GLOBALISATION

IN TERMS OF
INTERNATIONAL TRADE

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EXECUTIVE SUMMARY

International trade is one of the most important factor that determines GDP in different
countries. Different countries are looking for expansion of capitalism beyond their home
country borders. The evolution of International trade has triggered the most important sectors
like Transportation, ICT and other sectors. There is fundamental role of multinational
enterprises, which are currently behind most of the economic operations all over the world.
Thus, International trade can prove to be very important for business, due to huge profit
prospects, minimized dependence on available markets, enterprise expansion etc. The
elevation of international trade over the recent years has been primary due to ongoing
globalization process. Thus, both enterprises and consumers have the option to select from a
wide range of product and services that are available in the market and that too at competitive
rates. Globalization also means the cross-border connection and ingeneration of different
aspects of societies, economies and culture. In recent past 20 years the speed of globalization
has increased many folds and the tidal wave of the phenomenon "Globalization" has brought
immense and unrivalled benefits and opportunities to many of the world inhabitants. At the
same time the negative impacts of this phenomenon can't be ignored. International trade can
stimulate economic growth of all the interconnected countries . Currently, globalization is the
unrivalled force when it comes to exploiting the opportunities offered by foreign markets.

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TABLE OF CONTENTS:

EXECUTIVE SUMMARY ........................................................................... ................2

TABLE OF CONTENTS .............................................................................. ................3

INTRODUCTION ...................................................................................... ................4

DISCUSSION ............................................................................................ ................5

Advantages of free trade.........................................................................................5
Disadvantages of free trade.....................................................................................5
Understanding global chain value............................................................................6
Effect of International trade on Europe...................................................................6
Impact of globalization on foreign trade of the Czech Republic..............................8
Impact of globalization on foreign trade of the Norway..........................................9

CONCLUSION .......................................................................................... ...............10

RECOMMENDATIONS ............................................................................ ...............12

REFERENCES ........................................................................................... ...............13

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INTRODUCTION:

Globalization is a topic of hot debate in contemporary business and politics. it is a topic of

discussion as there are both positive and negative connotations associated with it. In a fast
evolving business environment, with ever changing markets where globalization puts its mark
on the controlled development, every decision concerning the market is very crucial.
Political and economic reform, rapid technological change, and population growth, and
urbanization are identified as three key drivers of globalization
Globalization has also led to greater essential proximity, providing a platform for a leap in the
utilization of global products and services, and for the consolidation of global business.
Economic globalization involves various aspects of economic life such as production processes,
finances, markets, institutions, labour force, etc. countries all over the world are becoming not
only increasingly economically interdependent, but in the process of global economic
integration, they should consider avoiding possible negative outcomes in the social area,
environmental area, etc.

The extent of advantages as well as disadvantages associated with the global phenomenon of
Globalization are not truly interpreted . To be precise, the full risk implications of globalization
have not been properly researched. One of the biggest problems associated with globalization
is interdependence and it has given birth to a new type of risk, notably systemic risk.

International Economics defines foreign trade as the economic transactions between foreign
and domestic entities associated with the buying and selling of goods and services (Cihelková et
al., 2008). The source of the existence of foreign trade can be found in three basic moments:
 Deficiency of goods which are not manufactured in the domestic economy or is not
available in the necessitated quality;
 There is a difference in price of internationally tradable goods;
 Personal, material or spatial preference of buyers for foreign products.

The shortage of goods in the economy arises due to variety of causes, such as natural
resources, equipments, mismanagement of certain production technology, natural climatic
condition, workforce skills, etc. inter-sectoral trade seen as an indicator of the degree of
specialization or technological advancement also in the particular country. Countries which
concentrates its development strategy on exports (eg . Southeast Asia), show a rapid and
significant increase in the level of intrasectoral trade. This explains why the intra-sectoral trade
is used as an indicator of a country's capacity to compete in a changing environment
(Havrylyshyn , Kunzel , 1997).

DISCUSSION

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Currently structure and dynamics of international trade is significantly affected by the
globalization of production chains and the associated trade within multinational enterprises
(Arndt, 2001). While economic theory is mainly utilized in trading with the final product, the
emergence of global value chains has followed in addition to upsurge the volume of
international trade in particular, change its structure instead of intermediate products (ie.
materials, components and unfinished products).
In today's world, intermediates roughly 60 % of global non-fuel imports (see OECD, 2008).
Based on data from the input-output tables OECD countries can be studied growing the share
of imported intermediates in most of them. Expanding smaller components of the production is
carried out within the limits of nation-states, reducing the share of value added in volume
production. The value chains has been globalized and this globalization has resulted in growth
of intra-sectoral trade. This is particularly evident in small economies with high FDI inflows.

Advantages of free trade:

International Specialization
Free trade causes international specialization enabling various nations to produce goods which
have comparative benefits or advantages for them. International trade enables countries to
obtain the advantages of specialization. First, a great variety of products may be obtained. eg.
Iceland would have no coal, Nepal no oil, Spain no gold and Britain no tea. Second,
specialization leads to an increase in total production.
Growth in World Production and World Consumption
International trade allows an industry to take full benefits of the economies of scale (large-scale
production). Free trade increases the global production and the global consumption of
internationally traded products as every trading country develops only the selected goods at
lower costs.
Controlling the problem of Monoploy
It helps in controlling the problem of monopoly. It can be better understood by an example that
if there were no international competition, the local market would be shallow that it would be
easier for the combinations of firms in many industries, e.g., motor cars, paper and electrical
goods, to exercise some control over it.
Promoting International cooperation
International trade and encourages international cooperation and often results in exchange of
knowledge, ideas and culture between nations. This helps in reducing the possibility of
commercial rivalry and war.
Higher earnings from production
Free trade raises the earnings of all the factors as they are involved in the production of the
goods in which the country has comparative advantage. It would also end up increasing the
productivity of each factor.
Benefits to Consumers
On account of free trade the consumers from the various parts of world can get the best quality
foreign goods, with a wider range of choice, at best price.

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Disadvantages of free trade:
Unrestrained dependence
Because of free trade a country starts depending too much on foreign countries, and so a
political event or a war may upset its economy. Example is the war of 1991, Gulf War, when
America refused to sell its products to its enemies (i.e., Gulf countries).
Problems in the Development of Home Industries
Free trades enables the import of foreign goods freely and the local industries of the developing
countries finds it hard to develop with that pace due to the superior strength of foreign
industries.
Empire-Builder
Under free trade, the foreign traders particularly the influential ones may become empire-
builders in future which can give rise to colonialism and imperialism.
Import and Export of Expensive Harmful Goods
A country may also end up importing expensive and harmful foreign goods.
Increased Rivalry
Finally, free trade in some scenarios creates rivalry and frictions among the trading nations. In
other words, commercial rivalries rises from trade often lead to war.

Concept of global chain value:

The conventional question of many economists, with whom (territorial structure) as the
(commodity structure) dealing with the concept of becoming a global value chain of the past
can be explained with finding a relation of the term "country of origin" of the goods in a
scenario where the products in the production and distribution crosses borders several times. It
does not refer to a greater extent commodities, such as minerals or food, but in lot of
manufacturing industries, globalization is a significant phenomenon of the value chain. Most is
breakable production chain for products electro technical industry, especially industry involved
in production of computers and mobile phones.
The value chain encloses the entire range of activities that take place starting with companies
proposing a certain product to its final use. Includes design, production, marketing, distribution
and support. All these activities may be completed within a single company or cleaved among
different suppliers. The value chain can help in production of goods or services and operate
within a specific territory or be world widely distributed. The principal concept of
global value chain (GVC - Global Value Chain) deals specifically with cases where the complete
process is decided among various cooperation's or sub-companies and takes place in a global
environment. GVC concept represents one possible approach to studying the structure and
dynamics of the global industry at the micro level (Gereffi, 1994).

Effect of International trade on Europe:

In the future world of globalization, primarily because of the liberalization of International
trade, Europe has to face a ever growing competition, especially in sectors of manufacturing
and in some less technological fields of production. Most of these scarce sectors are
concentrated in specific areas so one negative consequences are to be expected of this regional
specialization, both socially and economically. Identifying these sectors that will be effected and
understanding how regions react to this vulnerability should then help in coming up with
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policies which anticipate these developments and increase regions' resilience against the
potential negative impacts.
Sectoral vulnerability can be understood through the concepts of product cycle and
space-time diffusion: latest products and cutting edge technologies appear in the most
developed parts of the world, where the technological skill of the greatest level and then tend
to diffuse across space to the least developed areas (semi-peripheries and peripheries).
There is a relationship between outside competition and national sectoral growth which means
some countries have been succeeded in facing extra-European competition in even the most
vulnerable sectors. At regional level, there is no correlation between regional share of
vulnerable sectors and the growth of employment rate in time period between 1995-200,
except for the electrical and segments related to optics.

Total Industrial Gross Domestic Product

employment employment
Average Average
annual annual
growth growth GDP/inhab. EU GDP/inhab. EU 2004-
(1995 & (1995 & 2004-1995 1995
2004)% 2004)%
NON 1,53 0,22 0,4 0,3
VULNERABLE
REGIONS
GLOBALY 1,05 0,06 -10,3 -1,2
VULNERABLE
EU REGIONS
TEXTILE REGIONS 1,23 0,49 -10,8 -1,2
METAL REGIONS 0,95 -0,33 -9,2 -1,7
ELECTR. REGIONS 0,98 -0,50 -8,2 -0,4

Total Industrial Gross Domestic Product

employment employment
Average Average
annual annual
growth growth GDP/inhab. GDP/inhab. EU 2004-
(1995 & (1995 & EU 2004- 1995
2004)% 2004)% 1995
NON -1,67 -2,53 9,1 0,9
VULNERABLE
REGIONS
GLOBALY -1,33 -0,70 6,6 -2,3
VULNERABLE
NEW REGIONS
MEMBERS TEXTILE -1,25 -1,04 8,6 -1,2
STATE REGIONS
METAL -0,90 -1,29 3,7 -0,4
REGIONS
ELECTR. -1,46 -1,55 7,1 -
REGIONS

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Coming to Evolution of the relative specialization of industry related to mechanics exports
by macro–regions and level of development. For all world regions between 1976 and 2006, the
core nations remain the most specialized in the exports of mechanic product. However,there is
also a clear increase of the specialization in the export of mechanic products in all other
countries of semi-periphery, BRIC and Periphery.

The impact of globalization on foreign trade of the Czech Republic:

Czech Republic became member of European Union in 2004, the system was borderline
statistics based on customs declarations replaced for transactions within the EU statistical data
collection called "Intrastat". Because of the change detection system which was also newly
defined circuit respondents foreign trade statistics. Respondents have become all the bodies
that were in the Czech Republic payers of value added tax (VAT) and crossed the limit of
specified value of exports and imports of goods. In addition, there were also dramatically
changes in the VAT Act. These modifications showed that although foreign entities registered
for VAT are residents of the country, completed in accordance with relevant EU regulation in
the Czech Republic and Intrastat reporting Extrastat, and they declared exports and imports are
recorded in external trade statistics of the Czech Republic.

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The impact of globalization on foreign trade of the Norway
Norway is a trading nation and their dependence on international trade is basis of Norway's
international profile. Keeping in mind the political platform, ruling powers encourages freer
trade and follows an active trade policy based on national interest.
The multilateral trading system is of great importance to Norway. The World Trade
Organization (WTO) agreements, the EFTA free trade and EEA Agreement and agreements are
the foundations of Norwegian trade policy. These trade agreements gives chances to shape
globalization through international dependence.
There has been a significant increase in regional initiatives taken as well as negotiations in few
recent years, partly in response to a unsatisfactory progress in the WTO. Extensive negotiations
are being conducted to establish agreements across both the Pacific and the Atlantic, but
Norway is not party to these negotiations and therefore has limited opportunities to influence
the course of events. Moreover, Norway lacks free trade agreements with six of the world’s ten
largest economies.
As the point of focus of the concept of global economy shifts southwards and eastwards,
however, it will become more important for the Norwegian business sector to get entrance to
markets where the trade rules and regulations are as yet less developed. Simultaneously,
Norwegian trade policy interests increasingly shows dynamism in the Norwegian economy, with
an added prominence on investments and trade in services, areas in which the trade policy
framework is often less well developed than for trade in goods. It signifies that Norway is not
just dependent on trade; it should also have a strategic, active trade policy.

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CONCLUSION

Trade liberalization reduces the tariff and non-tariff trade barriers, which eases the imports of
capital goods. Increased imports of the capital goods is helpful for the industrialization process
in the home country, thereby resulting in higher economic growth. Foreign direct investment is
a boon for growth in less developed economies. Trade expansion results in faster growth and
raises overall incomes in countries where the trade policies are liberalized. The rise in global
trade has not only increased the good production but also has increased the state profits.

The international trade has helped the consumers by enhancing the competition between the
local and outside manufacturers in the international marketplace. Competition improves
efficiency and productivity and economic growth indirectly. Trade liberalization in agriculture
has resulted in export opportunities in agricultural exporting countries specially under
developed countries and has promoted improvement.

The widely spread economic control, free trade and markets has weaken the hold of the rich in
a less developed state and puts a leash on them to embezzle the resources at the expense of
the weak. according to a study conducted by the International Institute of Economics (2006),
estimates "that global free trade lifts about 500 million people out of neediness and gives the
developing states annually about $200 billion."

Globalization and free trade has shifted power to people and support democratic development.
Many believe that globalization and trade have brought profitability and firmness to many but
there are some places who have not benefited from the international trade. International trade
can damage newborn industries of home country as it is not possible for them to match costs of
production as it is higher at the beginning. Specialization might have very bad effects in case if
war starts and the import-export ceases. One of the drawbacks is that in international trade the
countries rely way too much on foreign imports. Too much reliance on imported items leads to
an imbalance of trade.

Some critics argue free trade s is not good for a relationship between industrialized nations and
developing nations because the industrialized country benefits way more from the trade than
developing nations. This widens the gap between developing and developed nations’
economies.
In brief, globalization has escalated interdependence and competition between nations.
Moreover trade lowers production costs, allowing for greater levels of output and
consumption. Globalization is a new revolution of the present times which has overwhelmed
the entire world’s trade. It has freed the protected producers from the shackles so that they
work efficiently. It has turned the world market into a world of competition where only fittest
can survive as whoever is weak will be thrown out of the market. Thus, globalization and trade
have brought together a wider variety of commodities for the masses to choose from.

In contemporary world, no nation on earth completely follows the policy of free trade. Every
country forces certain restrictions on the import and export of goods and services to safeguard

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the interest of the country. Going by the words of a famous Economist " T. Scitovsky", free
trade can be shown to this world as something beneficial as a whole but has never been proved
to be the best policy for a single country.

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RECOMMENDATIONS

Addressing this challenges of Infrastructure & upgrading Supply Chain Efficiencies

Nations have to make sure that their Infrastructure Plan is data driven and lined up with a supply chain
strategy, which connects exporters with markets through efficient transportation facilities. Government
should follow a proactive approach along with the private sectors for the creation and promotion of a
larger range of traditional and innovative funding options for infrastructure projects.

Leverage Free Trade Agreements

Commemorate the triumph of businesses that have utilised FTAs, promoting their stories and
knowledge learned through mainstream media, as well as government and industry channels. Nation
should preserve active participation in the WTO and take a principle role in moving the WTO beyond
the Doha Round of negotiations. It should follow an active role in pursuing/defending the interests of
exporters under FTAs and in WTO disputes.

Encouraging Trade Development

One must follow the idea of creation of a National Export Plan which should set priorities and policies
for export that grasps FTAs and that are clear and outcome driven. The plan should be created in
collaboration with industries, companies and federal and state governments. Training must be offered
to help SMEs better understand and access opportunities, in particular to be specialists in global supply
chains and to leverage e-commerce markets. Supporting Innovation: This will better enable Small and
medium sized enterprises to take advantage of their growing exposure to global supply chains enabled
by technology and specialization.

Improving Trade Facilitation

Developing a common window electronic platform to process all import, export and transit-related
regulatory requirements should be prioritized.

Understanding the importance of investment

The importance and benefits of inbound foreign investment should be explained to public. All forms of
foreign investment into the national economy must be encouraged as it provides opportunities to widen
sectors of growth, launch new ideas and positions a country to engage more effectively with
international markets.

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