IDST FINAL 1002

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1 Final Exam 1. How does ‘inequality as cause and outcome’ help to explain the outcome of the Uruguay Round of GATT trade negotiations and the fate of the COVID TRIPS waiver? Inequality as cause and outcome describes the different ways in which inequalities within nations can exist. Inequality as a cause shows the difference in power between countries in the world. Inequality as outcome is about the difference in well being as a result of a number of factors such as income, sickness, consumption, etc. Inequality of outcome refers to how wealth is spread across a population. This is measured through income, assets, health, education levels, among others. A country can be said to have perfect equality if each member of a population of 100 people possesses 1% of the country’s income. Inequality as cause, on the other hand, can be related to the difference in social treatment (e.g., Due to gender, race, etc) and the difference among social classes (De Haan, 2021). Inequality by definition doesn’t necessarily have to do with poverty levels in a country but rather the difference in wealth between the poor and the rich. In this essay, the concept of inequality as cause and outcome will be used to explain the outcome of the Uruguay Round of GATT trade negotiations and the fate of the COVID TRIPS waiver. The General Agreement on Tariffs and Trade (GATT) was a foundation created for a liberal trading system that worked to negotiate the reduction of trade barriers for manufactured goods, as this was an area in which industrialized countries have had a comparative advantage. This was done in the aftermath of World War II, a period in which trade was rapidly expanding. The Uruguay Round in 1986 resulted in the World Trade Organization in 1994. The Uruguay Round was founded on the Grand Bargain in which richer, developed countries agreed to liberalize trade in agriculture and textiles – that is, labour intensive goods that would have been of interest to exporters in developing countries.

2 Developing countries, in return, agreed to the reduction of tariffs and accepted a new set of rules regarding intellectual property rights, investments, and services. However, this did not come to be. A list of complaints against the Uruguay Round stated that poor countries had begun to garner massive losses while 70% of the gains were going to developed countries, despite 85% of the global population and nearly half of total global income belonging to the developing world. Developed countries had also been imposing far higher tariffs against developing countries as opposed to other developed countries. Priority was going to liberalization of capital flows and investment rather than liberalization of labour flows, which would have greatly benefited the developing world and also would have incurred an increase in global output (Stiglitz, 2006). Developed countries were more interested in benefiting themselves rather than creating a system that levelled the playing field for all. This would cause further inequality in the world, as the rich countries got richer, and the poorer countries were forced to play catch up in a game that was rigged against them. Trade Related Intellectual Property Rights (TRIPS) were also agreed at the Uruguay Round. 18 months prior to the WTO meeting in June 2022, a waiver was proposed by members South Africa and India. This waiver would’ve allowed for the production of lower cost generic vaccines and COVID-19 medical tools by countries without having to risk legal trade challenges. This waiver was met by opposition by a few of the WTO member states, who happened to be the ones that were home to pharma companies that were holding monopoly patent rights over the vaccines, which shows us how the WTO is inherently skewed to the interests of the rich. As a result, the rich countries were able to buy up all the early supplies of the vaccines and the big companies were fighting any effort from others to create generic supplies, preventing poor countries from bettering their living conditions, while simultaneously garnering billion-dollar profits. Without a fair waiver, newer, updated

3 vaccines would be bought out by rich countries and poorer countries were forced to use the old, less effective vaccines (Labonte, 2022), which in turn, worsened the already poor conditions of the poorer countries. We see, even though the WTO was founded with the mindset to create a fairer and even system between countries of the world, richer countries are more determined to benefit them than actually play in a fair system. As a result, the developing world would always have to fight harder than most in order to alleviate inequality in their nations, simply because the rules are not in their favour. 1. What is the relationship between irresponsible lending and debt crises? A debt crisis can be defined as when governments find themselves in a position where they are unable to pay back foreign creditors. It is one component of a balance of payments crisis. To fight these crises, IMF (International Monetary Fund) stabilization would assist in curbing them and rebuilding the economy. IMF stabilization would work on reducing government expenditure, slowing down the economy, increasing exports or reducing imports (on a case-by-case basis) and repayment of foreign creditors and encouraging more capital inflows. However, a primary critique of IMF is that it tends to lead to irresponsible lending on the part of creditors, as they are under the impression that the IMF will bail them out, which in turns worsens the crisis and also may be the tipping point into a debt crisis, if the International Monetary Fund is unable to help in payment. The Credit Suisse crisis in Mozambique and SKS and micro-credit in India are two such examples of this. In 2016, the world bank and the IMF cut ties for financing and funding for Mozambique as a result of a massive loan scandal between the financial institutions of Credit Suisse and the Russian B2B Bank. In this, entities in the government of Mozambique were granted 2 billion dollars in secret loans. These loans were intended to go towards helping

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4 build the tuna fishing industry for poor and working people in Mozambique. However, this never happened. Instead, this money was used to take boats and turn them in Mozambique military attack crafts. The loans were kept secret because of the finance minister and the number of banks involved in this. As a result of this massive defrauding of the entire country, Mozambique’s economy defaulted (RNZ, 2019). Because the loans were lent to corrupt bodies, the entire population of Mozambique were forced to deal with the consequences of a few. The country were now victims of a debt crisis that was not their fault, and they no longer even had the support of the International Monetary Fund to help them recover from this. Vikram Akula, in 1998, set up the Swayam Krishi Sangham (“farmers’ self-help group”), a charitable trust that grew a base of approximately 200,000 borrowers in eight years. This base consisted mainly of rural women receiving small loans for start ups in order to help lift their families out of poverty. But Akula aimed to gain more borrowers at a fast rate that isn’t usual for charities. As a result, in 2006, SKS had been turned into a for-profit company. The microfinance company was accused by Indian authorities of seeking “hyper profits” from the poor through a combination of over lending and coercion to collect. India’s finance minister, Pranab Mukherjee, criticized Indian microlenders as they collectively had racked up approximately 6.7 billion dollars in outstanding loans to 30 million borrowers (Kazmin, 2010). As these amounts began to skyrocket, borrowers began experiencing difficulties in repaying what they owed, and so began a horrific and well documented case of suicides among the rural population as they found themselves in inescapable debt traps.

5 Bibliography Haslam, P. A., Schafer, J., Beaudet, P. (2021). Introduction to International Development Approaches, Actors, Issues, and Practice . Oxford. Kazmin, A. (2010) Microfinance: Small loan, big snag. Financial Times. Microfinance: Small loan, big snag | Financial Times (ft.com) Labonte, R. (2022). We Still Need a Vaccine Patent Waiver, But Not the One On Offer At The World Trade Organization Meeting. The Conversation . We still need a vaccine patent waiver, but not the one on offer at the World Trade Organization meeting (theconversation.com) RNZ (2019, July 23). Mozambique scam NZ banker Andrew Pearse likely negotiated plea deal [Video]. YouTube. Mozambique scam NZ banker Andrew Pearse likely negotiated plea deal - YouTube Stiglitz, J. E. (2006). Making Fair Trade, Making Globalization Work (pp. 74-99). W.W Norton & Company.

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