There are two schools of thought about the scope of the
international trade
The first school believes that talking about
"protectionism" is a bad idea. People of this school don't like the concept of protectionism as
a basis for the trade regime, for a number of reasons. First, it is hard to
define, in part because it involves determining the intent of a government,
which can be difficult to discern. Second, it's a dangerous concept because it
involves accusations that a country is acting in "bad faith,"and such
accusations are considered inappropriate. Finally, a focus on protectionism
misses a lot of other significant "trade barriers." As a result, this
school tries to avoid any use of intent when interpreting non-discrimination
obligations, and prefers to rely on more "objective" tests, such as
evaluating the relationship between a measure and its stated objectives or
looking at whether there are alternative measures that accomplish the same
purpose in a less trade restrictive way.
The second school, by contrast, is concerned about the possible
overbroad scope of a trade regime that does not have protectionist intent as a
limiting factor. With tests such as "necessity,"
"reasonableness," etc., it is not clear how far beyond measures with
protectionist intent the trade regime extends, and people of this view worry
that it will go too far. Also, this school believes that it is hard to sell the
public on a regime that is based on the undefined concept of "trade
barriers." Anything could constitute a "trade barrier," and thus
there is no clear way to define what policies are being targeted and what the
scope is. By contrast, for this school, protectionism is a well-understood
concept, and it is very clear to the public what is being targeted. Therefore,
the focus of trade agreements should be on intentional discrimination against
particular countries, or against foreign goods/services/investment in general.
Protectionism
Protectionism is an economic policy which is meant to benefit
domestic producers of goods and services. In a nation with protectionist policies,
domestic producers are insulated from competition against foreign firms by a
series of barriers to import. They may also be supported directly by the
government with the use of subsidies. The opposite of protectionism is free
trade, in which goods are freely permitted to cross borders. Many nations
support free trade, and would prefer to see protectionist economic policies
barred altogether. Signatories to the General Agreement of Tariffs and Trade
(GATT) and members of the World Trade Organization (WTO), for example, are
typically proponents of free trade.
The logic behind protectionism is that domestic industries may
suffer when confronted with foreign imports which are available at cheaper
prices due to lower cost of labor, more readily available natural resources, or
foreign government subsidies which help the producers keep their costs low. By
imposing stiff import tariffs and quotas, a government can theoretically increase
the market for domestic goods, by essentially closing the market to foreign
producers. This in turn is designed to benefit the domestic economy.
When restrictions on imports are accompanied by government
subsidies to domestic companies and government export subsidies to encourage
exports of domestic products, protectionism is intended to benefit domestic
companies. However, this is not always the case. Thanks to the lack of
competition, companies may have less interest in developing innovative new
products, sticking with old inventions and technologies. They may also face
export barriers, because foreign countries often respond to protectionism with
protectionist policies of their own.
Individual citizens can also suffer under protectionism, because
they may find that prices for goods and services become inflated. Without
low-cost foreign competition, companies can afford to charge whatever they like
for their goods and services, and this means that consumers may pay prices
which are much higher than those paid by people in other regions of the world.
They may also chafe at the lack of innovation, or lobby for a greater freedom
to choose between products.
Supporters of protectionism argue that it can help nascent
industries by insulating them from the open market until they are strong enough
to function independently. Protectionism also theoretically protects domestic
employment, by encouraging companies to hire domestically, and it can be used
to promote living wages and better benefits for employees. Proponents point out
that protectionism can also be used to pressure foreign nations to improve
conditions for their worker
Positive and Negative economic and social implications of
globalization.
Increased integration and interdependence between countries coming
together in a global economy
Globalisation
• Eroding national boundaries, international developments,
international organizations having and increasing impact on economic
performance
• Trades in G + S US$8.5 trillion to US$16.0 trillion 1990-2002.
Averaging 7% growth per year.
• Financial flows reaching US$24.5 trillion in 2003. Deregulation
of financial markets. Increased volatility and speculation.
• Investment growth. FDI grew seven fold between 1990-2000. Fell
to US$560 billion in 2003 due to economic slowdown. Reflecting interdependence
between developing and developed.
• TNC’s doubled from 37,000 to 60,000. Expansion of other features
extending beyond national boundaries.
• Advocates – best opportunity for growth, specialization,
allocative efficiency, greater access to technology, labour and increased
living standards
• Critics – Widening gap between rich and poor, distorts
distribution of income and wealth, environmental costs, richer nations and
NIC’s are favored, while developing and transition economies are neglected
Trade
• Increased trade flows with growth in trading blocs and
agreements. Increased specialization and efficiency. Increase growth and GWP.
Growth in global trade expected to remain over 7%.
• FTA with China in July 2005 TFC industry. Lift tariffs, may
cause structural unemployment, benefit specialist/brand name textile market
• If trade growth in Africa, Asia and Latin America is lifted by
1%, it will lift 128 million out of poverty
• WTO Doha November 2001 – cut protection US$700 billion, raise
GWP by US$2.8 trillion by 2015 – failed to meet January 1 2005 deadline. WTO
Hong Kong November 2005.
• Poorer nations’ share of world trade has declined
Financial and investment flows
• Deregulation, improve access to overseas finance to fund
domestic investment, negative effect on CAD, increased volatility and
speculation
• Increased FDI – six times greater than levels in 1980’s, 77% of
flows received by developed nations in 2002. Accelerates growth and innovation.
• Growth of capital flows, increased speculation and volatility,
Asian financial crisis in late 1990’s, short term financial flow increased with
exchange traded derivatives reaching US$24.5 trillion in 2003. Negative impact
on CAD and growth.
Economic Performance and Living Standards
• Increased competition, technology, innovation, specialization in
efficient industries, increased global growth
• Sub-Saharan African transition economies experiencing
stagnant/negative rates of growth. NIC’s in Asia Pacific average growth of 7.3%
1990-2002.
• Absolute poverty is decreased with increased growth and better
living standards
• Countries unable to attract FDI are worse off as the income gap
widens. Emergence of the “global elite” with majority of poorer nations left
behind as resources and labour are directed to the richer productive nations.
2.8 billion living on less than US$2 a day.
Government Policies
• Economic management – market oriented economic policy to
increase international competitiveness. Australian economy adopting floating
exchange rate in December 1983 as a shift towards market forces. Less
Government intervention opening up economy. Implementing of macroeconomic
policy for the long term supply rather than macro short term demand which will
effect inflation and markets.
• Transition economies adopting these policies have suffered from
severe economic problems
Environmental Problems
• Greater global environmental awareness – global policies
conventions to enforce environmental compliance. Ratification of the Kyoto
protocol achieving multilateral progress.
• Environmental degradation through industry practices,
exploitation of environment for economic growth
• WTO restricting ability of countries to put environmental
protections as they are trade barriers. Doha discussing possible proposals.
The Flows of Globalization:
In a global economy, no nation is self-sufficient. Each is involved
at different levels in trade to sell what it produces, to acquire what it lacks
and also to produce more efficiently in some economic sectors than its trade
partners. As supported by conventional economic theory, trade promotes economic
efficiency by providing a wider variety of goods, often at lower costs, notably
because of specialization, economies of scale and the related comparative
advantages. International trade is also subject to much contention since it can
at time be a disruptive economic and social force as it changes the conditions
wealth is distributed within a national economy, particularly due to changes in
prices and wages.The globalization of production is concomitant to the
globalization of trade as one cannot function without the other. Even if
international trade has taken place centuries before the modern era, as ancient
trade routes such as the Silk Road can testify, trade occurred at an ever
increasing scale over the last 600 years to play an even more active part in
the economic life of nations and regions. This process has been facilitated by
significant technical changes in the transport sector. The scale, volume and
efficiency of international trade have all continued to increase since the
1970s. As such, space / time convergence was an ongoing process that implied a
more extensive market coverage that could be accessed with a lower amount of
time. It has become increasingly possible to trade between parts of the world
that previously had limited access to international transportation systems.
Further, the division and the fragmentation of production that went along with
these processes also expanded trade. Trade thus contributes to lower
manufacturing costs.Without international trade, few nations could maintain an
adequate standard of living. With only domestic resources being available, each
country could only produce a limited number of products and shortages would be
prevalent. Global trade allows for an enormous variety of resources – from
Persian Gulf oil, Brazilian coffee to Chinese labor – to be made more widely
accessible. It also facilitates the distribution of many different manufactured
goods that are produced in different parts of the world to what can be labeled
as the global market. Wealth becomes increasingly derived through the regional
specialization of economic activities. This way, production costs are lowered,
productivity rises and surpluses are generated, which can be transferred or
traded for commodities that would be too expensive to produce domestically or would
simply not be available. As a result, international trade decreases the overall
costs of production worldwide. Consumers can buy more goods from the wages they
earn, and standards of living should, in theory, increase.International trade
consequently demonstrates the extent of globalization with increased spatial
interdependencies between elements of the global economy and their level of
integration. These interdependencies imply numerous relationships where flows
of capital, goods, raw materials and services are established between regions
of the world. At the beginning of the 21st century, the flows of globalization
have been shaped by four salient trends:
• An ongoing growth of international trade, both in absolute terms
and in relation to global national income. From 1970 to 2010 the value of
exports has grown by a factor of 48 times if measured in current dollars, while
GDP increased 22 times and population increased 1.8 times.
• A substantial level of containerization, often complete, of
commercial flows. Containerization tends to grow at a rate faster than trade
and GDP growth.
• A higher relative growth of trade in Pacific Asia as many
economies developed an export-oriented development strategy that has been
associated with imbalances in commercial relations.
• The growing role of multinational corporations as vectors for
international trade, particularly in terms of the share of international trade
taking place within corporations and the high level of concentration of their
head offices.
Trade Facilitation
The volume of exchanged goods and services between nations is
taking a growing share of the generation of wealth, mainly by offering economic
growth opportunities in new regions and by reducing the costs of a wide array
of manufacturing goods. By 2007, international trade surpassed for the first
time 50% of global GDP, a twofold increase in its share since 1950. The
facilitation of trade involves how the procedures regulating the international
movements of goods can be improved. It depends on the reduction of the general
costs of trade, which considers transaction, tariff, transport and time costs,
often labeled as the "Four Ts" of international trade. United Nations
estimates have underlined that for developing countries a 10% reduction in
transportation cost could be accompanied with a growth of about 20% in
international and domestic trade. Thus, the ability to compete in a global
economy is dependent on the transport system as well as a trade facilitation
framework with activities including:
• Distribution-based. A multi-modal and inter-modal freight
transport system composed of modes, infrastructures and terminals that spans
across the globe. It insures a physical capacity to support trade and its
underlying supply chains.
• Regulation-based. Customs procedures, tariffs, regulations and
handling of documentation. They insure that trade flows abide to the rules and
regulations of the jurisdictions they cross. Cross-border clearance,
particularly in developing countries, can be a notable trade impediment with
border delays, bottlenecks and long customer clearance times.
• Transaction-based. Banking, finance, legal and insurance
activities where accounts can be settled and risk mitigated. They insure that
the sellers of goods and services are receiving an agreed upon compensation and
that the purchasers have a legal recourse if the outcome of the transaction is
judged unsatisfactory or is insured if a partial or full loss incurs.
The quality, cost, and efficiency of these services influence the
trading environment as well as the overall costs linked with the international
trade of goods. Many factors have been conductive to trade facilitation in
recent decades, including integration processes, standardization, production
systems, transport efficiency and transactional efficiency:
• Integration processes, such as the emergence of economic blocks
and the decrease of tariffs at a global scale through agreements, promoted
trade as regulatory regimes were harmonized. One straightforward measure of
integration relates to custom delays, which can be a significant trade
impediment since it adds uncertainty in supply chain management. The higher the
level of economic integration, the more likely the concerned elements are to
trade. International trade has consequently been facilitated by a set of
factors linked with growing levels of economic integration, the outcome of
processes such as the European Union or the North American Free Trade
Agreement. The transactional capacity is consequently facilitated with the
development of transportation networks and the adjustment of trade flows that
follows increased integration. Integration processes have also taken place at
the local scale with the creation of free trade zones where an area is given a
different governance structure in order to promote trade, particularly export
oriented activities. In this case, the integration process is not uniform as
only a portion of a territory is involved. China is a salient example of the
far-reaching impacts of the setting of special economic zones operating under a
different regulatory regime.
• Standardization concerns the setting of a common and ubiquitous
frame of reference over information and physical flows. Standards facilitate
trade since those abiding by them benefit from reliable, interoperable and
compatible goods and services which often results in lower production,
distribution and maintenance costs. Measurement units were among the first
globally accepted standards (metric system) and the development of information
technologies eventually led to common operating and telecommunication systems.
It is however the container that is considered to be the most significant
international standard for trade facilitation. By offering a load unit that can
be handled by any mode and terminal with the proper equipment, access to
international trade is improved.
• Production systems are more flexible and embedded. It is
effectively productive to maintain a network of geographically diversified
inputs, which favors exchanges of commodities, parts and services. Information
technologies have played a role by facilitating transactions and the management
of complex business operations. Foreign direct investments are commonly linked
with the globalization of production as corporations invest abroad in search of
lower production costs and new markets. China is a leading example of such a
process, which went on par with a growing availability of goods and services
that can be traded on the global market.
• Transport efficiency has increased significantly because of
innovations and improvements in the modes and infrastructures in terms of their
capacity and throughput. Ports are particularly important in such a context
since they are gateways to international trade through maritime shipping
networks. As a result, the transferability of commodities, parts and finished
goods has improved. Decreasing transport costs does more than increasing trade;
it can also help change the location of economic activities. Yet, transborder
transportation issues remain to be better addressed in terms of capacity,
efficiency and security.
• Transactional efficiency. The financial sector also played a
significant role in integrating global trade, namely by providing investment
capital and credit for international commercial transactions. For instance, a
letter of credit may be issued based upon an export contract. An exporter can
thus receive a payment guarantee from a bank until its customer finalizes the
transaction upon delivery. This is particularly important since the delivery of
international trade transactions can take several weeks due to the long
distances involved. During the transfer, it is also common that the cargo is
insured in the event of damage, theft or delays, a function supported by
insurance companies. Also, global financial systems permit to convert
currencies according to exchange rates that are commonly set by market forces,
while some currencies, such as the Chinese Yuan, are set by policy. Monetary
policy can thus be a tool, albeit contentious, used to influence trade.
Structure of Global Trade
International trade, both in terms of value and tonnage, has been
a growing trend in the global economy. It is important to underline when
looking at the structure of global trade that it is not nations that are
trading, but mostly corporations with the end products mostly consumed by
individuals. Inter and intra corporate trade is taking place across national
jurisdictions is accounted as international trade.
The emergence of the current structure of global trade can mainly
be articulated within three major phases:
• First phase
(immobile factors of production) Concerns a conventional perspective
on international trade that prevailed until the 1970s where factors of production
were much less mobile. Prior to the end of World War I, global trade was mainly
structured by colonial relations. Particularly, there was a limited level of
mobility of raw materials, parts and finished products. After World War I
international trade became fairly regulated with impediments such tariffs,
quotas and limitations to foreign ownership. Trade mainly concerned a range of
specific products, namely commodities, (and very few services) that were not
readily available in regional economies. Due to regulations, protectionism and
fairly high transportation costs, trade remained limited and delayed by
inefficient freight distribution. In this context, trade was more an exercise
to cope with scarcity than to promote economic efficiency.
• Second phase
(mobility of factors of production). From the 1980s, the mobility of
factors of production, particularly capital, became possible. The legal and
physical environment in which international trade was taking place lead to a
better realization of the comparative advantages of specific locations.
Concomitantly, regional trade agreements emerged and the global trade framework
was strengthened from a legal and transactional standpoint (GATT/WTO). In
addition, containerization provided the capabilities to support more complex
and long distance trade flows, as did the growing air traffic. Due to high
production (legacy) costs in old industrial regions, activities that were labor
intensive were gradually relocated to lower costs locations. The process began as
a national one, then went to nearby countries when possible and afterwards
became a truly global phenomenon. Thus, foreign direct investments surged,
particularly towards new manufacturing regions as multinational corporations
became increasingly flexible in the global positioning of their assets.
• Third phase
(global production networks). There
is a growth in international trade, now including a wide variety of services
that were previously fixed to regional markets and a surge in the mobility of
the factors of production. Since these trends are well established, the
priority is now shifting to the geographical and functional integration of
production, distribution and consumption with the emergence of global
production networks. Complex networks involving flows of information,
commodities, parts and finished goods have been set, which in turn demands a
high level of command of logistics and freight distribution (see concept 3). In
such an environment, powerful actors have emerged which are not directly involved
in the function of production and retailing, but mainly taking the
responsibility of managing the web of flows.
The global economic system is thus characterized by a growing
level of integrated services, finance, retail, manufacturing and nonetheless
distribution, which in turn is mainly the outcome of improved transport and
logistics, a more efficient exploitation of regional comparative advantages and
a transactional environment supportive of the legal and financial complexities
of global trade.
Global Trade Flows
Global trade flows have recently shifted with many developing
countries having a growing participation in international trade. The nature of
what can be considered international trade has also changed, particularly with
the emergence of global commodity chains. This trend obviously reflects the
strategies of multinational corporations positioning their manufacturing assets
in order to lower costs, maximize new market opportunities, while maintaining
the cohesion of their supply chains and the freight distribution systems
supporting them. In addition, another emerging trade flow concerns the imports
of resources from developing countries, namely energy, commodities and
agricultural products, which diverge from the conventional role of developing
countries as exporters of resources. The dominant factor behind the growth in
international trade has been an increasing share of manufacturing activities
taking place in developing countries with manufacturers seeking low cost
locations for many stages of the supply chain. The evolution of international
trade thus has a concordance with the evolution of production. There are
however significant fluctuations in international trade that are linked with
economic cycles of growth and recession, fluctuations in the price of raw
materials, as well as disruptive geopolitical and financial events. The
international division of production has been accompanied by growing flows of
manufactured goods, which take a growing share of international trade. There is
relatively less bulk liquids (such as oil) and more dry bulk and general cargo
being traded.The geography of international trade still reveals the dominance
of a small number of countries, mainly in North America, Europe and Asia, which
are commonly referred as the triad. Alone, the United States, Germany and Japan
account for about a third of all global trade, but this supremacy is being
seriously challenged by emerging economies. Further, G7 countries account for
half of the global trade, a dominance which has endured for over 100 years. A
growing share is being accounted by the developing countries of Asia, with
China accounting for the most significant growth both in absolute and relative
terms. Those geographical and economic changes are also reflected over
trans-oceanic trade with Trans-Pacific trade growing faster than Trans-Atlantic
trade.Neo-mercantilism is reflective of global trade flows as several countries
have been actively pursuing export-oriented economic development policies using
infrastructure development, subsidies, and exchange rates as tools. This
strategy has been followed by developing economies, particularly in Pacific
Asia, and resulted in growing physical and capital flow imbalances in
international trade. This is particularly reflective in the American container
trade structure, which is highly imbalanced and having acute differences in the
composition of imports and exports. Still, these imbalances must be looked at
with caution as products are composed of parts manufactured in several
countries with assembly often taking place in a low cost location. In
international trade statistics, this location assumes the full value of
finished goods imported elsewhere while it may have only contributed to a small
share of the total added value. Electronic devices are illustrative of this
issue.Regionalization has been one of the dominant features of global trade as
the bulk of international trade has a regional connotation, promoted by
proximity and the establishment of economic blocs such as NAFTA and the European
Union. The closer economic entities are, the more likely they are to trade,
which explains that the most intense trade relations are within Western Europe
and North America. A similar, but more recent trend has also emerged in Asia,
particularly between Japan, China, Korea and Taiwan.5. International
Transportation.The growth of the amount of freight being traded as well as a
great variety of origins and destinations promotes the importance of
international transportation as a fundamental element supporting the global
economy. Economic development in Pacific Asia and in China in particular has
been the dominant factor behind the growth of international transportation in
recent years. Since the trading distances involved are often considerable, this
has resulted in increasing demands on the maritime shipping industry and on
port activities. As its industrial and manufacturing activities develop, China
is importing growing quantities of raw materials and energy and exporting
growing quantities of manufactured goods. The outcome has been a surge in
demands for long distance international transportation. The ports in the Pearl
River delta in Guangdong province now handle almost as many containers as all
the ports in the United States combined.International transportation systems
have been under increasing pressures to support additional demands in freights
volume and the distance at which this freight is being carried. This could not
have occurred without considerable technical improvements permitting to transport
larger quantities of passengers and freight, and this more quickly and more
efficiently. Few other technical improvements than containerization have
contributed to this environment of growing mobility of freight. Since
containers and their intermodal transport systems improve the efficiency of
global distribution, a growing share of general cargo moving globally is
containerized.Consequently, transportation is often referred to as an enabling
factor that is not necessarily the cause of international trade, but as a
condition without which globalization could not have occurred. A common
development problem is the inability of international transportation
infrastructures to support flows, undermining access to the global market and
the benefits that can be derived from international trade. International trade
also requires distribution infrastructures that can support trade between
several partners. Three components of international transportation facilitate
trade:
• Transportation infrastructure. Concerns physical infrastructures
such as terminals, vehicles and networks. Efficiencies or deficiencies in
transport infrastructures will either promote or inhibit international trade.
• Transportation services. Concerns the complex set of services
involved in the international circulation of passengers and freight. It
includes activities such as distribution, logistics, finance, insurance and
marketing.
• Transactional environment. Concerns the complex legal,
political, financial and cultural setting in which international transport
systems operate. It includes aspects such as exchange rates, regulations,
quotas and tariffs, but also consumer preferences.
About half of all global trade takes place between locations of
more than 3,000 km apart. Because of this geography, most international freight
movements involve several modes since it is impossible to have a physical
continuity in freight flows. Transport chains must thus be established to
service these flows which reinforce the importance of intermodal transportation
modes and terminals at strategic locations. Among the numerous transport modes,
two are specifically concerned with international trade:
• Ports and maritime shipping. The importance of maritime
transportation in global freight trade in unmistakable, particularly in terms
of tonnage as it handles about 90% of the global trade. Thus, globalization is
the realm of maritime shipping, with containerized shipping at the forefront of
the process. The global maritime transport system is composed of a series of
major gateways granting access to major production and consumption regions.
Between those gateways are major hubs acting as points of interconnection and
transshipment between systems of maritime circulation.
• Airports and air transport. Although in terms tonnage air
transportation carries an insignificant amount of freight (0.2% of total
tonnage) compared with maritime transportation, its importance in terms of the
total value is much more significant; 15% of the value of global trade. International
air freight is about 70 times more valuable than its maritime counterpart and
about 30 times more valuable than freight carried overland, which is linked
with the types of goods it transports (e.g. electronics). The location of
freight airports correspond to high technology manufacturing clusters as well
as intermediary locations where freight planes are refueled and/or cargo is
transshipped.
Road and railway modes tend to occupy a more marginal portion of
international transportation since they are above all modes for national or
regional transport services. Their importance is focused on their role in the
"first and last miles" of global distribution. Freight is mainly
brought to port and airport terminals by trucking or rail. There are however
notable exceptions in the role of overland transportation in international
trade. A substantial share of the NAFTA trade between Canada, United States and
Mexico is supported by trucking, as well as large share of the Western European
trade. In spite of this, these exchanges are at priori regional by definition,
although intermodal transportation confers a more complex setting in the
interpretation of these flows.Still, many challenges are impacting future
developments in international trade and transportation, mostly in terms of
demographic, energy and environmental issues. While the global population and
its derived demand will continue to grow and reach around 9 billion by 2050,
demographic changes such as the aging of the population, particularly in developed
countries, will transform consumption patterns as a growing share of the
population shifts from wealth producing (working and saving) to wealth
consuming (selling saved assets).
The demographic dividend in terms of peak share of working
age population that many countries benefited from, particularly China, will
recede. As both maritime and air freight transportation depend on petroleum,
the expected scarcity of this fossil fuel will impose a rationalization of
international trade and its underlying supply chains. Environmental issues have
also become more salient with the growing tendency of the public sector to
regulate components of international transportation that are judged to have
negative externalities. Also, international trade enables several countries to
mask their energy consumption and pollutant emissions by importing goods that
are produced elsewhere and where environmental externalities are generated.
Thus international trade has permitted a shift in the international division of
production, but also a division between the generation of environmental
externalities and the consumption of the goods related to these externalities.
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