REYNALDO ROSS D.

SUCGANG IV
Trade Law

International
ATTY.
EVER
ROSE
HUGUIT
Friday 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 of
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 diferent 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
1 http://www.worldbank.org/depweb/beyond/beyondco/beg_12.pdf
2 ibid
3 http://papers.ssrn.com
4 http://fse.tibiscus.ro/anale/Lucrari2009/034.%20Duda-Daianu.pdf

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 afects capitalist economic and
social relations, via multilateralism and microeconomic phenomena, such as
business competitiveness, at the global level.6
The process of globalization has afected 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 afecting 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 efect 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

5 http://www.investopedia.com/articles/economics/10/globalization-developed-countries.asp
6 ibid
7 http://fse.tibiscus.ro/anale/Lucrari2009/034.%20Duda-Daianu.pdf
8 http://www.investopedia.com/articles/economics/10/globalization-developed-countries.asp
9http://www.globalissues.org

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 afecting business in every country. Many companies in
foreign companies is afected 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 worlds 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 Chinas economy does experience its projected
slowdown, it should not negatively impact the global economy as many fear,
Chinas large trade surplus means it does not represent the biggest driver of
demand, which typically drives growth. On the contrary, if Chinas 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
10 WTO, 2007, WTO, 2013, Hannon, 2013, www.globalization 101.org
11 http://www.manzellareport.com/index.php/u-s/469-the-impact-of-globalization-trade-agreements-and-emergingtrade-blocs-on-us-industry

12 http://www.globalization101.org/trade-introduction/
13 (Kurlantzick, 2013), (Coonan, 2013), http://www.globalization101.org/trade-introduction/

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 afected
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 efects of globalization on economic growth. These efects 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 efects 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 highlyaccentuated beneficial efect 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
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 efect is the overuse and abuse of
natural resources to meet new higher demands in the production of goods.15

14 http://www.manzellareport.com/index.php/u-s/469-the-impact-of-globalization-trade-agreements-and-emergingtrade-blocs-on-us-industry; http://www.worldbank.org/

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.com

16 www.worldbank.org
17 http://www.investopedia.com/articles/economics/10/globalization-developed-countries.asp