Management Notes

Reference Notes for Management

The longest lasting trade agreement with the objective of liberalizing trade by eliminating or reducing tariffs subsidies and quotas is:

The longest lasting trade agreement with the objective of liberalizing trade by eliminating or reducing tariffs subsidies and quotas is:


A. Free trade area – FTA
B. European community – EC
C. General agreement on tariffs and trade – GATT
D. The North American free trade agreement – NAFTA

The Correct Answer Is:

C. General agreement on tariffs and trade – GATT

Correct Answer Explanation: C. General agreement on tariffs and trade – GATT

The correct answer is C. General Agreement on Tariffs and Trade (GATT). GATT was a significant multilateral agreement aimed at promoting international trade by reducing barriers such as tariffs, subsidies, and quotas among participating nations.

Established in 1947, it laid the foundation for the modern system of international trade agreements. GATT sought to foster economic cooperation and prosperity by facilitating the flow of goods and services across borders.

GATT’s longevity and impact on global trade were profound. It provided a forum for negotiating trade agreements, aiming to reduce trade barriers through successive rounds of negotiations known as “Rounds.”

Notable rounds include the Kennedy Round in the 1960s and the Uruguay Round in the late 1980s and early 1990s. The latter led to the creation of the World Trade Organization (WTO) in 1995, replacing GATT and encompassing a broader scope of trade issues.

Now, let’s explore why the other options—A. Free Trade Area (FTA), B. European Community (EC), and D. North American Free Trade Agreement (NAFTA)—are not the correct answers:

A. Free Trade Area (FTA):

Free Trade Areas are agreements between countries to reduce or eliminate barriers to trade within the specified geographic region. While FTAs are valuable in fostering economic cooperation among participating nations, they typically involve a limited number of countries and operate within specific regional boundaries.

Examples of FTAs include ASEAN (Association of Southeast Asian Nations) Free Trade Area and the Mercosur agreement in South America.

FTAs often focus on enhancing trade relations between neighboring or geographically close countries. However, they lack the comprehensive global reach and multilateral participation that characterized GATT.

GATT was a multilateral agreement that involved numerous countries across the globe, making it distinct in its impact and longevity compared to the regional scope of FTAs.

B. European Community (EC) and European Union (EU):

The European Community, which later transformed into the European Union, is a political and economic union of European countries. Initially formed to promote economic integration among its member states, the EC/EU facilitated the creation of a single market with the free movement of goods, services, capital, and labor among its member countries.

However, the EC/EU’s focus remained primarily within the European continent, and while it did lead to the reduction of tariffs and trade barriers among its member states, its reach and objectives were regionally limited.

GATT, on the contrary, involved a wider global network of countries and focused on multilateral trade liberalization efforts beyond a specific geographic region.

D. North American Free Trade Agreement (NAFTA):

NAFTA was a groundbreaking trade agreement between the United States, Canada, and Mexico, aimed at reducing trade barriers among these North American countries. It notably eliminated tariffs on a significant portion of traded goods between the member nations and encouraged economic cooperation in North America.

However, NAFTA’s scope was limited to North America, whereas GATT encompassed a far broader array of countries worldwide.

GATT’s multilateral nature, its successive rounds of negotiations, and its eventual transformation into the World Trade Organization (WTO) underline its significance as a comprehensive and enduring global trade agreement.

In essence, while FTAs, regional unions like the EU, and specific agreements like NAFTA have had their impact on regional trade liberalization, none of them match the global reach, multilateral participation, and enduring legacy of GATT in the context of a comprehensive, long-lasting trade agreement aimed at liberalizing trade on a global scale.

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