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SPECIAL REPORT

WORLD TRADE FOR GLOBALIZATION

COLUMN FOR THE RECORD
SOCIETY PAKISTAN AGRICULTURE AND FARMERS
INFORMATION TECHNOLOGY CALL CENTERS BUSINESS IN PAKISTAN
 
WORLD TRADE FOR GLOBALIZATION

 

Scientific ideas and innovations through business flows are the major factors making people, organizations, countries and nations great by enabling them to utilize natural, human, and geographical resources

 

By YOUSAF HAROON, Asst. Prof., NPGI&I
Oct 06 - 12, 2003
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Dreaming for making Pakistan the leading nation of the world where every Pakistani is richer than ever before to afford and own a basic standard of living with access to food, water, shelter, education, communication and entertainment above all, without compromising on the moral standards is the objective of inception of this land of pure!

Dreams and dream sellers from times immemorial the human-race venture for their dreams to come true. From religious prophets to offer the ultimate human welfare & peace; warlords seeking the national greatness; revolutionists offering freedom of human spirit and imagination today we find a new class of dream-sellers not people but organizations like Bretton Woods Institutions propagating social development; United Nations enticing global security; and last but not least WTO contemplating freer international trade seeking a commonality to improvise global standards of living towards the epic of human salvation!

As a matter of fact, the world today, both materialistically and intellectually, has become more affluent than it has been ever before. Just compare the two: a common man of 17th century with a man living in 21st century and one finds not mere difference but magnanimity of disparity of lifestyle. Evolution of scientific inventions and innovations, discovery and research has brought the ease and luxury to a common man of today which maybe the emperors of yester-years have never thought of. Here, forces of science and business played their role.

Where science unleashes possibility, business puts it into economic reality. One would agree, to invent is one thing and to make it useful in general is other, and this is exactly the relationship between science and business and trade, entangled even more as the institutions of globalization and liberalization transpired.

Scientific ideas and innovations through business flows are the major factors making people, organizations, countries and nations great by enabling them to utilize natural, human, and geographical resources. Step by step, with the improvement in the modes of business and trade, accompanied by scientific innovation, discovery and research, the world has moved from industrialization into an era of knowledge-led growth.

As the world consolidated into a global village concurrently it broke into local markets and regions fueling the thrust of competition among nations. Like money begets money, knowledge begets knowledge. In this era of global order, where nations endeavor to be most resourceful both monetarily and knowledge-wise heating up the environment of competition for dominance among nations. Since the history of economic pragmatism countries who have been dynamically active in doing international trade have become the super-powers and most civilized nations.

FORMULA FOR ECONOMIC SUPREMACY

For long export-led growth has been the single most important factor in the economic success of any nation regardless of the geography, location, class or creed. The formula is simple. A single country can only have limited consumption capacity and the installed production capacity is always going to be in congruence with the national consumption. Limiting the national income generation capacity until the country realizes potential export-markets abroad. Once this country start exporting it can increase its national income generation capacity to any level by producing goods and services for local as well as foreign markets. In the same token, many countries have realized the potential of export-led economic success. Name any, Japan, Germany, United States!

During the past century, barriers to trade and financial flows have generally come down, resulting in a significant broadening of world markets giving birth to the first wave of international trade-led economic growth. Before the Information Communications & Technology (ICT) revolution and development of national infrastructures the export-led growth formula was merely a fantasy waiting to be true. Since the modern means of transportation and communication got rapidly developed in a very short span the world saw the emergence of industrial nations like USA, UK, France, Germany, Japan, Norway, Sweden, Denmark, Canada etc. The surge of emerging markets and Asian Tigers is seen due to information super-highway based on Internet technologies gave birth to a new nomenclature of "globalization".

 

 

GLOBALIZATION: THE METAMORPHOSIS

Accounting for the diversification which is effecting the lives of people, business of organizations and economies of the countries globalization, through movement of goods and services, people and information across national and international boundaries, has resulted in the opening up of economies and societies for new products and ideas facilitating accelerated developments in the international financial markets, through short and long term capital flows and trans-border production networks driving the global integration of economies into one.

Globalization, by definition, is the integration and democratization of the world's culture, economy, and infrastructure through transnational investment, rapid proliferation of communication and information technologies, and the impacts of free-market on local, regional and national economies.

The phenomenon of globalization has created a dichotomy of perception dividing the world into plethora of apprehensions and appreciations due to the intense velocity which the information about people, products, nature, environment, politics and economy disperses across borders, across countries and nations creating virtually one world into a global village.

Be it the global warming, widespread poverty in the developing and least developed world, issues of labour unions or child labor, problems of migration and illegal refugees fleeing towards more developed countries, acts of terrorism or political revolutions, wildlife preservation parks or of ancient monuments, the geopolitical issues like Palestine or Kashmir, transition of nations like East Temor or Bosnia the world comes more united than ever before in addressing each of the points in agenda to the best of their understanding creating a direct whirlpool effect experienced by this one world altogether. Either conflicts of interests or mutual interests of nations, alike have become inclusive whether it is trade or politics influencing each nation and sectors of economy and society, in one way or the other, regardless of the fact that the country is a developed, developing or least developed.

Given the apprehensions and concerns, globalization has become a fact of modern life of people and nations whether one may like or dislike. Globalization stands a natural metamorphosis of time, neither new nor old, but an antediluvian process nurtured through development of cross-border capital flows, trade, information technology, and socio-cultural exchanges that have been practiced to reap mutual benefits between countries at international local and household levels in guise of barter of capital systems to fulfill each others' needs and aspirations.

Change being the only constant the phenomenon of globalization like change can not be comprehended until we start analyzing it in terms of predefined objectives. Therefore, to know the reasons detre of globalization is important but more important is to know that how can globalization serve the humanity and national interests is the major question. Further more, it is equally critical to know that how globalization has served the purpose of bringing human welfare, in letter and spirit. Or globalization is just another fad like which has increased the disparity between the rich and poor, developed and developing, have and have-nots.

Today, the expanding process of globalization potentially poses threat to most developing and third world countries in particular instigating fierce critique and debates at the national and international levels. Multiple factors are responsible which are intricately entwined with the order of globalization, with its tentacles in the historical past and the interests and role for a few transnational political and economic factors. In continuity with the same apprehensions towards globalization, it becomes pivotal to find out how Pakistan can develop a competitive and comparative advantage using the pragmatic economic strategy as the supreme nations of the world dominate because of their economics and business prowess than military muscle.

APPROACHES TOWARDS DEFINING GLOBALIZATION

A short definition of globalization is the growing liberalization of international trade and investment and the resulting increase in the integration of national economies (Griswold, 2000). An expanded definition includes five related but distinct parts (Henderson, 1999):

*The increasing tendency for firms to think, plan, operate, and invest for the future with reference to markets and opportunities across the world as a whole.

*The growing ease and cheapness of international communications, with the Internet the leading aspect;

*Trend towards closer international economic integration, resulting in the diminished importance of political boundaries. This trend is fueled party the first two trends, but even more powerfully by official policies aimed at trade and investment liberalization.

*The apparently growing significance of issues and problems extending beyond national boundaries and the resulting impetus to deal with them through some form of internationally concerted action

*The tendency towards uniformity (or harmonization) by which norms, standards, rules and practices are defined and enforced with respect to regions or the world as a whole rather than within the bounds of national states.

Another way of viewing globalization is the manner in which it is perceived by different governments/groups. We could also look at globalization as it is perceived by various governments/groups. Here, the general views about globalization can be categorized into four main perspectives: (1) economic, (2) technological, (3) development, and (4) societal.

THE ECONOMIC PERSPECTIVE of globalization focuses on the growth of world trade as a proportion of output (the ratio of world imports to gross world product has grown from some 7% in 1938 to about 10% in 1970 to over 20% in 2000). It is reflected in the explosion of foreign direct investment (FDI): FDI in developing countries has increased from $2.2 billion in 1970 to nearly $200 billion in 2000. It has resulted also in national capital markets becoming increasingly integrated, to the point where some $1.3 trillion per day crosses the foreign exchange markets of the world, of which less than 2% is directly attributable to trade transactions.

 

 

Economic "globalization" is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders.

THE TECHNOLOGICAL PERSPECTIVE of globalization stresses the importance of new technologies in the communication and transport sectors. As a result of these technological advances the costs of transport, of travel, and above all the costs of communicating information have fallen dramatically in the postwar period. For example, a 3-minute telephone call from the USA to Britain cost $12 in 1946, whereas today it can cost as little as 48 cents, despite the fact that consumer prices have multiplied by over eight times in the intervening period. As a result of new technologies and lower costs, multinationals have been able to switch operations to cheaper developing countries. Companies like Dell have been outsourcing in India for tasks such as customer service. To a much lesser extent Pakistan has also the beneficiary of this sort of out-sourcing. Another dimension to this phenomena is the brain drain of highly skilled workers from India and Pakistan to the US and Europe. Remittances from these workers are becoming a major source of foreign exchange for these countries.

THE DEVELOPMENT PERSPECTIVE of globalization is the most controversial. Has globalization done one or all of the following:

(a) lessened or increased the gap between the rich countries and the poorer?
(b) caused increased poverty and income disparity in countries more exposed to world market forces? and
(c) expanded the gap between the technological haves and have-nots?

Unfortunately economic theory provides no definitive answer with neo-classical advocates (Sachs and Warner, 1995) stressing the convergence, while exogenous growth theorists acknowledging that divergence might be underway (Romer 1986, Lucas, 1988)). A related debate takes off from the old spread and backwash models of development (Landes, 1998).

THE SOCIETAL PERSPECTIVE of globalization focuses on some key factors that globalization process is associated with or is said to impact. These include the condition of human rights, women empowerment, gender sensitization, civic education, status of women in the society, political status becoming more democratic, freedom of speech, rule of law, equal access to resources and level of education.

By and large, globalization is today perceived as an economic capacity based on the following factors:

*Domestic consumption (% of GDP)
*Domestic credit provided by banking sector (% of GDP)
*Expenditure, total (% of GDP)
*Trade (% of GDP)
*Trade (% of goods GDP)
*Imports of goods and services (% of GDP)
*Financing from abroad (% of GDP)
*Foreign direct investment, net inflows (% of GDP)
*Exports of goods and services (% of GDP)
*Domestic financing, total (% of GDP)
*Gross private capital flows (% of GDP, PPP)
*Telephone mainlines (per 1,000 people)
*Gross foreign direct investment (% of GDP, PPP)
*GDP growth (annual %)
*Import growth (annual %)
*Exports of goods and services (annul %a)

 

 

QUANTIFIED DIMENSIONS OF GLOBALIZATION

1. STRUCTURAL OPENNESS, depicting the share of national economic integration into the world economy. Operationally this comprises the share of imports and exports as a % of Gross Domestic product (GDP). The variables comprising this factor do not change much over time and the dimension is usually the first factor to be extracted from the data set.

2. GENERAL GLOBALIZATION, for lack of a better term. This dimension incorporates those the variables that load on Sacks' country grouping dimension. Sachs' list of countries was also expanded to include several additional countries such as Brazil. The number of variables loading on this grouping dimension increase considerably over time, with the factor incorporating an increasingly diverse set of global indices. From this we can conclude that process of globalization affects each of the different country groupings in unique ways and that globalization is an on-going process in this regard.

3. FINANCE/INFRASTRUCTURE, comprising both domestic and foreign components such as foreign direct investment, financing from abroad and the like

4. GROWTH/TRADE EXPANSION, comprising both external and internal measures of economic expansion. The main variables comprising this factor are import and export growth and overall GDP growth. Usually (but not always) GDP growth is highly correlated with the measures of trade expansion.

GLOBAL ECONOMIC INTEGRATION

These three fundamental factors have influenced the pattern and pace of economic integration in all of its important dimensions. In particular, this paper discusses three important dimensions of economic integration:

(1) through human migration;
(2) through trade in goods and services; and
(3) through movements of capital and integration of financial markets.

After examining how fundamental forces have influenced economic integration in these dimensions, the paper concludes with reflections on three issues of general importance to the future course of global economic integration: the importance of communication as an influence on integration; the possibility that we may see a sharp reversal in the general trend of increasing integration, as occurred in the interwar period; and the apparent end of imperialism as a mechanism of integration. Before turning to this agenda, however, it is important to emphasize a key theme that will recur in subsequent discussion: the main factors that drive the process of economic integration exert not only independent influences but also interact in important and complex ways.

 

 

MULTILATERAL TRADING SYSTEM AND DEEPENING GLOBAL INTEGRATION

The history of the GATT/WTO has been punctuated by the periodic adoption of new areas of focus and rulemaking responsibility. Such initiatives are generally presented by their proponents as necessary to maintain the relevance of the multilateral trading system as the world economy becomes more integrated and trade relations more intense. Members react in different ways to proposals of this nature, and such reactions are inevitably tempered by perceptions of the national interest. At the same time, when governments feel unsure about the implications of new areas of activity, or the motives of proponents, they will tend to take a defensive posture. This is both prudent and natural, but it does create an obligation on the part of all concerned to demystify issues and subject them to careful analysis. Such efforts are underway in respect of the two new issues proposed for inclusion on the WTO Agenda which are briefly surveyed here trade and investment and trade and competition.

Cross-border trade and direct investment have expanded rapidly over the past three decades. Global exports of goods and services increased from 14 percent of output in the early 1970s to 23 percent by the late 1990s, while global FDI flows have more than doubled relative to the gross domestic product (GDP). The surge in FDI flows accelerated in the late 1990s, rising from $331 billion in 1995 to $1.3 trillion in 2000, before falling off to an estimated $725 billion in 2001. Most of these flows are destined to rich countries. With increasing foreign investments and opening economy for competition, there are multiple rewards as in the case for services sector especially in telecommunication services, which facilitate the general economic activity and itself serve as an important economic sector for growth. FDI flows to developing countries are about $160 billion. This amount is still relatively small compared with all domestic investment in developing countries, now about $1 trillion. Nonetheless, in virtually every region, FDI is a driving force of globalization and has risen relative to total capital expenditures during the 1990s. It has doubled in middle-income countries and has tripled in low-income countries.

TELECOMMUNICATIONS FOR GLOBAL INTEGRATION

In many discussions of international economic integration, the focus is on integration through trade and factor movements, both labor and capital. There is, however, clearly another important mechanism through which economic activities in different parts of the world affect each other; namely, through the communication of economically relevant information and technology. For liberalization in telecommunications services in specific, the benefits of freer trade and more open markets are clear: lower prices and more choice for consumers, new market opportunities for suppliers and investors, and higher rates of economic growth. One way of measuring the benefits of free trade is to compare the performance of those countries that permit competition and foreign investment with those that do not. Evidence shows that competitive developing economies are indeed faring better than their non-competitive neighbors, as WTO not only offers global trade liberalization and integration but also encourages and recognizes regionalization as well. Two major trends characterize the international telecommunications industry:

*rapid technological advances, and
*the growing realization that liberalizing telecommunications industries is key to overall industry growth.

These two trends hasten the liberalization of telecommunications markets around the world. The role of national governments is changing from that of a direct player to that of policy maker and regulator. The nature of international telecommunications trade is evolving from a bilateral, nation-to-nation framework to a multinational, multilateral company-to-company paradigm.

Therefore GATS, which cover both four modes including movement of natural persons, require commitments from WTO members to liberalize services such as financial services and telecommunication services which in the modern time become most important enablers of international trade and global economic integration.

International trade and movements of people and capital are undoubtedly important for the spread around the world of the fundamental technological innovations that underlie the broad advance of human productivity from the use of the wheel through the modern personal computer. Societies that cut themselves off from commerce with the rest of humanity do tend to stagnate. However, the volume of international commerce is probably not the critical determinant of the spread of useful innovations-provided that channels of communication remain reasonably well open.

Communications are the lifeblood of a modern economy the equivalent of the railways in the 19th century, providing the links which enable the industrial and commercial machine to move smoothly. So, telecommunications is increasingly critical component of economic growth, the engine of evolving global information society. The most common measures of telecommunication access are tele-density i.e. the number of main telephone lines per 100 inhabitants. In the 21st century, there remained vast difference in access to telecommunication throughout the world. One important consequence is that this industry has become pivotal to the knowledge-based economy of the future. Competitiveness the key to economic and social development is increasingly based on knowledge and skills rather than physical resources. The information and communications technology (ICT) sector is crucial in widening access to knowledge, spreading information and opening access to markets. Telecommunications will be a critical player in the development of economies around the globe in the 21st century. It provides the infrastructure and the services which are driving the knowledge economy, and it can enable other sectors of the economy to move towards sustainability.

 

 

GLOBALIZATION AND TRADE IN SERVICES

The WTO has become the most prominent symbol of globalization and the complex changes that are driving the world economy. As such it has become the target for all opponents of globalization as events in Seattle in December 1999 showed clearly. Despite the criticism, the WTO is a powerful example of a rules-based international system to promote more open trade and investment worldwide.

On the one hand, the WTO is a magnet for countries seeking to participate in the benefits of the globalization process. More that 40 emerging and developing countries have joined in the past five years and a further 30 are currently waiting to get in. On the other hand, the WTO is regarded by the opponents of globalization as the focal point for their concerns.

It may be that the WTO has become a victim of its own success. Along with its predecessor, the General Agreement on Tariffs and Trade (GATT), it has been a key instrument in opening markets and boosting prosperity through successive rounds of multilateral trade liberalization. It is also a powerful example of a rules-based international system, run by its member governments via a consensus-based system of decision-taking involving all its members. Their decisions and agreements underpin the stability, predictability and credibility which are needed to encourage trade and investment.

The General Agreement on Trade in Services (GATS) of WTO on service sector liberalization provides an as-yet-underutilized arrangement to negotiate reciprocal market access in services. To date, the coverage of commitments for a large number of countries is limited. About two-thirds of the World Trade Organization membership has scheduled 60 or fewer sectors (of the 160 or so specified in the GATS list). Moreover, in many cases, commitments do not reflect the actual degree of openness.

It is impossible for any country to prosper today under the burden of an inefficient and expensive services infrastructure. Producers and exporters of textiles, tomatoes or any other product will not be competitive without access to efficient banking, insurance insurance, accountancy, telecoms and transport systems. In markets where supply is inadequate, imports of essential services can be as vital as imports of basic commodities. The benefits of services liberalization extend far beyond the service industries themselves; they are felt through their effects on all other economic activities. The production and distribution of services, like any other economic activity, is ultimately destined to satisfy individual demand and social needs. The latter element social needs is particularly relevant in sectors like health or education which in many, if not all, countries are viewed as a core governmental responsibility. They are subject to close regulation, supervision and control. Although social policy concepts-including equity and universal access do not necessarily imply that Governments also act as producers, public facilities have traditionally been, and continue to be, the main suppliers of services such as health and education in most countries.

After Doha Round, the next Ministerial Meeting of WTO at Cancun, Mexico in September 2003, is focused to seek global integration of markets through liberalization of goods and services, through promotion of foreign investment and reduction in domestic regulation promising Global Economic Prospects for international trade and business for WTO member countries as they enter into negotiations for openness, promising a global economy.

 

 

With a multilateral imbroglio at Cancun Ministerial Meeting of WTO, the developing and the developed world are in a state of paradox, where globalization of international trade is becoming more restrictive rather achieving its market access goals. New ways to improve barriers to trade are developed and trialed for negotiations, meaning that the future of trade in becoming more and more reliant on the services sector, which due to the scalability of digital telecommunication networks are more tradable than ever compared to goods. Therefore, General Agreement on Trade and Services (GATS) hold the future, where strength of telecommunication and financial services sectors will determine the trade potential of individual countries, as these two sectors provide means to achieve trade ends for globalization.