Contributions of International Organizations towards Globalization in the 21 st Century

Transcription

1 Contributions of International Organizations towards Globalization in the 21 st Century Dr. David S. Y. Cheng, Faculty (Business) Upper Iowa University Hong Kong Campus ABSTRAST In principle, a nation will benefit more when it adopts open economy, i.e. to engage in international trade rather than relies only on domestic production (Samuelson & Nordhaus, 1998). In order to maintain a balance of payment, some governments set trade barriers by imposing tariffs and quota to lower the consumption and imported goods and to raise price so as to raise revenue. This was the starting point of differentiation between nations on international trade, and subsequently developed into protectionism as a self-defense. The reason of protectionism is because many people have a belief that free trade ought to be based on a level of playing field, i.e. a fair-trade basis. However, Samuelson argued that it was not well grounded on economic analysis because he believed that, for example, USA would not gain by imposing a heavy tariff on Chinese textiles if China pirated American technology, which breached the trade agreement (Samuelson & Nordhaus, 1998). This study serves the purposes to introduce in brief the roles and objectives of each of the major international organizations, and to discuss and evaluate how the organizations could help in harmonization towards globalization in the 21 st century, and the possible challenges waiting ahead. INTRODUCTION The practice of protectionism exists in the real life of international trade in different degrees. In order to break through the trade barriers and to promote non-discriminatory international trade, The General Agreement on Tariffs and Trade (GATT) was established in 1947, and subsequently developed into the World Trade Organization (WTO) in As an integral part of the Bretton Woods system, the establishment of the International Monetary Fund (IMF), is responsible to administer the international monetary system and operates as a central bank for central banks. The goal of IMF is to provide economic development that benefits poor people in developing countries. IMF also provides technical assistance, or expert advice to assist governments making specific sectors of their economies, more efficient and relevant to national development goals. The European Economic Community, which was similar in nature to GATT, was created in 1957 by six European countries, viz. Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany to form a common market. Later on, with other European countries joined in, it was further expanded and developed to the existing European Union (EU) with 28 member nations. North American Free Trade Association (NAFTA) came into force in 1994 and consists of the USA, Canada and Mexico. These three countries have agreed to abolish tariffs between themselves in the hope that increased trade and cooperation will follow (Sloman & Garratt, 2010). With the rapid economic growth in South East Asian regions, the countries in the region have also formed similar organizations or economic zones, such as the Association of the South East Asian Nations (ASEAN) in 1967, and the establishment of the Asia-Pacific Economic Cooperation (APEC) in All 94 The Journal of Global Business Management Volume 10 * Number 2 * October 2014

2 the above-mentioned organizations, namely WTO, EU, ASEAN and APEC share a common objective, that is, to promote open trade and to ensure that global trade is conducted smoothly, freely and fairly according to an open, agreed multilateral trading system so as to attain globalization at the end of the day. ROLES AND OBJECTIVES OF THE EU, NAFTA, ASEAN, APEC, WTO AND IMF The following paragraphs will introduce briefly the establishment, the objectives and the roles of EU, NAFTA, ASEAN, APEC, WTO and IMF and the actions that have been or are taking to achieve their respective objectives. The European Union In 1957, six European countries, namely Belgium, France, Italy, Luxembourg, the Netherlands and West Germany signed treaties to create a common market, and founded the European Economic Community. The primary purpose of such formation was to eliminate tariffs among the countries and to set up a common tariff against non-member countries. Later on, some other European countries joined in. Today, it has been further expanded and developed to the existing European Union (EU) with 28 member nations. The roles and objectives of the EU have been enlarged which include enlarging the regional economic co-operation and enhance division labor within the region so as to form a single market; promoting economic and social progress; promoting and asserting the identity of the EU internationally; introducing and conferring a number of civil and politic rights on European citizen; developing a freedom, security and justice environment; and maintaining and building on established EU legislation and the founding treaties. In order to achieve these objectives, the EU takes continuous actions including the establishment of linkage with other international organizations of similar nature, such as the World Trade Organization (WTO), and to enlarge its membership. North American Free Trade Association Along with the EU, North American Free Trade Association (NAFTA) is one of the two powerful trading blocs in the world. Tariffs between the USA and Canada were phased out in 1999 and tariffs between Mexico and the other two countries were phased out in New non-tariff restrictions will not be permitted either, but many existing ones can remain in force, thus preventing the development of true free trade between the members. Indeed, some industries, such as textiles and agriculture, will continue to have major non-tariff restrictions. NAFTA members hope that, with a market similar in size to the EU, they will be able to compete with the EU s economic power in world trade. Other countries may join in the future, so NAFTA may eventually develop into a western hemisphere free trade association. NAFTA is regarded at most only a free trade area and not a common market as EU. Unlike EU, it does not seek to harmonize laws and regulations, except in very specific areas such as environmental management and labor standards. Member countries are permitted total legal independence, subject to the one provision that they must treat firms of other member countries equally with their own firms and this is known as the principle of fair competition. However, NAFTA has encouraged a growth in trade between its members, most of which is trade creation instead of trade diversion. The Journal of Global Business Management Volume 10 * Number 2 * October

3 The Association of Southeast Asian Nations The Association of Southeast Asian Nations (ASEAN) was established in 1967 by five Southeast Asian countries viz. Indonesia, the Philippines, Singapore, Malaysia and Thailand. Its vision is that all Southeast Asian countries to co-operating actively towards peace, stability, progress and prosperity in the region. More and more countries in the region join in the ASEAN. By the end of the year 1998, five more countries join in including Brunei, Vietnam, Myanmar, Laos and Cambodia which made up ten member countries in total. The ASEAN region has a population of about 600 million, a total area of 4.5 million square kilometers, combined gross domestic production of over US$2.3 trillion. Today, ASEAN economic cooperation covers the following areas, namely, trade, investment, industry, services, finance, agriculture, forestry, energy, transportation and communication, intellectual property, small and mediumsized enterprises and tourism. The strategic geographical location of the ASEAN countries, their skilled manpower and the general dynamism of the people as well as its abundant natural resources will provide enormous opportunities for future development. The roles and objectives of the ASEAN are providing a framework and mechanism; accelerating the economic growth, social progress and cultural development in the region; strengthening the foundation for a prosperous and peaceful community of Southeast Asian Nations through joint efforts in the spirits of equality and partnership; promoting regional peace and stability through abiding respect for justice and laws amongst the countries in the region; and finally promoting active collaboration and mutual assistance in matters of common interest in the economic, social, cultural, technical, scientific and administrative fields. Through dialogue and the confidence and trust built among countries, misunderstanding, differentiation and conflicts that existed were resolved without any occurrence of escalation of tension into armed confrontation among ASEAN countries. The Asia-Pacific Economic Cooperation The Asia-Pacific Economic Cooperation (APEC) was established in 1989 by twelve countries, viz. Australia, Brunei, Canada, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and the United States. The reason of such establishment was that the interdependence of Asia-Pacific economies at that time had been increased significantly, and that it was necessary to develop progressively a community of Asia-Pacific economies with free and open trade and investment. Later on, it was enlarged to encompass People s Republic of China, Hong Kong and Chinese Taipei in The organization further expanded to include Mexico, Papua New Guinea in 1993, Chile in 1994, Peru, Russia and Vietnam in 1998, which made the member countries increase to 21 since The roles and objectives of the APEC are enhancing Asia Pacific economic conditions dynamically; promoting the sense of community among the member countries; and to offer opportunities for regional business partners so as to build a prosperous Asia-Pacific community. After several annual meetings, the APEC had established three major activities, namely, liberalization of trade and investment, facilitation of business, and cooperation on economic and technical issues. Furthermore, the APEC leaders had been paying great attention on the major areas of economic and technical co-operation which include developing human capital; fostering safe and efficient capital markets; strengthening economic infrastructure; harnessing technological knowhow of the future; promoting environmentally sustainable growth; and encouraging the growth of small and medium-sized enterprises. 96 The Journal of Global Business Management Volume 10 * Number 2 * October 2014

4 The World Trade Organization The World Trade Organization (WTO) was the successor to the General Agreement on Tariffs and Trade (GATT) established in 1947 with 23 countries participated in it at that time. WTO came into operation in 1995, and today it has 135 member nations, and with 30 countries waiting to join. It is the only international organization dealing with the global rules of trade between nations. Its goal is to dismantle trade barriers and promote non-discriminatory international trade. The roles and objectives of the WTO are seen as to the heart of maintaining global trade. They are to help reducing tariffs and promote non-discriminatory trading system that spell out member countries rights and obligations; helping to create a strong and prosperous trading system; assisting trade flow smoothly, freely, fairly and predictably. In order to achieve these objectives, the WTO has undertaken the following actions which include administering trade agreement; acting as a forum for trade negotiations; settling trade disputes; reviewing national trade policies; assisting developing countries in trade policy issues, through technical assistance and training programs; and co-operating with other international organizations. The WTO system definitely helps to keep the peace and history has provided with examples of trade disputes turning into war. The system plays a vital role in creating and reinforcing the confidence of free trade. The WTO system allows trade disputes to be handled constructively and peacefully. The fact that the disputes are based on two agreements and this forms a clear basis for judging who is right or wrong. The WTO cannot claim to make all countries equal. However, smaller countries enjoy more bargaining power, and life is simpler for major powers such as the U.S. or Germany because they do not need to negotiate trade agreements with each of their trading partners. The WTO s global system lowers trade barriers. The result is reduced costs of production and reduced prices of finished goods and services, and ultimately a lower cost of living. It also gives a wider choice and a broader range of qualities to choose from. Further, the quality of locally-produced merchandises can improve because of the competition from imports. The WTO s trading system will lower barriers and boost national incomes and personal incomes. The additional income means that resources are available for governments to redistribute. Increased trade as a result of the WTO s system has the potential to create jobs and that can be good news for employment, the basic principles such as non-discrimination and transparency of the system make trading simple, reducing companies costs and in turn mean more jobs and better goods and services for consumers. The WTO s system allows government better placed to defend themselves against powerful lobbies from special interest groups. Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is difficult to reverse. For businesses, that means greater certainty and clarity about trading conditions. All in all, the WTO is sometimes criticized as undemocratic because not every country has the same bargaining power. International Monetary Fund In July 1944 a conference was held by the representatives of the world s major economies in Bretton Woods, New Hampshire. A proposal known as Bretton Woods System was adopted. The aims of the system were to eliminate exchange controls; to implement the convertibility of all currencies; and to establish stable exchange rates. The International Monetary Fund (IMF) was established to monitor the system. It was set up to give aid to countries which were short of foreign currency reserves because of some temporary difficulty in the domestic economic scene. Funds were made available from member countries The Journal of Global Business Management Volume 10 * Number 2 * October

5 sufficient to deal with most foreseeable situations of this kind. As the years passed, these funds have proved to be generally sufficient as various international currency crises developed. EFFORTS THAT HELP IN HARMONIZATION TOWARDS GLOBALIZATION IN THE 21 ST CENTURY The aforesaid international organizations have all taken actions and efforts to promote free international trades. The following paragraphs will evaluate the actions they are taking to help contributions towards globalization. The EU Efforts The Treaty on European Union (Maastricht Treaty) was signed in 1992 and The Maastricht Treaty came into force in EU has been implementing a single market program and liberalization under the WTO framework. Under this program, the EU has taken the following joint efforts with WTO using its framework: Implemented the WTO tariff commitments, Eliminated the quotas and voluntary export restrictive covenant, Applied new multilateral commitments on information technology and telecommunications products and services, and Established a single market. The program helped to reduce the entry barriers for other countries trading partners in accessing into the EU more easily. This in turn has also increased the exposure of the EU to the international trading arena. The WTO Secretariat has reported that EU s increasing efforts on areas such as the liberalization of service trade and harmonization of standards, the process in establishing a single and the multilateral liberalization have gained supports from other non-eu countries. As a result, more non-eu suppliers could access into the EU market, hence the improvement in the business opportunities. This progress together with the continuous enlargement of membership to encompass Central and Eastern countries in the next 25 years which in turn will contribute another step toward the Globalization. Since the very beginning of European co-operation, one of the key objectives has been economic growth, to be achieved by the development of a tariff- and quota-free European-wide single market. The main economic objectives of the EU are growth, employment and convergence. Sustainable noninflationary output and employment growth are regarded as the essential basis of achieving and maintaining the degree for convergence required in the economies of its member states. Member states have identified their efforts at reform to achieve an efficient and modernized labor market. The prospect of labor shortage has put immigration on the agenda in a country which has traditionally closed its gates fairly tight. The introduction of a common currency, the Euro, allows free flow of capital. The EU s historic agreement with China on her accession to the WTO brings about significant changes in trade which will eventually be of major benefit not only to Europe but to the international community as a whole. Although many of the measures to bring about the single market have been implemented, revising business practices to provide new opportunities for trade and finance, complete elimination of border controls, and the harmonization of taxes had not yet been completed. While the product markets are generally integrated, the markets for services were not. Banking and insurance are not fully covered by single market legislation. Product markets associated with the public sector continue to suffer from a lack 98 The Journal of Global Business Management Volume 10 * Number 2 * October 2014

6 of competition and excessive regulation. State aid continues to distort markets and progress in harmonizing product standard has been slow. While the comparative advantage in producing labor-intensive products has enabled the less technological advanced countries such as Greece and Portugal to benefit from the growth of inter-industry trade, the adjustment cost of contraction (e.g. largely unemployment) of the same industries in more advanced economies has been significant. Although the Euro is supposed to be the world s second most important currency, after the U.S. dollar, its performance since launching in the global foreign exchange markets remains lackluster. The single market brought about by the EU is an astonishing concepts but it is still a long journey before it could help in harmonization towards Globalization. The Efforts of NAFTA The primary objective of NAFTA is to provide accurate and timely information to U.S. exporters experiencing market access barriers in Canada or Mexico. Their mandate is to assist U.S. companies, especially small and medium-sized, who are having difficulty doing business with Canada and Mexico, including guidance on trade policy issues and business practices. NAFTA not only allows goods to pass tariff-free across the borders but also liberalizes regulations on investments by the U.S. and Canada in Mexico. Proponents of the plan argued that it would allow more efficient pattern of specialization and would enable U.S. firms to compete more effectively. Economists warned that NAFTA can cause inefficiency if the member states exclude potential trading partners such as the Caribbean countries. However, free trade would expose U.S. workers to competition from low-wage foreign labor such as Mexico. Samuelson and Nordhaus (1998, p.704) stated that the answer to the cheap-foreign-labor argument rests on the comparative-advantage analysis. This shows that a country will benefit from trade even though its wages are far above those of its trading partners. High wages come from high efficiency, not from tariff protection. This question in fact was answered in 1817 by the English economist David Ricardo, who indicated that international specialization benefits a nation. He called this result the law of comparative advantage. The ASEAN s Efforts To further enhance the relationship, the ASEAN leaders in 1997 adopted the ASEAN Vision Under the program, it is aimed to liberalize trade and investment; seeking and maintaining closer economic integration within the region; creating a stable, prosperous and highly competitive ASEAN Economic Region, and to strive for a free flow of goods, service, investments, capital and equitable economic development and reduce poverty and socio-economic disparities within the Region. These have been turned into a series of plans of action in 1998 at the meeting held in Hanoi so as to realize the ASEAN Vision. In addition, given the rapid expansion of electronic commerce in the global economy, the ASEAN Economic Ministers also mandated the undertaking of a study on the evolution of electronic commerce and how ASEAN could be benefits from it. The region still has a number of problems outstanding. The ASEAN region is still badly divided by ideological conflict. For example, Vietnam is under the Communist Regime and Myanmar is ruled by military dictatorship. Internal insurgencies and economic hardship forced countries in the region to waste a great deal of their scare resources in defense and to defend on external powers for security and aid. Territorial disputes and sometimes racial tension caused recurring irritation and aggravated distrust between neighboring countries. As a result of the 1997 financial turmoil and economic recession in 2008, The Journal of Global Business Management Volume 10 * Number 2 * October

7 intra-aseam trade fell significantly. The biggest downturns were experienced by countries such as Thailand, Malaysia and Indonesia, foreign exchange control was at one time imposed in Malaysia which prohibited the free flow of capital in and out of the country. Due to the worst economic downturns since the post-war era, ASEAN s commitment to continue regional economic liberalization and integration remains to be seen. After all, despite the shortcomings, ASEAN still has a role to play in harmonization towards Globalization in the 21 st Century. The APEC s Efforts The APEC leaders adopted that they should give full support and participate in the WTO. For example, they have supported the launch of a recent trade round at the WTO talks and agreed to the following aspects: Should initiate comprehensive market access negotiation covering industrial tariffs, Should initiate actions leading to timely and effective improvements in market access to the benefit of all participating countries, and Should have balanced and sufficiently broad-based agendas. By doing so, the APEC countries are able to continuously strengthen the global trading system. The agenda of the APEC 2000 meeting were focusing on the following topics that would further promote and strengthen market opening, and contribute towards globalization: Continued efforts to advance APEC s agenda on trade and investment liberalization and facilitation, To focus on the development of small and medium-sized enterprises, To continue exploring opportunities of enhancing APEC s importance and relevance to international business, and To create a free trade area across the Pacific for the developed countries, and by 2020 for the rest. The WTO s Efforts The WTO has been holding ministerial conference at least once every two years. Through the meetings, consensus will be obtained by the entire membership in order to negotiate and reach decision on the trade agreements. In addition to the agreements of the original GATT s, new agreements have been created progressively for dealing with trade in services, relevant aspects of intellectual property, dispute settlement, and trade policy review. The complete set agreements now consist about 60 agreements and separate commitments or schedules. Since over three-quarters of WTO members are the developing or the least-developed countries, special provisions for these members are included in all the WTO agreements. In order to provide technical assistance and training to those countries, the WTO organizes around 100 technical co-operation missions to developing countries annually, and set up reference centers in nearly 40 trade ministries in capitals of least developed countries. The critical role of coordinating up all the major international organizations to form a single organization can be played by the WTO because of the following reasons: Its established relationship with other organizations such as with the APEC and EU, Its capability in enforcing the trade rules among many countries, Its capability and capacity to formulate a set of trade agreements based on the existing ones that are being followed by all the nations, Its large membership size which accounts for over 90% of world trade, hence the power of unity, and 100 The Journal of Global Business Management Volume 10 * Number 2 * October 2014

8 Its capability in mediating trade disputes among member countries in order to maintain a peaceful, harmonize environment and arena for global trade and investment. All these criteria make the WTO standing on a very good position to co-ordinate, liaise and to group all the other organizations into a single body in achieving globalization. While trade clearly has the potential to create jobs, the picture is not the same all over the world. For example, technological advance has had a strong impact on employment and productivity, benefiting some jobs, but hurting others such as unskilled workers. While trade increases national income, this is not always translated into new employment for workers who lost their jobs as a result of competition from imports. The IMF s Efforts If the problem of developing countries debt is to be tackled then simple rescheduling is not enough. The IMF favors structural adjustment programs involving tight fiscal and monetary policies and market-oriented supply-side policies. If the country is having trouble paying interest and principal on its foreign loans, the IMF might send a team of specialists to pore over the country s books. The IMF team would come up with an austerity plan for developing countries, generally involving reducing the budget deficit and tightening credit; these measures would slow inflation and increase confidence in the local currency. In addition, there would probably be a debt restructuring, whereby banks would lend more funds and stretch out payments on existing loans. If the IMF program is successful, the country s balance of payments would begin to improve, and the country would resume economic growth. POSSIBLE CHALLENGE AWAITS AHEAD Given the continuous efforts contributing by the above-mentioned organizations to strive for a single market of free trade and investment, there are still many challenges waiting ahead for them to overcome. The possible challenges that will affect the progress of globalization are as follows: Political Climate In the event a country having a change in sovereignty, the new government may have different policies or political viewpoints from the former leader, for example the right-winged party versus the leftwinged party. As such, different standards and criteria may be existed and imposed, which may result in the creation of barriers to the negotiation of new agreements. Country s Own Benefit Some officials of a government may be too conservative and hold a different vision towards the relaxation of the existing policies in the course of negotiation of new agreement. The reason to the objection may be for the country s own benefit, or just for its own sakes. Balance of Payment and Budgetary Issues In the negotiation, one country may require to give up certain measures such as lowering of tariff, etc. in order to reach an agreement. If that reduction will have direct impact on the balance payment or on the government s budget, the country may have reservation on the reduction. This may delay the progress of negotiation or becoming a barrier that cannot be breakthrough. All the above are possible challenges that may exist and need to be resolved. The road ahead is long and winding, particularly when striving towards one single market and globalization. It will take a long time and tremendous efforts to overcome them. The Journal of Global Business Management Volume 10 * Number 2 * October

9 CONCLUSION Based on the evaluation as mentioned above, it is obvious that each organization has been striving hard to promote its identity, to establish its own set of rules in reducing barriers in order to promote a free trade and investment environment within its member countries, and to liaise and negotiate with other organizations for better benefits to its members. All the organizations are enlarging its size by trying to encompass all of the countries within the region. At the same time, some possible challenges may exist and awaiting the organization to overcome before the globalization can be realized. However, the efforts and actions that the organization have been contributed or is taking are definitely good indicators proving that they are prepared to overcome any challenges and barriers ahead in striving towards a global economy and globalization in the 21 st Century. In his address to the New Zealand Institute of International Affairs on 1 July 1999, the WTO Director- General Mike Moore says, Globalization is with us; it cannot be un-invented. No nation, great or small, in the world today and tomorrow can secure its future alone. No nation can run a tax system without the co-operation of others. It seems impossible for a country to survive alone in the world today or in the future. At the end of the day, there should be no single country which can isolate itself, or to be isolated, from the group. Not even of those communist or socialist countries such as Cebu and North Korea which are beginning to open its market to the rest of the world one day, though in a very slow pace. In order to achieve globalization, we believe the international organizations can move and contribute much more than what have been achieved. The next move should cover the following issues: The best ways and timing to start discussion and negotiation on the re-union all the global organizations together to form one single body of organization. The capacity and time-scale in developing a common set of criteria in setting the tariffs and eliminating the quotas and export restrictive covenants, and multilateral trading system so as to reduce, if not eliminate, differentiation, misunderstanding and conflicts between countries. The best time frame to reinforce the established common framework to countries to follow in performing free and fair trading. Whilst we must admit that the three regional economic zones, namely, ASEAN, EU and NAFTA, lay down a solid foundation towards Globalization, achieving the ultimate goal is still a long way despite the effort made by WTO and IMF. In the post-war period regional economic zones have achieved great successes in breaking trade barriers, deregulation of capital flows and even the introduction of the single currency. The only remaining obstacles to the creation of a truly unified world market are continuing restrictions by nation states on international mobility of labor. Complete Globalization can be achieved unless we include countries in Africa and Latin America. REFERENCES Dunning, J. H. (1993). Multinational Enterprises and the Global Economy, Wokingham: Addison-Wesley. Lancaster, K. (1966). A new approach to consumer theory, The Journal of Political Economy, 74 page McKinsey Global Institute (1993). Manufacturing Productivity, Washington, D.C., USA. Moore, D. G. Mike (1999). The WTO: The Challenge Ahead Address to the New Zealand Institute of International Affairs, 01/07/1999. The WTO Internet web site: The Journal of Global Business Management Volume 10 * Number 2 * October 2014

10 Nicholson, W. (2004). Intermediate Microeconomics 9 th edition, South-Western. Samuelson, Paul A. and Nordhaus, William D. (1998). Economics (16 th edition), USA: McGraw-Hill. Sloman, John and Garratt, Dean (2010). Essentials of Economics Fifth Edition, Pearson Education Limited, Essex, England. The Journal of Global Business Management Volume 10 * Number 2 * October