International Trade and Globalization - World Trade Organization - Coursework Example

International Trade and Globalization Introduction Globalization is countries becoming interdependent that results from the increasing integration of people, finance, trade, and ideas in one global marketplace. International trade is one of the main elements of this integration of different countries. Countries that want survival in these tough economic times decide on investing in real global trading capabilities. Only a few of the countries can sustain themselves without indulging in regular and intensive international trade. Globalization and International Trade have a consideration among experts to be a good omen in the past. However, the change in world conditions such as the child labor issues, debt crisis, growth inequality issues, there are doubts of the same. There are anti-globalization forces that have been here over the years and protest to either slow down or stop globalization. Body World Trade Organization World Trade Organization (WTO) primary purpose is trading among different countries had its foundation in 1995 and had its headquarters in Geneva. Its aim since its inception is to promote trade and economic development among countries all over the world. The organization now has more than 135 member countries that work together with them. In particular, there is an expansion of globalization and trade, thus makes international business to be more often than any time in the history. The WTO has the establishment of a set of international business rules that focus on the liberalization because it is one of the most crucial organizations of economic globalization. It plays an influential role in guiding and encouraging people in the process of economic globalization (Smith, 2007). There are different aspects concerning international trade and globalization that include rules on e-commerce and the new rising global business. There are also developing countries that are now part of the international trade. The Flows of Globalization In any global economy, there is no nation that is self-sufficient. Each nation has involvement with the other at different levels in a trade to sell what it produces, to acquire whatever it lacks and also to give better production in some economic sectors than its business partners. Trade promotes economic sufficiency and efficiency by providing a wide variety of goods, which are often at lower costs. It is mainly because of economies of scale, specialization, and the related comparative advantages (Smith, 2007). The facts have support from conventional economic theory. Mercantilism is one of them. It is a trading system where a country tries to put a positive trade balance on other nations to favor the accumulation and addition of wealth for their country. The method mentioned above worked perfectly well during the colonial era and charter companies which enjoyed a monopoly on trade were experts in its implementation. Mercantilism as a whole is a representation of the antithesis of free trade. It is trade relations among countries have an alignment and control to benefit one of the partners at the expense of the other partner (Rodrigue, 2013). The mechanism, however, is still an establishment of the foundations of a global trade system, although it is not an unequal one. Neomercantilism is more of a recent trading system. It leans on establishing an active and productive trade balance to meet economic development goals. Strategies that are export-oriented can be a consideration of being a form of neo-mercantilism. It is very evident if a government establishes an incentive and subsidy systems, an example being free trading zones, it will have additional advantages to its production factors. Neomercantilism can also be a form of response by some countries to the disruptive and competitive consequences because of free trade. It occurs if the trading partners have engagements in strategies that are neo-mercantilist. The outcome of the above is tariff and non-tariff measures that regulate trade and protect national sectors of commerce that people have a perception of being subject to unfair competition (Rodrigue, 2013). These strategies in global trading can be controversial and are often subject to contention. The basis of a nation or organization to be able to produce more efficiently and effectively in an economic sector, while using fewer resources offers an absolute advantage to them. Nations with such advantages have more than their competitors in terms of capital and labor. Global efficiency and effectiveness can, therefore, have an improvement with trade as a country focuses on its absolute advantages. The focus should also be in selling its surplus and import whatever it lacks. There is, however, a drawback in this perspective in that, in theory, any nations with no absolute advantage should not be part of the trade. Regardless of a country or a firm having unlimited power over vast economic sectors, it can put its focus on the other areas it has the highest comparative advantages (Stiglitz, 2006). A country or an economy should import goods and services in areas it has less to no comparative advantages. The relative in production increases the level of production and can focus on areas where the productivity gains are most significant. Factor endowment expands the perspective of comparative advantages by underlining that trade and globalization relate to the factor endowments of a country. The most fundamental grants in any nation include land, capital, and labor. Countries will export any goods which it has real factor endowments and imports the goods in which it has scarce or no factor endowments. Therefore, countries with the low-cost labor available will put their focus on labor-intensive activities while nations that have high capital grants will put their focus on capital-intensive activities. Factor endowments can have an improvement through human and capital resources investments. The globalization of production relies on the globalization of trade and vice versa as one of the above cannot function without the other. International trade has taken place in many centuries, as there is testimony from ancient trade routes such as the Silk Road. Trade, however, happened on an increasing scale over the last six centuries, and it plays an active part in the economic life of different regions and nations. The process of trading among nations has had a facilitation of significant technical and technological changes in the transport and communications sector. The volume, scale, and efficiency of international trading have all been continuously on the rise since the late 1960s and 1970s. It is because of this that we see space and time convergence as an ongoing process (James and Gills, 2007). It implies that there is a more extensive market coverage that nations could have access to with a lower amount of time and speed. It has become possible for countries to trade with different parts of the world that previously had limitations to international transportation and communication systems. The division of goods and the fragmentation of production that go along with the processes also are a part of expanding trade between nations. Trade, therefore, is part of the things that lower manufacturing costs. Advantages of International Trade and Globalization If there were no international trade, few economies could maintain reasonable and adequate standards of living. Each country could only have the production to a limited number of products and shortages would be common if only domestic resources were available. Global trading allows a nation to have access to an enormous variety of resources. Examples include Brazilian coffee to Chinese labor, Persian to Gulf oil that is now made widely accessible to everyone interested. International trade also facilitates the supply and distribution of a broad range of manufactured goods and services that have production in different parts of the world to what is the global market. Wealth among nations becomes derived at an increasing rate through a region or a country’s specialization of economic activities. It helps in lowering the production costs and productivity rises while surpluses get generation. All these can have transfers or trading for commodities that would be unavailable or too expensive to produce domestically or regionally (Stiglitz, 2006). International trade, therefore, decreases the overall costs of production globally. Consumers from various regions can purchase more goods from the wages they earn, and standards of living thus, should be on the increase. International trading demonstrates in its actions the extent of globalization with the increase in spatial interdependencies between elements of the economy and the level of their integration. The interdependence between nations implies numerous relationships get a creation where flows of goods, capital, raw materials and services have an establishment between the regions of the world. International trade is, however, the subject of much contention from critics. It can sometimes be a disruptive social and economic force as it has the part in changing the conditions in the distribution of wealth within a national economy (James and Gills, 2007). It is particularly due to massive changes in prices and wages. Trading between Developed Countries and Developing Countries Over the past ten years there has been a significant change in the patterns of international trade. The patterns are changing overtime in favor of commerce between already developed and developing countries. Developed countries, however, still sell among themselves mostly, but the share of the exports that go to developing countries have an increase from 20 percent in 1985 to 40 percent in 2005. Developing countries have also had an increase in trade among themselves. Still, developed countries that have greater exports remain their primary partners in business. The best markets for the developed countries’ exports and the primary source of their imports are the developing countries. Terms of trade of most developing countries had deteriorated in the 1980s and 1990s because of the prices of their primary goods. The goods that used to make up the largest share of exports from developing country have drastically fallen in comparison to the prices of manufactured goods. An example includes; between 1980 and 2000, the amounts of oil had a drop almost fourfold. Prices of cocoa beans almost threefold and prices of coffee had a fall about twofold (James and Gills, 2007).. There is still international debate about whether this decline in the prices of commodities is permanent or transitory. The developing countries that have a dependence on these exports are already suffering heavy economic losses that have slowed their growth in economy and development. In response to these changes and gains, many of the developing countries are having an increase in terms of the shares of manufactured goods in their exports. They include exports to the already developed countries. The most dynamic and standard categories of their exports include low-knowledge products e.g. carpets, clothes, and labor-intensive products. The products allow these countries to have more job creation and make better use of their labor resources that are abundant. Developing countries’ imports that are from developed countries are mostly knowledge and capital-intensive kind of manufactured goods in contrast to the above (Samimi, Guan & Buang, 2011). They are primarily transport equipment and machinery, in which the developed countries retain and maintain their comparative advantage. Trade Issues in Transition Countries Countries that are in transition from an economy with a plan to market economies have identified the potential benefits that come with global integration. Most of them have significantly liberalized their trade regimes. As a result of this, many Eastern and Central European countries, see the share of trade in GDP increase from ten percent in 1990s to thirty percent or more in 2000s. In Russia and the other countries of the former Soviet Union, the ratio of the trade to GDP fell during the 1990s and 2000s period. It was as a result of the collapse of commerce in the former Soviet Union. Trading with other countries in the world has an expansion (James & Gills, 2007). As the current market-determined patterns of trade are replacing government determined patterns, a massive reorientation of commerce among nations is under way and favors closer links with already established market economies. Trade between the transition countries also has a recovery following a politically motivated decline at the beginning of the development (Samimi, Guan & Buang, 2011). There are some regional economic and social integration initiatives that are unfolding. They include the Baltic Free Trade Area, which comprises of Latvia, Estonia, and Lithuania. Central Europe Free Trade Area that has countries like Hungary, the Czech Republic, the Slovak Republic, Poland, and countries that are part of the Baltic Free Trade Area. Free trade initiatives in the Commonwealth of Independent States are also part of the trade regions. One of the above initiatives had its start in 1995 with negotiations about establishing a customs union for four of the members of the Commonwealth of Independent States; Belarus, Russia, Kazakhstan, and the Kyrgyz Republic. Belarus and Russia have a signed treaty on the formation of an Interstate Commonwealth. Regional trade blocks can have a contribution to transition countries’ stabilization of their economy. They offer risks of diverting trade from more beneficial trade partnerships with other economies (Samimi, Guan & Buang, 2011). Some of the nations in transition in Central and Eastern Europe, i.e. ten of the countries and the Baltics have an application to be members of the European Union. Almost all the transition economies have an application to join the World Trade Organization (WTO). Being a member of the WTO would give these countries protection from having substantial barriers. In particular, it happens in quotas. These quotas still impede their exports and mark as “sensitive” to developed countries. Examples of these goods are iron and steel, agricultural products, footwear, textiles, among others in which economies in transition may have comparative advantages. Joining the WTO would confer rights on the countries in transition, but it would require the savings to meet certain obligations. The duties include maintaining low to moderate tariffs and getting rid of the non-tariff barriers. One of the challenges of the countries in transition is finding their place and footing in the worldwide division of labor. In many cases, it implies that they would have to diversify the structure of their exports, in particular to the developed countries. Some of the former Soviet Union countries have a narrow specialization in the production of goods and the export of a small number of commodities (Wild, 2010). The products include cotton in Uzbekistan and Turkmenistan and food products to Moldova. For other countries, such as Russia and Belarus, their biggest problems are in terms of the quality and international competitiveness of the goods manufactured by them. Rules of WTO to the trading countries WTOs has a primary objective of providing adequate and competitive opportunities for the members that trade with them. The organization thus has rules and principles that need recognition by the members so as to follow the rules. WTO has two fundamental principles; the MFN principle and the national treatment principle. MFN principle ensures all members of the organization enjoy equal opportunities and chances for competition. National treatment principle guarantees the products of the exporter and that of the importer have an equal opportunity to compete (Samimi, Guan & Buang, 2011). The relevant provisions of the WTO require that members from different countries and economies need to open their markets to other members. When the countries are developing foreign trade, there should be no unfair competition among the members. Unfair competition has a primary view as selling domestic products by dumping and selling subsidies. The business policy rules and regulations of different members must be transparent to be fair. The WTO can thus supply firm policy surety through this for forming an opening international market that has fair competition and transparency principles. In aspects of particular global trades, the WTO has rules that are mainly on tariff and non-tariff measures that would ensure the standard goods flow within different nations. WTO commits itself to rules that involve reduction of tariffs and tariff ceilings of different producers. Non-tariff measures are not to be used by member countries on the widespread. For instance, a member nation shall not have the right of restricting or prohibiting export or import of goods. Implementations of these non-tariff measures have a prerequisite that is clear, and can only have implementation through the provision of the procedures. WTO puts out the conditions and procedures necessary for concrete implementation. A member can raise quantitative restrictions or tariffs to protect their domestic industries. The protection is from the impact of import surges in a country (Osle, 2010). If one has an encounter with the balance of payments difficulties, the member may also take measures to reduce imports. There are, however, provisions in details, on the procedures and conditions in some related agreements when making tariff reduction on commodities. To ensure there is continuity of competitive opportunities, WTO is against unfair trade practices, and thus offers provision in measures for the protection and guidance of fair trade. For example, if a country provides or offers subsidies to its export or production, the members of the countries that are adversely affected, can take measures to put off the impact of unfair trade practices. It also applies when a company is offering lower product prices because of unreasonably dumping. In international trade, there are sometimes barriers to trade that have a disguise. It includes; providing unnecessarily high standards on the product quality or product performance, or overestimating the value of imports to give high tariffs. Others include weakening the competitiveness of imported goods using other ways. WTO has a preventive measures and provisions for countries with these acts. There are also rules that protect a state’s property that is trading (Osle, 2010). All of these areas of standards and regulations have an implementation in a standard framework that has unity through dispute settlement, security, and trade policy review mechanism. It ensures the protection of the rights and privileges of the member states. At the same time, the obligations of the members are guaranteed to be fulfilled. Conclusion Every economy in the world can count on two things; supply and demand for their products. For some countries, supply cannot be enough as the requirements of the economy. In such a situation, international trade is sometimes the best solution. There are advantages, and there are disadvantages to international trade as we have discussed above. In conclusion, every economy requires being a member of the international trade to have development. International trade and globalization is a good base to have real interactions with other countries that are helpful to your country. References James, P and Gills, B. (2007). Globalization and Economy, Vol. 1: Global Markets and Capitalism. London: Sage Publications. Osle, R.D. (2010). The New Global Law. Cambridge: Cambridge University Press Rodrigue, J.P. (2013). The Geography of Transport System: Transportation, Globalization and International Trade. New York: Hofstra University Press. Samimi, P., Guan C. L., and Buang, A. A. (2011). "Globalization Measurement: Notes on Common Globalization Indexes". Knowledge Management, Economics and Information Technology 1 (7). Smith, C. (2007). International Trade and Globalization, 3rd edition. Stocks field: Anforme Stiglitz, J.E. (2006). Making Globalization Work. New York: W.W. Norton Wild, K.L. (2010). International Business: The Challenges of Globalization. New Jersey: Prentice Hall. Read More