulting comprehensive document includes both major revisions to the GATT agreement as it existed after the previous 7 rounds of negotiations, and introduces a wide range of other agreements on two types of items: (1) matters not previously covered by regular GATT rules - such as agriculture, textiles and clothing, trade-related investment measures (TRIMS), trade in services, and intellectual property rights; and (2) issues covered in a sketchy fashion in earlier negotiations - such as rules of origin, dumping, subsidies, safeguards, and dispute settlement procedures.

The agreement also establishes the WORLD TRADE ORGANIZATION (WTO) as a new administrative institution replacing or subsuming GATT and encompassing all the agreements and arrangements concluded in the Uruguay Round. Those nations wishing to be members of the WTO must first complete negotiations to become contracting members to the GATT. As of June 1998, 132 countries were members of the WTO, and another 31 developing or transition economies have applied for membership.