 Comprehension:

1. What is the comparative cost principle?

2. When may nations have an absolute advantage in producing goods or services?

3. Is it a result of natural resources or a historical accident that Germany, for example, makes luxury automobiles, machine tools and cameras?

4. Why do governments impose tariffs and quotas?

5. Are there any other non-tariff barriers that countries use?

• Summarizing.

Complete the following sentences to summarize the text above:

The majority of economists believe in … .

Nations may have an absolute advantage in producing goods or services because of … .

This theory explains why … , but it does not explain the fact that … .

Economists who recommend free trade do not face … .

Tariffs and quotas are imposed in order to … .

Other non-tariff barriers include … .

True-false questions:

The comparative cost principle proposes that all nations will raise their living standards and real income if they specialize in the production of those goods and services in which they have the highest productivity.	
Nations may have an absolute advantage in producing goods or services because of factors of production (raw materials), climate, division of labour, economies of scale.	
It is a result of natural resources that the US leads in building aircraft, semiconductors, computers and software.	
The only reason for imposing tariffs and quotas is to protect the country’s strategic industries.	

• Viewpoint:

Why do you think many developing countries try to reduce protectionism and increase their international trade?

33. International oranizations and free trade

Lead-in: What international organisations that promote free trade do you know? Key words and phrases GATT (General Agreement on Tariffs and Trade) – Генеральна угода з тарифів і торгівлі to set up – установлювати, засновувати to encourage free trade – підтримувати, заохочувати вільну торгівлю to reduce tariffs – знижувати тарифи clause of an agreement – умова в договорі to grant equally favourable conditions – надавати однаково сприятливі умови to sign an agreement – підписувати угоду to supersede – заміняти to oppose free trade – чинити опір вільної торгівлі to impose barriers – нав’язувати бар’єри infant industries – нові галузі промисловості to pay the interest on loans – сплачувати позиковий відсоток to repay the principal – виплачувати основну суму, капітал to postpone repayments – відкладати, відстрочувати повернення боргів International Monetary Fund (IMF) – Міжнародний Валютний Фонд

The General Agreement on Tariffs and Trade (GATT), an international organization set up in 1947, had the objectives of encouraging free trade, of making tariffs the only form of protectionism, and of reducing these as much as possible. One of the clauses of the GATT agreement specified that countries could not have favoured trading partners, but had to grant equally favourable conditions to all trading partners. The final GATT agreement was signed in Marrakech in 1994, and the organization was superseded by the World Trade Organization.

It took nearly 50 years to arrive at the final GATT agreement, because until the 1980s, most developing countries opposed free trade. They practised import substitution (producing and protecting goods that cost more than those made abroad), and imposed high tariff barriers to protect their infant industries.

Nowadays, however, many developing countries have huge debts with Western commercial banks on which they are unable to pay the interest, let alone repay the principal. Thus they need to renew the loans, to reschedule or postpone repayments, or to borrow further money from the International Monetary Fund, often just to pay the interest on existing loans. Under these circumstances, the IMF imposes sever conditions, usually including the obligation to export as much as possible.

Quite apart from IMF pressure, Third World governments are aware of the export successes of the East Asian ‘Tiger’ economies (Hong Kong, Singapore, South Korea and Taiwan), and of the collapse of the Soviet economic model. They were afraid of being excluded from the world trading system by the development of trading blocks such as the European Union, and the North American Free Trade Agreement (NAFTA), both signed in the early 1990s. So they tended to liberalize their economies, lowering trade barriers and opening up to international trade.

 Comprehension:

1. What is GATT?

2. When was the final GATT agreement signed?

3. What was the organization superseded by?

4. Why did it take nearly 50 years to arrive at the final GATT agreement?

5. What is import substitution?

6. Why did most developing countries impose high tariff barriers?

7. Why does the IMF impose severe conditions on many developing countries nowadays?

8. What countries belong to the East Asian ‘Tiger’ economies?

• Text organization:

The Nationalments below express the main ideas of the text. Number them so that they are in the same order as the ideas in the text. The first one is given for you:

	Nationalment	Order
	Nowadays many developing countries have huge debts with Western commercial banks.
	The General Agreement on Tariffs and Trade (GATT) was set up in 1947.	1
	The GATT had the objective of encouraging free trade and reducing tariffs.
	Developing countries practised import substitution and imposed high tariff barriers to protect their infant industries.
	It took nearly 50 years to arrive at the final GATT agreement.
	In the early 1990s the developing countries tended to liberize their economies and open up to international trade.
	Until the 1980s, most developing countries opposed free trade.