In Defense of Globalization - International Trade and Free Markets - Essay Example

In Defense of Globalization - International Trade and Free Markets Globalization and free trade have been the keywords of the past century and they have been ascribed as the reasons for the emergence of the existing developed world. As is known to everyone, neoliberalism has always been the driver of global trade and investment and has allowed nations to develop and prosper. But what have been the reasons and the philosophy behind neoliberalism? In order to understand this, one has to understand that neoliberalism is an ideology that has provided solutions to structurally modify and propagate economic policies. As such, given the extent and nature of the impact of such economic policies, neoliberalism has been applied on a global as well as at the local level. One of the most important provisions under neoliberalism has been international trade and free markets. This concept of free and market based economies can be traced back to more than 200 years back, when the idea was born during the years of the Industrial revolution. Evidence of the emergence of this idea can be traced to the discussion of such ideas in a book titled 'The wealth of Nations' by Adam Smith in 1776, which professed that in order to attain maximum efficiency, any form of intervention into the working of the market had to be withheld by the government and all kinds of taxes and surcharges on manufacturing and commerce had to be done away with. Given the old practices of the olden days, such new and innovative ideas were immediately opposed, due to which, free markets had to be introduced by force. The introduction of free markets led to a strong growth of the economies of the countries (especially the ones in Europe) that were undergoing the industrial revolution. However, the booming trade and the discovery of new lands prompted these nations to promote trade overseas, which did not go according to what Free market theory had professed. The mercantilist system helped the imperial powers in carrying out unfair trade practices, which helped them to get richer at the expense of the overseas territories, which became poorer and poorer. This led to the creation of a financial imbalance in the world order, which saw some nations getting very prosperous at the behest of other nations, whose people were forced to remain poor. The trend in this direction continued to persist until the Second World War, whose culmination witnessed a reduction in the economic might of the empires. This reduction of strength prompted the colonized countries to break free one after another. However, the massive changes in the world geo-political system saw the evolution of different forms of government in various countries, such as democracy in India and Communism in the Soviet Union and Russia. However, newer markets encouraged businesses to tap into new markets and this started a new phase in the era of globalization. To cut it short, the evolution of markets and the emergence of globalization have led to an uneven and imbalanced growth of the world economy (Robert V. Weeks, 2006). In the present world, it is not surprising to hear one refer towards the current economic system as being characterized by 'free trade' and 'globalization'. In fact, many argue that modern trade has become so entangled and intertwined that breaking free from the high level of interdependence between the various economies is impossible. As such, many believe that the evolution towards free and fair international trade is inevitable. The validity of this claim can certainly be argued given the various directions in which politics, economic might, wars and other issues have been pulling international trade practices. In fact, today's economic system and its present state is a conglomeration of all these influences put together. It would in no doubt be fair to argue that capitalism favors the nurturing and enhancement of technological progress, thereby leading to the creation of wealth, due to which it has always been attributed to as being a major pillar in the direction towards progress. This argument would however sound too ideal as political, social, and regional and various other capitalist oriented factors tend to play a role in blending this idealistic argument. As an example, the monopolistic practices of the colonial powers have been regarded as being destructive to the world economic order. The opposition to the projected positivity in the modern era has been attributed to today's decisions being influenced by corporate interests, thereby leaving little regard for fair practices. Thus, corporate led liberalization has met with opposition from various corners that include the countries of the developing world, welfare organizations and the common man. International trade was established with the intention of making trade simpler and easier on a global scale. This, together with the concept of free trade has been attributed as the engine of the current economic growth that emerging economies such as India and China are experiencing. International trade has been advocated with the hope of providing for the following goals: To provide for the growth and development of all countries on an equal basis. To bridge the economic gap between the developed and the developing world. To ease the existing problems that businesses within countries and economies face both internally as well as in keeping with international rules and practices. To promote the growth and evolution of free markets without any government Interference. To minimize the amount of governments' interference in regulation of international trade. To extend the benefit of international trade to as many as possible (Margaret R. Kelly, 1988). Additionally, International trade is supposed to evolve markets into self-balancing economies that will be able to automatically regulate the supply and demand. It is additionally meant to bring prosperity to everyone involved in the trade. However, numerous questions are being raised on the provisions and impact of international trade. For example, many are interested in knowing the extent to which the current form of international trade is different from the theoretical version. There have also been many studies that have attempted to identify the trends and influences on different sections of the society as a result of an increased international trade. There is a growing interest in determining whether the benefits of international trade are enjoyed equally by both the participating entities. The influence of international trade on global and local policies and law is also a major point of concern. Many other issues such as the impact of international trade on diverse issues such as the politics, environment and the socio-economic situation of the world have also been discussed extensively as part of earlier research (Shailendra J. Anjaria, 1982). In the current world economy, new countries such as China, India and Russia are emerging as booming economies and other developing economies are joining the momentum. As such, another important issue of competition has become a major concern. There have been numerous attempts by governments and world bodies to tackle the issues that have been discussed so far. However, successive attempts have not been able to fulfill the problems and resolutions adopted despite the best assurances. An example of this is the Doha ministerial conference in 2001, which chalked strategies to undertake development based initiatives in developing countries. However, many acknowledge that these promises by the WTO (World Trade Organization under the auspices of the UN) have been ignored and completely overlooked thereafter. Specifically speaking, the operationalization of special and differential treatment (SDT) for developing countries has not been implemented. Additionally, the request by the developing countries regarding subsidies on agriculture and non-agricultural market access (NAMA) have not been fulfilled by the developed world, who believe such measures as being negative for their own industry. This perception and the additional belief of the use of unfair means and tactics by the developed countries to achieve their goal have found many supporters on the other side of the negotiating table (Peter John Lloyd, 1968). Within the negotiations, there have been accusations of lobby groups trying to detract the focus of the WTO towards irrelevant and unimportant issues that are completely unrelated to trade. In fact, Mr. Bhagwati, a professor and a supporter of Free Trade at Columbia University has voiced his opinion on the present working of the WTO (Jagdish N. Bhagwati, 2004): “If the multilateral trading system is captured by the developed countries and gets totally distorted, with a dagger aimed at developing countries, then where are we going? New issues are coming into the WTO, in the name of trade due to the lobbies of the North” As such, it can be seen that vested interests are the driving force behind the working of world trade bodies such as the WTO. Instead of understanding and tackling issues with a global perspective, countries are using them as platforms for furthering their individual interests without giving much thought to the global ramifications of such actions. Melrose, a veteran from the UK Department for International Development has said that: “least progress has been made on issues that matter to the developing world” She has based her arguments on the lack of commitments in keeping up with the deadlines promised at the Doha Conference with regards to agriculture, TRIPS and public health. In fact many academicians and trade analysts have accused the developed world saying that the recent developments have exposed the real motives and priorities of the developed countries. They lament at the fact that issues that were considered resolved at Doha would now have to proceed and undergo a re-discussion at the subsequent meeting in Cancun, simply given the fact that the expected initiatives have never been implemented within the deadlines and are logging well behind. It must however be mentioned in the present context that the Doha summit is just one of the numerous meets that have proceeded endlessly nowhere. Some of the key issues that have always been under discussion are market access to developing countries, the introduction of development friendly rules and the removal of measures that enhance unhealthy competition among countries, allowing developing countries to export goods at lower tariffs and also support to the developing countries in reaching their commitments. Khor has suggested that there should be a clear distinction between trade, trade policies and trade rules. The success of trade on the international arena depends on whether it is done properly by keeping up with the local, regional and global rules and terms. Additionally, the economic situation of nations is another major factor as changes in the economic could have a strong impact on the export prices. Sometimes, it is better to trade in lower volumes for better returns. For example, if the cost of auto parts fell due to an oversupply, then a reduction in the export volumes has been known to have done the trick in bringing the prices back on track owing to the fact that such a reduction would contribute to a rise in prices and more demand for the product (Martin Khor, 2001). Trade policies are designed to regulate every aspect of trade and this should take into account the ground realities and provide the appropriate solutions. The speed, sequencing and the regulation of individual sectors of the economy through the promulgation of International Trade Policies will work its way towards enhancing International trade volumes. In many countries, numerous sectors of the industry are not opened up for imports with the purpose of protecting the local industry. However, the richer nations can manage the opening up of such industrial sectors, while the developing countries need time and additional resources by way of concessions in order to open up to better International Trade and competition. As mentioned before, proper framing and specification of International trade policies and the corresponding rules is extremely crucial. Additionally, it is also extremely important to ensure that all such policies and rules are properly implemented to avoid outcomes similar to the Doha summit. As such, it can be seen that one of the major standoffs when developing an international code for global trade is the different perception and approaches of the developed and developing countries. However, Khor has expressed the opinion that the WTO seems to frame rules that have always favored the interests of the developed world and has termed such policies as being of a protectionist nature. In contrast, Khor argues that the developing countries have been forced to open up their economies and accept liberalization not just by the WTO, but also due to the pressure from the World Bank and IMF. This has worked differently for numerous sectors especially agriculture, which have been the backbone of most economies of the developing world (Martin Khor, 2001). While the refusal of the developed world to decrease subsidies to the agricultural sector has worked wonders for the farming industry in these economies, rapid and forced deindustrialization has resulted in displacement of farmers as they have been deprived of their livelihoods. In order to undo these contrasting results through the implementation of the same policies, Khor has suggested that all such conflicting policies should be identified and an attempt should be made at rebalancing them. However, the developed countries have simply refused to accept that any of the identified regulations were unbalanced thereby putting a block to the policy reform straight away. To add to the concern, many accepted to considering any reforms in return for a price from the developing countries, which go against the ideals behind the policy reforms that have been stated above. According to Khor, “But developing countries have already paid a price in the Uruguay Round with TRIPS, services and TRIMs; but they did not reap the supposed benefits that they were supposed to get in agriculture or textiles, now they are asked to pay again in the form of new agreements on investment, competition and ‘transparency’ in government procurement in exchange for yet another promise of benefits in agriculture that they were supposed to have already got.” He additionally alleges that the US and the European Union have a set concessions mechanism that has been devised and set through internal processes, due to which changing them would be a daunting and seemingly un-impossible task. He therefore concludes that any talk of policy change would be mere pretending on their part. Even if there were any changes to existing policies, it is perceived that they would be trade-distorting despite the projected goals and intentions of the change. In return, asking the developing countries to pay for something that has been already promised was an issue of profit for these already richer nations (Martin Khor, 2001). One of the major issues that have been constantly discussed as part of international trade negotiations has been agriculture. There have been no signification inroads into drafting changes put forward to curtail domestic support as the 'green box' subsidies have progressed beyond the boundaries of discipline. The existing measures provide very little for the development of farmers in the developing world. As such, it is expected that the serious differences and inefficiencies in reaching a common solution will continue to exist. There has also been extensive criticism on the issue of non-agricultural market access to tariff duties on developing countries have been found to be much higher. This is against the Doha mandate which has been based on the lines of 'less than full reciprocity' for developing countries. Another researcher, Faizal has provided an extensive and a critical view of globalization. He has opined that developed countries have always been reaping the benefits offered by globalization and this has been due to extensive lobbying and an inside demand for preferential treatment and have been enjoying the benefits of such activities at the expense of developing countries. In fact, research has shown that the growth potential of the developing world has been downgraded by the trade distortions induced as a result of the activities of the developed nations (Patrick F. J. Macrory, Arthur Edmond Appleton, Michael G. Plummer, 2005). “The WTO rules asserted by developed countries seek to deny developing countries the right to use policy choices that these countries themselves used successfully to develop their economies, In failing to meet the deadlines set during the Doha summit, the balance in the process has been disrupted, with possible negative repercussions on the substance of the negotiations. This raises questions on our ability to conclude the round within the agreed time frame, because of the failed deadlines, all the balances have been undone and all the issues will go to Cancun and threaten to block one another like logs in the river.” Jon Hilary of the ActionAid Committee is of the opinion that one of the most important obstacles to negotiations and the framing of policies is the length of the negotiating process. He has ,in fact, said that he finds it bizarre to witness poor countries being forced to give concessions to the rich. It is not surprising to visualize that negotiations at the WTO are fast and tough. As Teddy Chifamba has pointed out, it is the money and not the intricacies of the policy that determine who emerges as the winner at the negotiating table. In support of this observation, he goes on to say: "Your mission has to be bigger than the number of meetings going on at the WTO, International Trade Centre and The UN Conference on Trade and Development," Chifamba, who is Zimbabwe's permanent representative to the UN and the WTO in Geneva, Switzerland has said that his experience with the WTO has so far been frustrating, disgusting, confusing and yet exciting. The last one being positive as against the three earlier ones, as he claims that the job is still very challenging. He points out that the task is daunting for representatives from the developing countries as they have to deal with a multitude of organizations in order to facilitate the negotiation of a deal. For example, in addition to dealing with the UN and the WTO, one is also required to work with other trade organizations such as the UNCTAD, the World Bank and the UNDP (United Nations Development Programme). Given the negative image that the current Zimbabwean administration holds in the eyes of the world community, Chifamba admits that it is hard to deal with the developed nations as well as face the pressure from internal forces (Lewis Machipisa, 2003). He goes on to say: "What we do (in Geneva) is to select and prioritize and that is not an easy thing to do because at times you are dealing with issues of equal importance. On a good day we obviously try to involve more than one or two officers from the mission but on a bad day it's only one person following the process. It's a nightmare. A nightmare, not only for a Zimbabwean official, but for most of the trade negotiators in developing countries' missions in Geneva.” By virtue of being the most underdeveloped region of the world, the representatives of the African Union have tried to cope up with the pressures of their jobs by assigning specific jobs to individual countries and then exchanging the outcomes of the meetings. However, this approach has not worked well as despite sharing ideas, arriving at common solutions, devising ways to implement them and finally negotiating them at world bodies have constantly faced major roadblocks at all times. To put it short, he summarizes by saying countries have different interests. Chifamba further says that the job of negotiating is further hampered by the fast pace at which such processes take place currently (Lewis Machipisa, 2003). "One assumes that when you come and negotiate you have read the input of all stake holders. For us it has been rather difficult. During the Uruguay Round, there was adequate consultation, but after that, there was a lapse in our system in the sense that we did not have a coordination mechanism to provide technical back stopping (back up team) to the negotiators in Geneva. The amount of resources put by (poor) governments and private sector into preparing for negotiations (is little). In the case of the OECD (the Organization for Economic Cooperation and Development), you are talking of a massive secretariat," in comparison to the above argument, the amount of resources that the multinationals and the rich countries such as those from the European Union put into the negotiations demanding greater market access are enormous and their efforts are channeled across diverse boundaries such as Analysis, research, development of new technology as well as capacity building. The developing nations especially those from Africa are observing the tactics and strategies implemented by the richer nations and are taking the positives from all possible inferences. This is extremely crucial for economies such as the ones from Africa considering the fact that their total share of International trade stands at a mere 2 percent even after putting together. This suggests that the difference lies not in the fact that the western powers are smarter than their developing counterparts, but has got more to do with the amount of preparation. Studying the previous trends over a long period by using modern methods such as statistical analysis as well as preparing for all possible situations in advance has put some nations at a better advantage in comparison to the rest. As such, by the time they sit at the negotiating table, they have an upper hand in terms of getting results out of the negotiations (Peter John Lloyd, 1968). There are many other problems that exist when deliberating policy related issues under the formulation of international trade policies and practices. Among these, one of the most skilled techniques is procrastination, which literally means playing for more time. Prolonging negotiations and playing with the patience of the counterpart is a widely known and adopted strategy. Many countries have also been known to have used the influence of money and threats when dealing and this is usually used as a pressure tactic. Sometimes, pressure is applied on individual countries among a group of negotiating countries. Such a tactic does not go down well with the group and results in the weakening of group cohesion. Such tactics are carried out usually by promises of aid to the weaker nations or through offer of certain incentives or there have been cases where threats of economic sanctions have been used to force countries to heed to the pressures of the richer nations. The countries of the developing world are now working towards minimizing the impact of such malpractices and countries are now working actively towards performing as a group having common objectives (Bruce Edward Moon, 2000). "We want to bring together stake holders with a view to discussing not only issues for Seattle and post-Seattle but to resuscitate and give new life to the multi-sectoral coordination arrangements so that as negotiators, we will be negotiating on behalf of the stake holders and not just projecting the view of government departments and quasi-institutions," International Trade also comprises bilateral and multilateral trade agreements that usually exist between two or more countries and are deliberated to achieve a set of specific trade objectives. A good example in this perspective is the NAFTA (North American Free Trade Agreement), which exists between the United States and its biggest trading partners in the region namely Canada and Mexico. However, one of the major problems that arise out of the existence of such trade agreements is the opposition from home owing to fears of loss of jobs and business. The NAFTA was enacted in 1992 and has emerged as one of the most controversial treaties in US history. The primary purpose of NAFTA was to deepen the economic cooperation between its three signatories and was aimed at the economic upliftment of Mexico. Despite these objectives, the treaty has been the subject of criticism from opponents of Free trade and liberalization who attribute it to being a major cause of Job cuts and outsourcing to cheaper markets. Despite claims that the NAFTA has allowed huge amounts of revenue to flow across borders, it has managed to silence all its critics. Another major point of contention especially in the run off to the current presidential elections in the United States is the issue of outsourcing. There is a common perception that with a lot of work especially in manufacturing and software to cheaper countries like China and India, there has been a serious lack in the growth of jobs as companies are increasingly looking to get maximum work done in these cheaper places. This claim that work is being shipped to offshore locations at the expense of American jobs has been discussed and criticized by many. Many presidential nominees have promised that they would limit this outflow of money and jobs and that they would ensure that maximum number of American jobs are saved (David Greenaway, 1996). However, it must be mentioned in this regard that all such claims are mere election stories and its good to note at this point that outsourcing has been progressing since numerous decades, especially in the manufacturing sector. In fact, it has been generating more jobs for Americans as markets have been expanding at a brisk pace and more and more people are needed to bridge the gaps in these markets. Further, outsourcing has helped in lowering the costs of end products and has thus helped companies to expand their customer base by making the product more accessible to a larger population. This has means more revenues than what would have been possible through the original production process. Outsourcing also does its part in helping the economies of the offshore regions prosper as a result of more income and work. The US antidumping law was meant to ensure fair trade and this was supposed to be achieved by offsetting market distortions initiated by foreign governments and markets. As such, this law was enacted to work against the practice of unfair pricing strategies and tackle issues such as protectionism, cartelization, subsidies etc. however, recent study has shown that there is a difference between the policy and its practice. The law in its present state is not adequate in identifying any pricing strategies. It lacks structure in being able to identify whether there are any discrepancies in pricing or whether there have been any price distorting strategies adopted by markets abroad. It also fails to distinguish whether they have been a result of unfair intervention by vested interests or whether it has been a result of perfect market behavior, which is definitely possible. As such, convictions under this law has sometimes been unfair and been directed on companies with no guilt (Harry P. Bowen, Abraham Hollander, Jean-Marie Viaene, 1998). All along, it has been seen that International trade has been plagued by numerous problems. There have been several issues of contention and review that are proving to be bottlenecks in the path towards liberalization and globalization. Many would conclude that with the existing norms and practices in International trade, the scene looks perfectly favorable and accommodative. But it must be mentioned that such an assessment is highly deficient and the above arguments would have highlighted that there is a lot of work that needs to be done in order to bridge the gaps across various fronts. Firstly, there is the wide gap between the developed and developing world and much of the laws and norms that exist as part of trade agreements are quite deficient and require review, until which only one side will stand to gain the benefit of mutual trade. Numerous trade agreements exist, but the level of compatibility with one another when projected on a global scale is quite deficient and any new international code must work towards bridging all such gaps, wherever possible. Countries should work for the betterment of all and should not let favoritism and protectionism to come in the way. This may not seem logical at the moment, but if the current practices were allowed to continue, then they would ultimately start to show their impact on the countries and governments that started them. As such, an international code is definitely possible, but only after a thorough and a definitive review and most certainly, when all the problems are properly identified, providing a common solution for tackling these issues would certainly not be an issue, but rather a matter of mutual trust, conviction and confidence. REFERENCES 1. Jagdish N. Bhagwati (2004), In Defense of Globalization: in Defense of Globalization. Oxford University Press. 2. Martin Khor (2001), Rethinking globalization. London: Zed books. 3. Lewis Machipisa (2003), IT'S MONEY, NOT ABILITY, THAT COUNTS AT THE WTO. Inter Press Service. 4. Patrick F. J. Macrory, Arthur Edmond Appleton, Michael G. Plummer (2005), The World Trade Organization: Legal, Economic and Political Analysis. New York: Springer. 5. Robert V. Weeks (2006), International Trade Issues. New York: Barnes & Nobles. 6. Margaret R. Kelly (1988), Issues and Developments in International Trade Policy: Principles and ... . International Monetary Fund. 7. Peter John Lloyd (1968), International Trade Problems of Small Nations . Duke university press. 8. Bruce Edward Moon (2000), Dilemmas of International Trade: Second Edition. London: Westview Press. 9. David Greenaway (1996), Current Issues in International Trade. New York: MacMillan. 10. Shailendra J. Anjaria (1982), Developments in International Trade Policy. International Monetary Fund. 11. Harry P. Bowen, Abraham Hollander, Jean-Marie Viaene (1998), Applied International Trade Analysis. University of Michigan Press. Read More