Task 0 Effects of Globalization on national economies by pestle approach 2

2.1.3 The GATT and WTO

Barriers to trade, including tariffs and quotas, are challenging for international businesses, as they can adversely affect international trade and economic stability as a whole. Before the end of the Second World War, several government delegates met at the Bretton Woods Conference in the U.S. to, among many goals, establish an International Trade Organization (ITO) in order to promote economic recovery and stabilize world trade after the war ended. But the U.S. Congress refused to approve participation and the attempt to formally establish an ITO subsequently failed. The attempt to formalize an ITO was not without accomplishment. Its legacy document, the General Agreement on Tariffs and Trade (GATT), was a 1947 document agreed to by all parties, including the United States, which aimed to reduce trade barriers (especially tariffs) (Narlikar , 2004).

The GATT provided both trade rules and a forum for members to discuss and address trade issues. It also established some basic rules to direct international trade, following several years of gathering members (rounds) for negotiations. Three major rules were established: Tariffs and the Binding Concessions rule: If a WTO member lowers a tariff, it is considered “bound” and the country is prohibited from subsequently raising the tariff. The bound tariff applies to all WTO members. The Most-Favoured-Nation rule: The MFN principles prohibit discrimination among like products regardless of their origin and the rules relating to the importation or exportation of goods or payments on the basis of their origin or destination (Bown ,2004).