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General Agreement on Tariff and Trade: Influences Essay

Influence of General Agreement on Tariff and Trade on the Development of Lower Developed Countries

Even though the General Agreement on Tariff and Trade (GATT) of 1948 is commonly regarded as such allows the continual development of the world economy, it can also be viewed as the international law that has been enacted specifically to prevent the so-called ‘developing’ (or ‘lowered developed’) countries from becoming fully developed. The reason for this is apparent – GATT is essentially concerned with lowering trade-tariffs. After all, whereas in 1948 the average rate of trade-tariffs in the world used to account for 40%-60%, by the year 2000 (after GATT was integrated within the WTO framework), this rate was effectively reduced down to about 5%. This, of course, means that by signing GATT the ‘developing’ countries say good-bye to the hopes of becoming industrialized.

The reason for this is that to ensure the objective preconditions for the industry of any kind to take a strong root in the country, its government must enact several protectionist laws, inconsistent with GATT.To make things even worse, under the Agreement’s provisions the annual interest rate in the Third and Second world countries (charged by the National/Central Bank) is often set as high as 20%-30%, whereas the annual interest rate in Western countries is rarely higher than 2% (Feldmann, 2013). In its turn, such a high interest-rate prevents the growth of the ‘developing’ countries’ economies, because it discourages locally based business from thinking strategically (long-term). As Mariarosaria (2012) argued: “The WTO/GATT trade rules have not automatically resulted in economic growth, nor gender-sensitive development. Rather impact has been generally contradictory and rife with tensions” (p. 7).

To illustrate the validity of this suggestion, we can refer to such a country as Ukraine. The fact that ever since Ukraine became a member of the WTO its government continued to lower import-tariffs, resulted in reducing the economic feasibility of this country’s heavy industry – something that had a strongly negative effect on the economy of Ukraine. This, in turn, resulted in the drastic increase of Ukraine’s budget-deficit – hence, forcing the government to apply for monetary loans from the IMF. However, for the government to qualify for receiving such a loan, it had to reduce or to eliminate social spendings – something that automatically resulted in the drastic lowering of living standards in Ukraine.

What is even worse – it had a strongly negative impact on the functioning of the country’s system of education, because the government had no choice but to close many of the state-subsidized colleges and universities. As a result, Ukraine has been effectively reduced from featuring one of the world’s strongest economies into essentially an agrarian country with the continually undermined standards of living (Hamm, 2015). This once again illustrates that, due to having been conceived by the world’s most powerful countries, the main function of GATT was to stand on guard of their economic interests – most commonly at the expense of depriving the ‘developing’ countries of a chance to attain economic prosperity.

Importance of General Agreement on Tariff and Trade to International Trade

GATT was indeed important to international trade because the Agreement helped to liberalize it to a considerable degree. In its turn, this is the direct consequence of the fact that:

a. GATT established the set of legally binding principles, meant to be observed by the state-owned and corporate participants of international trade. These principles, however, are far from being considered ‘impartial’. For example, the essential part of GATT is the so-called Anti-dumping Agreement, which makes it quite impossible for the Third and Second world countries to develop their economies by the mean of offering competitive prices for a particular would-be traded natural resource/industrial product, on their part.

b. GATT resulted in the worldwide reduction of trade-tariffs, which in turn increased the feasibility of the whole sectors of the global economy. The reason for this is that, due to the Agreement’s tariff-reduction effect, it is possible to increase the rate of the manufacturing processes’ ‘specialization’, which in turn allows the generation of the additional ‘surplus product’ in the world. Theoretically speaking, this should result in making it possible for people in the ‘developing’ countries to enjoy the increased standards of living.

However, the Agreement’s practical effect, in this respect, is far from what it should have been. The reason for this is that the ‘revitalization’ of the world economy under the auspices of GATT was achieved at the expense of keeping the ‘developing’ countries deindustrialized. GATT also favors the deindustrialization of the formerly industrialized countries, such as the ones in Eastern Europe, which after having joined the WTO, ended up featuring no industries, whatsoever – something that leaves these countries with no other option but to continue borrowing money from the WTO/IMF.

c. GATT provided some legal mechanisms for the ‘developing’ countries to be able to protect their economies. For example, the Agreement proclaims that these countries are in the position to impose import-quotas if proves necessary. However, the same Agreement contains several provisions that make it highly unlikely for the participants to consider introducing such quotas. For example, if a particular country decides in favor of the introduction of import-quotas, it will be asked to compensate the importing countries for the potential losses.

d. GATT made possible a peaceful resolution of trade disputes between countries. In its turn, this can be explained by the fact that by signing the Agreement, country-participants agree to delegate the powers of arbitration to the international monetary organizations, such as the IMF. Thus, it will be thoroughly appropriate to suggest that GATT did contribute towards the preservation of peace on Earth rather substantially.

Nevertheless, the main effect of GATT had to do with the fact that the concerned Agreement initiated the process of the transnational corporations being transformed into nothing short of the quasi-states of their own – something that provided a powerful boost to the process of Globalization (Cavusgil, Knight, & Riesenberger, 2013). In its turn, this process can only maintain its current momentum for as long as the ‘developing’ countries continue to be exploited by the West. This, of course, suggests that the true significance of GATT should be assessed through the lenses of the Realist theory of IR, which insists that the dynamics in the arena of international politics/economics are defined by the never-ending competition between nation-states for a better place under the Sun (Hall, 2011). In this respect, GATT appears to have been nothing but yet another tool of Western Realpolitik.


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