REYNALDO ROSS D. SUCGANG IV International Trade LawATTY. EVER ROSE HUGUITFriday 7:30pm – 9:30 pm

HOW GLOBALIZATION AFFECTS INTERNATIONAL TRADE

Globalization refers to the growing interdependence of countries resulting from the increasing integration of trade, finance, people and ideas in one global marketplace. International trade and cross-border investment flows are the main elements of this integration.1 Globalization started off after World War II but has accelerated considerably since the mid-1980s, driven by two main factors. One involves technological advances that have lowered the costs of transportation, communication, and computation. The other factor has to do with the increasing liberalization of trade and capital markets.2 In an ever-shrinking world with ever-evolving technology and Foreign Policies, Globalization has finally matured past what was once known as an "Emerging Trend" to what we have now accepted as a Business Reality.3

Globalization is supported by a process of creating a system of international economic relations that implies an institutionalization closely related to the member state governments, which must comply with the reglementations of respective organizations. For example, WTO rules provide certain measures to condemn the countries in case of non-compliance set. This does not mean that there is not a degree of autonomy.4

Globalization compels businesses to adapt to different strategies based on new ideological trends that try to balance rights and interests of both the individual and the community as a whole. This change enables businesses to compete worldwide and also signifies a dramatic change for business leaders, labor and management by legitimately accepting the participation of workers and government in developing and implementing company policies and strategies. Risk reduction via diversification can be accomplished through company involvement with international financial institutions and partnering with both local and multinational businesses.5 Globalization brings reorganization at the international, national and sub-national levels. Specifically, it brings the reorganization of production, international trade and the integration of financial markets. This affects capitalist economic and social relations, via multilateralism and microeconomic phenomena, such as business competitiveness, at the global level.6

1 http://www.worldbank.org/depweb/beyond/beyondco/beg_12.pdf2 ibid3 http://papers.ssrn.com4 http://fse.tibiscus.ro/anale/Lucrari2009/034.%20Duda-Daianu.pdf5 http://www.investopedia.com/articles/economics/10/globalization-developed-countries.asp6 ibid

The process of globalization has affected international trade between countries around the world. The countries influences each other by the result of said integration. It has resulted to transformation of economic life with the generalization of market economy, increasing production, of needs and circulation of information, products, people and capital, implementation of technical systems becomes more efficient, increasing the quantity of waste, etc.7 The goal of globalization is to provide organizations a superior competitive position with lower operating costs, to gain greater numbers of products, services and consumers.8

The impact of international trade by globalization is felt globally. The interests of powerful nations and corporations are shaping the terms of world trade. In democratic countries, they are shaping and affecting the ability of elected leaders to make decisions in the interest of their people.9

The tremendous growth of international trade over the past several decades has been both a primary cause and effect of globalization. The volume of world trade increased twenty-seven fold from $296 billion in 1950 to $8 trillion in 2005. In recent years world trade has declined in volume and was down in 2012 and is expected to remain sluggish through 2013. This is a result of the struggling economies of Europe and doubt over the Euro. The continued decline of world trade was evidenced by a decrease of 0.3 percent in May, with forecasters cutting their prediction for global growth.10

Globalization is affecting business in every country. Many companies in foreign companies is affected by globalization. There are countries, such as Canada for example, improves their gross national product through exports and in order for Canada to maintain their high standard of living, Canadian companies must operate on economic scales that necessitate larger markets than provided by its domestic population base of only 27 million. Canadian exports are of extreme importance to Canadian companies and to the overall well-being of its economy. Canadian companies must export or they go out of business11. China, on the other hand, has experienced economic slowdown, but many worry that because of its position in the world market, any downturn will have a global impact. In the years leading up to the global recession China was growing at an unprecedented pace. However, the Beijing government recently predicted a rate of seven percent growth, for the next year, a slowdown for the previously hot Chinese economy. China maintains the world’s largest reserves of US treasuries, which makes it vital in determining the amount of trade that occurs in the world market.12 Part of the reason for the economic slowdown in China is rising labor costs which is causing manufacturing jobs to move to poorer countries and other parts of China. Fortunately, even if 7 http://fse.tibiscus.ro/anale/Lucrari2009/034.%20Duda-Daianu.pdf8 http://www.investopedia.com/articles/economics/10/globalization-developed-countries.asp9http://www.globalissues.org10 WTO, 2007, WTO, 2013, Hannon, 2013, www.globalization 101.org11 http://www.manzellareport.com/index.php/u-s/469-the-impact-of-globalization-trade-agreements-and-emerging-trade-blocs-on-us-industry12 http://www.globalization101.org/trade-introduction/

China’s economy does experience its projected slowdown, it should not negatively impact the global economy as many fear, China’s large trade surplus means it does not represent the biggest driver of demand, which typically drives growth. On the contrary, if China’s economic rebalance causes it import more, this will boost other economies (Pettis, 2013).13

With the proliferation of trade agreements, which are resulting in the emergence of competing trade blocs, businesses are striving to gain secure access to foreign markets, and in turn, are achieving a higher degree of economic security and competitiveness. Most trade agreements owe their success, at least in part, to prior reductions in trade barriers between the parties to the agreement. For example, integration and cooperation in the iron, steel, coal, and nuclear energy sectors set a precedent for Western Europe to tear down barriers in other sectors. The U.S.-Canada Free Trade Agreement was preceded in 1965 by the Automotive Products Trade Act, which allowed duty-free trade between the United States and Canada in almost all motor vehicles and parts. The progeny of these agreements — more internationally competitive industries — have made business and government leaders in participating countries aware of the benefits derived by the elimination of trade barriers. But trade agreements have affected more than just trade barriers; they have had a major impact on trade and investment worldwide. In fact, they are responsible for shaping business relationships among companies across the globe. Today, the three largest trade blocs include the European Union, chiefly involving West European countries and spreading eastward; the North American Free Trade Agreement, among Canada, the United States and Mexico and spreading south; and an informal bloc in East Asia, currently dominated by Japan, but soon to be dominated by China. Based on past trade patterns and policies, and anticipated policies, these blocs will continue to develop, gaining increased strength and influence.14

Some economists, on one hand, have a positive outlook regarding the net effects of globalization on economic growth. These effects have been analyzed over the years by several studies attempting to measure the impact of globalization on various nations' economies using variables such as trade, capital flows and their openness, GDP per capita,foreign direct investment (FDI) and more. These studies examined the effects of several components of globalization on growth using time series cross sectional data on trade, FDI and portfolio investment. Non-economists, on the other hand, and the wide public expect the costs associated with globalization to outweigh the benefits, especially in the short-run. Less wealthy countries from those among the industrialized nations may not have the same highly-accentuated beneficial effect from globalization as more wealthy countries, measured by GDP per capita etc. Although free trade increases opportunities for international trade, it also increases the risk of failure for smaller companies that cannot compete globally. Additionally, free trade may drive up production and labor costs, including higher wages for more skilled

13 (Kurlantzick, 2013), (Coonan, 2013), http://www.globalization101.org/trade-introduction/14 http://www.manzellareport.com/index.php/u-s/469-the-impact-of-globalization-trade-agreements-and-emerging-trade-blocs-on-us-industry; http://www.worldbank.org/

workforce. Domestic industries in some countries may be endangered due to comparative or absolute advantage of other countries in specific industries. Another possible danger and harmful effect is the overuse and abuse of natural resources to meet new higher demands in the production of goods.15

A major challenge for transition economies is finding their place in the worldwide division of labor. In many cases that implies diversifying the structures of exports, particularly developed countries.16 However, as a result of international trade, consumers around the world enjoy a broader selection of products than they would if they only had access to domestically made products. The specialization of production can also lead to higher volatility in specific industries within an economy and society of nation.17

For me, there are benefits that globalization provides in our international market through globalization. It will benefit third world countries from the proliferation of economy of the first world countries. Companies and individuals belonging to third world countries, whether big or small, will be given a chance to showcase their products and services in international trade and surely have the opportunity to be a part of our global economy.

15 How Globalization Affects Developed Countries, http://www.investopedia.com16 www.worldbank.org17 http://www.investopedia.com/articles/economics/10/globalization-developed-countries.asp