Which set of factors has been more important in driving globalisation in the last fifty years, technology or international trade liberalisation agreements? Use specific examples in your answer.
Globalisation in a sentence can be defined as the growing interdependence of the world economies. It is a continuous process and is not the final outcome, and due to globalisation the world economies become dependent on each other culturally and economically (Friedman, 2006). This term was first used by an American economist Theodore Levitt in the year 1983 (Stiglitz, 2007). The main factors that drive the globalisation process can be removal and reduction of trade barriers, telecommunication and transport cost and infrastructure, increase in the use of the internet, growth of multinational organisations and development of trading blocs.
Impact of technology in driving globalisation in the last fifty years
Technology can be defined as the knowledge and skills for producing goods and services. The five important elements of technology can be knowledge, tools, possession, change and production. Technology is needed for the production process. It is the result of intellects, and knowledge is a part for its development, applying tools, machines and instruments for the production process is essential. Technology has a great impact on globalisation. One cannot walk on the streets without seeing someone talking, messaging, or surfing the internet on their laptops, or mobile phones, or tablets. People can shop online. Information technology has become a part of a man’s life, it is everywhere and is the reason for the changing lives of the people (Eisingerich and Kretschmer, 2008). The upgradation and developments in the digital media can be termed as ‘IT Revolution’. This revolution is reshaping the economies of the whole world. Not only Information technology, but also communication technology and transport technology are the parts of globalisation (Stiglitz, 2007).
Information Technology: The World Wide Web or (www) is a compilation of the interconnected information and documents which are accessible from any corner of the world by using the internet, which enables its users to access the information and gain knowledge on the topic they are interested, from weather forecast to shopping and also to download music and movies (Grant, 2004). A researcher can download articles from different journals; a shopper can shop through online shopping sites. A bank customer can use his online banking id to transfer funds, check his account balance or pay his telephone or electricity bill through the internet. People get to know about the current news through the internet and also through different forms of media like television or radio.
Communication Technology: The communication technology includes mobile or the smart android phones, the laptops or the tablets. Previously communication was too slow, it took several days for a letter to arrive from overseas. But today the internet has its big role in connecting people across countries, with a second may be, through electronic mail, video calls and chat programs. This is a big revolution for the whole world, if considered business wise or from a social perspective (Daniels and Daniel, 1993). It has changed the social lives of the people. Other than this there are mobile and smart phones which help to connect with people through voice calling, voice messages and text messages. GPS or Global Positioning System use the information from satellites, and provides accurate information on locations in the sea or land, weather patterns around the world, track cyclones or hurricanes, predict the weather, has also a great impact in the field of communication (McAfee, 2006).
Transport Technology: Transport technology includes three types road, rail and air transport. Transport technology has improved dramatically, encouraging the tourism industry to flourish (Archibugi and Michie, 1995). People use their own car for personal needs as cars are today user and environment friendly. Airplanes have become more affordable for the general public; also they are providing faster service. People can reach from one corner to the other in few hours. Innovations in transport involve the use of information and communication technology (Yip, 2000).
Impact of international trade liberalisation agreements in driving globalisation in the last fifty years
Since the Second World War government have taken many initiatives to restrict imports and exports subsidies. There was an assurance that liberalizing or deregulating trade can lead to an increased volume of trade, promotion of economic growth and improvement of standard of living of the population worldwide (Benefits of trade liberalisation: Regional trade agreements, n.d.). Trade liberalisation initiatives have been pursued at the country level, among neighbouring country groups, and in the GATT, which was established in 1947 which included eight major, multi-year rounds of negotiations among the countries (Sampson, 2001). Two factors which contributed to the success of the trade liberalisation efforts are as below.
Firstly, the non discrimination principle stipulates that the proposal for trade restriction as well as the trade restriction both should be applicable for all the countries universally and both domestic goods and imported goods will be treated the same (Mussa, 2000). Secondly, according to the principle of reciprocity all the countries who are taking part should offer reduction in their import duties and export subsidies in exchange for the comparable steps by their partners. International trade liberalisation agreements at the regional, multilateral and bilateral levels are highly successful over the last fifty years; the eight major rounds of the trade talks have reduced the tariff from 40% to 5%. This has helped in the promotion of economic efficiency and also saved consumer’s income of dollars through lower prices. But, unfortunately during the time of recession in the year 2009, countries were prone to increase tariffs, to raise revenues and protect the domestic industries. While tariffs were already low, there was no chance of recession. But the attention of trade negotiators turned to the complicated range of trade barriers. Development was focused, and it was made a priority. The most recent trade talk was known as the Uruguay round, which was launched in 1986, and the ninth incomplete round was Doha round, which began in 2001, till date the Doha talks have not been restored, but it is still under hope of continuation. (Kathuria, 2010)
Multilateral Trade Negotiation Rounds:
Source: http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=andID=589 and http://www.wto.org/english/thewto_e/thewto_e.htm
A group of twenty-three countries negotiated under the first round of the multilateral trade negotiations. The Geneva round established GATT on January, 1948, with this the other twenty three countries also adopted the results of the negotiations, which ensured the tariff concessions were secured, and they were not disturbed by any unfair and restrictive trade measures (Official website of World Trade Organisation. n.d.). All total eight rounds of trade negotiation took place under GATT. The last round was Uruguay round, which was negotiated in the year 1986, this round of negotiation created WTO, and all the principles, rules and agreements of GAAT became an integral part of WTO. (Kathuria, 2010)
Unfinished Agenda of GATT:
After the conclusion of the Uruguay round in December 1993, there was a long list of incomplete agenda, on which work was still going on and could not be concluded. Even today the agendas could not be completed (Official website of World Trade Organisation. n.d.). Development of industrial market is still in progress, in the developing countries, there is no significant gain, and the non tariff barriers as anti dumping measures have increased, domestic support for agriculture and export subsidies still remains higher in rich and wealthy countries (Tokarick, 2005). The Uruguay round is held responsible for the anguish between the countries against WTO, also ‘early harvest’ was an agreement which was not supported by the other countries, moreover during this round the collective bargaining position of the developing countries was severely injured.
Singapore Round: This was the first round of negotiation, it was held in Singapore, in the year 1996.The issues for this was transparency in government procurement policy, trade and investment, trade facilitation, and trade in competition (Francois and Tongeren, 2003). These issues were not accepted and were opposed by the developing countries, other than European Union, Japan and Korea; the result of these disagreements is that the resolution remained unfulfilled (Official website of World Trade Organisation. n.d.). There was a little bit development in the trade facilitation area, and in the year 2004, negotiations started, it aimed at increasing technical assistance and cooperation between customs and other authorities of trade facilitation.
Geneva Round: The second negotiation round was the Geneva round, which was held in Switzerland in the year 1998. In this, the ministers decided to set an introductory process under the direction of the general council to assure that the existing agreements get implemented, and preparation of the third session of ministerial conference also starts.
Seattle Round: The third round of negotiation was held in Seattle, USA in the year 1999. There were several disputes and the delegates admitted failure and didn’t accept the agenda, as a result there was a presence of deep disagreements in between the developing countries. The intension was to launch a new round of trade negotiations which was called ‘the millennium round’, but no one adopted the negotiations, as a result it collapsed (Official website of World Trade Organisation. n.d.).
Doha Round: The fourth round was the Doha round, held in Qatar in the year 2001.The unfinished agenda of the Seattle round, Uruguay round were reconvened in the Doha development round (Ackerman, 2005). The declaration in the Doha round stated an objective of duty free, quota free market accessibility, but there was nothing said about the protective environment and restrictive exports. After more than 8 years the final resolution of the Doha issue has not been achieved, the reason behind is the lack of forward movement in the agricultural field by major negotiators (Ackerman, 2005).
Cancun Round: The fifth round of negotiation was held in Cancun, Mexico in the year 2003.This round was notable as all the developing country participated on the agricultural issue. Though this negotiation was of no use as it collapsed, but it showed the influence and reflection of the developing countries. Africa participated in this round, but it was of great disappointment to all the participating countries (Official website of World Trade Organisation. n.d.).
Hong Kong Round: The sixth round was the Hong Kong round, held in the year 2005. It was a vital round as negotiation of the Doha round was taken forward. Countries agreed to phase out their agricultural subsidies by 2013 and stop cotton export subsidy by 2006 (Official website of World Trade Organisation. n.d.). Further, concession was given to the developing countries through duty free and tariff free accessibility of goods.
GAAT / WTO overall has many achievements. Currently, there are 153 participating countries that account for 98% of the global trade. Tariff barriers have come down so that trade becomes easy within these countries (Kathuria, 2010).
Factors that has been more important in driving globalisation in the last fifty years
The Factors that contributed in driving globalization are reduction and removal of trade barriers, transport cost, growth of multinational companies, growth of the internet and information technology, and development of trading blocs.
The Reduction and Removal of Trade Barriers: Since the end of the second world, GATT and WTO have reduced and removed tariffs and non tariff barriers (Mussa, 2000). This enabled more countries to develop and make develop their comparative advantage. Developing countries keep on driving the global recovery (Richards, 2001). But the growth of their output is expected to moderate 6% during the year 2011-2012. Due to the slowdown in the developed countries there was a fall in the rate from 7% in 2010, though China and India showed their strongest growth performance in 2011-2012.
Transport Costs: Improvements in containerisation have considerably lowered the shipment and freight charges. Over the years the sea transport has decreased by 70%, air freight/ transport cost has reduced by 3-4% (Bagwell and Staiger, 2003). The result for this reduction is an increase in trade and commerce, as the percentage of profit increases due to the reduction of the transport cost, though once the rise in the sea and air transport cost has created great anxiety over the negative externalities of the global trade. But the recent forecast of the increase in 70% CO2 emission by 2020 have given rise to green tax on sea transport (The two-way relationship between sustainable development and climate change, 2006). If this continues, it will again create hindrance to the fall in the transport cost, resulting in the decline in trade.
Growth of the internet: The growth of the internet has enabled faster communication and increase in e-commerce, companies can participate easily in the global market through 24 hour online shopping facility, customer care facility (Porter, 2001). Consumers all over the world can buy products online, they can compare the products of different companies, estimate the values can buy the best product, which offers the best affordable price (Daniels and Daniel, 1993). Through online shopping companies can serve local as well as international and global customers.
Growth of Multinational Corporations (MNCs): Multinational corporations are the one who operates all over the world. They produce and sell their products and services globally and earn a profit (Friedman, 2006). They incur transport cost, communication cost, for trading purposes. In the year 1969 there were 7000 MNC (Stephens, 1999), today its number is around 82000 and are responsible for the 33% of the world export. As this sector is growing, more and more new MNC’s are coming in the market.
The Development of Trading Blocs: A trading bloc is a group of countries that remove quotas and tariffs, so that they can trade between themselves (Francois and Tongeren, 2003). The number of trading blocs has increased recently, between 1948 and 1994, there were 124 notifications and 240 additional notification of RTA, were received by GATT. Trading blocs promote global interdependence through business and trade creation (Mussa, 2000).
Since the end of the Second World War, and mainly in the past 10 to 15 years, we have gone through the process of globalisation drive forward at an exceptional rate. A large part of this is down to legal, social, political and technological developments which have facilitated trade across national and international boundaries, both in products, services and factor inputs. However, when evaluating the usefulness and efficiency of these factors in promoting global interdependence, it is important to abide in mind that many of them have their disadvantages, drawbacks and limitations. Nonetheless, globalisation continues to meet and cope up with the pace in the 21st century and with technology becoming cheaper and more sophisticated and upgraded, we can only expect the process of globalisation to drive further forward in the years to come.
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