Page 2: What is free trade?
Between the First and Second World Wars (1918-39) there was a slide towards protectionism. In particular, after the 1929 Wall Street Crash, America’s protectionist policies had global repercussions because of the size and importance of the country and its economy. The resulting world recession led to massive unemployment, with Germany hit worst of all. The effects of the recession were also felt for years in the UK. By 1936 ship-building on the Tyne was still hit by the drop in demand for ships. The famous 1936 Jarrow March was sparked by desperation at the level of unemployment in that region.
Even after World War II, many protectionist trade measures remained. In 1948, 23 of the world’s largest trading countries decided that global trade needed to be liberalised. This would boost prosperity around the world – which in turn would improve global stability. The UK was one of the leaders in the talks which led to the signing of the General Agreement on Tariffs and Trade (GATT).
The GATT was a set of multilaterally agreed rules on world trade. The original members were soon joined by many others, all of whom committed themselves to:
- lowering tariffs and other barriers to trade in goods
- offering concessions granted to one country to all other GATT members
- not differentiating between imported and domestically produced goods when applying taxes and regulations.
The result was a step-by-step liberalisation of world trade. GATT’s work in reducing trade barriers took place mainly through a series of ‘Rounds’ of trade negotiations, many of them stretching over several years. The last of these, the Uruguay Round, took place from 1986 to 1994. At the final meeting of the Uruguay Round the Trade Ministers of the member countries agreed to replace the GATT with the World Trade Organisation (WTO).