Concept, purposes and tasks of the international trade policy.
Date: 2015-10-07; view: 717.
Theme 8. International trade policy and WTO activities
1. Concept, purposes and tasks of the international trade policy.
2. Integration, liberalization and removal of barriers in international trade. Modern contradictions and problems in international trade.
3. Purposes, functions and activities of WTO. Role of WTO in regulation of world trade.
4. Legal and organizational structure of the WTO. World experience of the entry of the countries in the WTO.
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (Silk Road, Amber Road), it's economic, social, and political importance has been on the rise in recent centuries.
Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.
International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.
Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production.
International economics is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.
- International trade studies goods-and-services flows across international boundaries from supply-and-demand factors, economic integration, international factor movements, and policy variables such as tariff rates and trade quotas.
- International finance studies the flow of capital across international financial markets, and the effects of these movements on exchange rates.
- International monetary economics and macroeconomics studies money and macro flows across countries.
- International political economy from international relations studies issues and impacts from for example international conflicts, international negotiations, and international sanctions; national security and economic nationalism; and international agreements and observance.
The economic theory of international trade differs from the remainder of economic theory mainly because of the comparatively limited international mobility of the capital and labour. In that respect, it would appear to differ in degree rather than in principle from the trade between remote regions in one country. Thus the methodology of international trade economics differs little from that of the remainder of economics. However, the direction of academic research on the subject has been influenced by the fact that governments have often sought to impose restrictions upon international trade, and the motive for the development of trade theory has often been a wish to determine the consequences of such restrictions.
The branch of trade theory which is conventionally categorized as "classical" consists mainly of the application of deductive logic, originating with Ricardo's Theory of Comparative Advantage and developing into a range of theorems that depend for their practical value upon the realism of their postulates. "Modern" trade theory, on the other hand, depends mainly upon empirical analysis.
Industrialisation (or industrialization) is the period of social and economic change that transforms a human group from anagrarian society into an industrial one. It is a part of a wider modernisation process, where social change and economic development are closely related with technological innovation, particularly with the development of large-scale energy andmetallurgy production. It is the extensive organisation of an economy for the purpose of manufacturing.
Industrialisation also introduces a form of philosophical change where people obtain a different attitude towards their perception ofnature, and a sociological process of ubiquitous rationalisation.
There is considerable literature on the factors facilitating industrial modernisation and enterprise development. Key positive factors identified by researchers have ranged from favourable political-legal environments for industry and commerce, through abundant natural resources of various kinds, to plentiful supplies of relatively low-cost, skilled and adaptable labour.
As industrial workers' incomes rise, markets for consumer goods and services of all kinds tend to expand and provide a further stimulus to industrial investment and economic growth.
The first country to industrialise was the United Kingdom during the Industrial Revolution, commencing in the 18th century.
By the end of the 20th century, East Asia had become one of the most recently industrialised regions of the world.
According to the original sector-classification developed by Jean Fourastié (1907-1990), an economy consists of:
- a "primary sector" of commodity production (farming, livestock breeding, exploitation of mineral resources)
- a "secondary sector" of manufacturing and processing (as paid work)
- a "tertiary sector" of service industries
Historically, the industrialisation process involves the expansion of the secondary sector in an economy originally dominated by primary-sector activities.
The first transformation to an industrial economy from an agricultural one, known as the Industrial Revolution, took place from the mid-18th to early 19th century in certain areas in Europe and North America; starting in Great Britain, followed by Belgium, Germany, and France. Later commentators have called this the first industrial revolution.
The "Second Industrial Revolution" labels the later changes that came about in the mid-19th century after the refinement of the steam engine, the invention of the internal combustion engine, the harnessing of electricity and the construction of canals, railways and electric-power lines. The invention of the assembly line gave this phase a boost.
The lack of an industrial sector in a country can slow growth in the country's economy and power, so governments often encourage or enforce industrialisation. On the other hand, the presence of industry in a country does not mean in general that it will bring wealth and prosperity to the people of that country. And third, the presence of an industry in one country can make it more difficult for other countries to develop the same type of industry. This can be seen in the computer software and internet industries. Started from the US around the 1990s these industries seemed to spread over the world. But after a period of monopolisation less than a decade long, the globally-leading companies remain concentrated in the US. Their economic power and capacity to dominate the media work against the developing of the same types of industry in other states.
Oil-rich countries saw similar failures in their economic choices. An EIA report stated that OPEC member nations were projected to earn a net amount of $1.251 trillion in 2008 from their oil exports. Because oil is both important and expensive, regions that had big reserves of oil had huge liquidity incomes. However, this was rarely followed by economic development. Experience shows that local elites were unable to re-invest the petrodollars obtained through oil export, and currency is wasted in luxury goods.
This is particularly evident in the Persian Gulf states, where the per capita income is comparable to those of western nations, but where no industrialisation has started. Apart from two little countries (Bahrain and the United Arab Emirates), Arab states have not diversified their economies, and no replacement for the upcoming end of oil reserves is envisaged.
Apart from Japan, where industrialisation began in the late 19th century, a different pattern of industrialisation followed in East Asia. One of the fastest rates of industrialisation occurred in the late 20th century across four countries known as the Asian tiger (Hong Kong, Singapore, South Korea and Taiwan), thanks to the existence of stable governments and well structured societies, strategic locations, heavy foreign investments, a low cost skilled and motivated workforce, a competitive exchange rate, and low custom duties.
In the case of South Korea, the largest of the four Asian tigers, a very fast paced industrialisation took place as it quickly moved away from the manufacturing of value-added goods in the 1950s and 60s into the more advanced steel, shipbuilding and automobile industry in the 1970s and 80s, focusing on the high-tech and service industry in the 1990s and 2000s. As a result, South Korea became a major economic power.
This starting model was afterwards successfully copied in other larger Eastern and Southern Asian countries, including communist ones. The success of this phenomenon led to a huge wave of offshoring – i.e., Western factories or Tertiary Sector corporations choosing to move their activities to countries where the workforce was less expensive and less collectively organised.
China and India, while roughly following this development pattern, made adaptations in line with their own histories and cultures, their major size and importance in the world, and the geo-politicalambitions of their governments (etc.).
Meanwhile, India's government is investing in economic sectors such as bioengineering, nuclear technology, pharmaceutics, informatics, and technologically-oriented higher education, exceeding its needs, with the goal of creating several specialisation poles able to conquer foreign markets.
Both China and India have also started to make significant investments in other developing countries, making them significant players in today's world economy
Since the mid-late 20th century, a few countries in Latin America, Asia, and Africa, such as Indonesia, Turkey, South Africa, Malaysia, Philippines, Mexico, Costa Rica, and El Salvador have experienced substantial industrial growth, fueled by exporting to countries that have bigger economies: the United States, China, India and the EU. They are sometimes called newly industrialised countries.
Japan and Russia both were successful in the fact that they imitated many other societies giving them flexibility. Yet they both had very little in common before the 19th century. Japan was isolated from the world with its ongoing traditions and forms of centralised government. Russia featured a more strong centralised government under the emperor.
Both would soon discover that westernisation and industrialism were expanding and their own ways would not hold up against the new changing world of industrialisation. In the late 19th century the requirement for them to begin industrializing would become even more prevalent for the success of their nation in this new, growing society.
Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Globalization describes the interplay across cultures of macro-social forces. These forces include religion, politics, and economics. Globalization can erode and universalize the characteristics of a local group. Advances in transportation and telecommunications infrastructure, including the rise of the Internet, are major factors in globalization, generating further interdependence of economic and cultural activities.
Though several scholars place the origins of globalization in modern times, others trace its history long before the European age of discovery and voyages to the New World. Some even trace the origins to the third millennium BCE. Since the beginning of the 20th century, the pace of globalization has proceeded at an exponential rate.
In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge. Further, environmental challenges such as climate change, cross-boundary water and air pollution, and over-fishing of the ocean are linked with globalization. Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment.
Economic globalization is the increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology and capital. Whereas the globalization of business is centered around the diminution of international trade regulations as well as tariffs, taxes, and other impediments that suppresses global trade, economic globalization is the process of increasing economic integration between countries, leading to the emergence of a global marketplace or a single world market. Depending on the paradigm, economic globalization can be viewed as either a positive or a negative phenomenon.
Economic globalization comprises the globalization of production, markets, competition, technology, and corporations and industries. Current globalization trends can be largely accounted for by developed economies integrating with less developed economies, by means of foreign direct investment, the reduction of trade barriers as well as other economic reforms and, in many cases, immigration.
In economics, internationalization has been viewed as a process of increasing involvement of enterprises in international markets, although there is no agreed definition of internationalization or international entrepreneurship. There are several internationalization theories which try to explain why there are international activities.
A Multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries. It can also be referred to as an international corporation. They play an important role in globalization. The first multinational company was the British East India Company, founded in 1600. The second multinational corporation was the Dutch East India Company, founded March 20, 1602.
Corporations may make a foreign direct investment. Foreign direct investment is direct investment into one country by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country.
A subsidiary or daughter company is a company that is completely or partly owned and wholly controlled by another business that owns more than half of the subsidiary's stock.
A corporation may choose to locate in a special economic zone, which is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws.
Conflict of laws is a set of procedural rules that determines which legal system and which jurisdiction's applies to a given dispute.
The term conflict of laws itself originates from situations where the ultimate outcome of a legal dispute depended upon which law applied, and the common law courts manner of resolving the conflict between those laws. In civil law, lawyers and legal scholars refer to conflict of laws as private international law. Private international law has no real connection with public international law, and is instead a feature of local law which varies from country to country.
The three branches of conflict of laws are:
- Jurisdiction – whether the forum court has the power to resolve the dispute at hand
- Choice of law – the law which is being applied to resolve the dispute
- Foreign judgments – the ability to recognize and enforce a judgment from an external forum within the jurisdiction of the adjudicating forum.
Multinational corporations are important factors in the processes of globalisation. National and local governments often compete against one another to attract MNC facilities, with the expectation of increased tax revenue, employment, and economic activity. To compete, political powers push towards greater autonomy for corporations, or both. MNCs play an important role in developing the economies of developing countries like investing in these countries provide market to the MNC but provide employment, choice of multi goods etc.
On the other hand, economist Jagdish Bhagwati has argued that in countries with comparatively low labor costs and weak environmental and social protection, multinationals actually 'race to the top' rather than race to the bottom. While multinationals will certainly see a low tax burden or low labor costs as an element of comparative advantage, Bhagwati disputes the existence of evidence suggesting that MNCs deliberately avail themselves of lax environmental regulation or poor labor standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency, which includes a high degree of standardisation. Thus, MNCs are likely to adapt production processes in many of their operations to conform to the standards of the most rigorous jurisdiction in which they operate (this tends to be either the USA, Japan, or the EU). As for labor costs, while MNCs clearly pay workers in developing countries far below levels in countries where labor productivity is high (and accordingly, will adopt more labor-intensive production processes), they also tend to pay a premium over local labor rates of 10 to 100 percent.[11] Finally, depending on the nature of the MNC, investment in any country reflects a desire for a medium- to long-term return, as establishing plant, training workers, etc., can be costly. Once established in a jurisdiction, therefore, MNCs are potentially vulnerable to arbitrary government intervention such as expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory purchase of licenses, etc. Thus, both the negotiating power of MNCs and the 'race to the bottom' critique may be overstated, while understating the benefits (besides tax revenue) of MNCs becoming established in a jurisdiction.
A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with one national home. While traditional MNCs are national companies with foreign subsidiaries, TNCs spread out their operations in many countries sustaining high levels of local responsiveness. An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralized headquarters. However, the terms TNC and MNC are often used interchangeably.
The number of transnational corporations have increased greatly from 7000 in 1970 to over 78,000 in 2006. What many people aren't aware of is that TNC's account for over half of the industrial output of the world. The names of some of the largest TNC's include Wal-mart, General Motors, Exxon-Mobil, Mitsubishi, and Siemens. However, according to data from 2005, only one of the 200 largest TNC's are based in a developing nation which happens to share a border with the United States, Mexico. This statistic, among many others, helps to illustrate the unequal distribution of TNC's. The North holds a monopoly when it comes to large corporations including TNC's and this power difference continues to create a rift between the North and South
Outsourcing is the contracting out of an internal business process to a third party organization. The practice of contracting a business process out to a third party rather than staffing it internally is common in the modern economy. The term "outsourcing" became popular in the United States near the turn of the 21st century. Outsourcing sometimes involves transferring employees and assets from one firm to another but not always.
The definition of outsourcing includes both foreign and domestic contracting, and sometimes includes offshoring, which means relocating a business function to another country. Financial savings from lower international labor rates is a big motivation for outsourcing/offshoring.
The opposite of outsourcing is called insourcing, which entails bringing processes handled by third party firms in-house, and is sometimes accomplished via vertical integration. However, a business can provide a contract service to another business without necessarily insourcing that business process.