Discuss the influence of international organisations and contemporary trading blocs and

agreements in promoting globalisation. In your answer, use the economic information

provided. (20):
International organisations and contemporary trading blocs have been influential in promoting
globalisation. Their influence, however, can be both positive and negative and their influence has
been declining in recent years. International organisations and contemporary trading blocs power
comes from helping resolve trade disputes and promoting trade between member countries-
although they may contribute to trade diversion.

Globalisation is the reduction to man-made and natural barriers to the movement of trade, finance,
investment, technology and labour. Globalisation affects economic growth and development which
often are part of the goals to improve with international organisations and trading blocs. This is
boosted by trade in goods and services having increased from 37% in 1987 to 50% in 2018.

International organisations are bodies which aim to improve global issues and the process of
globalisation through economic co-operation. International organisations include the International
Monetary Fund (IMF), the World Trade Organisation (WTO) and others such as the World Bank and
the Organisation for Economic Co-operation and Development (OECD). Some promote globalisation
to a greater extent than others. Comparatively, contemporary trading blocs can contain many
member nations such as multilateral agreements for example the ASEAN Australia New Zealand Free
Trade Agreement (AANZFTA). They can also only have two countries in a bilateral agreement for
example, the China-Australia Free Trade Agreement (ChAFTA) offering various levels of economic
integration.

The WTO aims to implement and advance global trade agreements and has been very effective in
creating new trade agreements with its ability to make binding agreements and decisions. This
allows it to be more comprehensive than a place “where member governments go to try to sort out
their trade problems,” as argued in the stimulus. In the past decade, the WTO has resolved 90% of
disputes with their dispute settlement body. This means the WTO has been significant in solving
trade issues, but beyond solving trade issues as discussed in the stimulus the WTO can be also seen
to proactively promote globalisation with the 36% agricultural subsidies and tariffs cut the WTO
achieved in the Uruguay round.

Effect of subsidies on imports and globalisation:

Quantity Supplied

Q4

Quantity Demanded
Decreasing subsidies increase imports by removing the artificial advantage given to domestic
producers. Removing a subsidy will shift domestic quantity supplied to the left from OQ 2 to OQ1. This
will increase quantity imported from Q2Q4 to Q1Q3 increasing trade intensity and thus further
integrating the world economies and promoting globalisation. Many international organisations aim
to remove or reduce important subsidies. The most prominent subsidies include America’s Export
Enhancement Program for agricultural goods and the European Union’s Common Agricultural Policy.
The reduction in subsidies would allow countries to employ their comparative advantage increasing
total world output- benefiting consumers.

The IMF has also been influential on globalisation with their rescue packages and structural
adjustment programs- for the better or for the worse. The first stimulus also argues the “IMF’s
primary purpose is to ensure the stability of the international monetary system” is seen through
their actions with Greece and their 250 billion USD worth of stimulus packages injected into markets
during the GFC to promote economic growth. The IMF has also influenced globalisation, however,
through stabilising economic conditions and forcing reforms by tying them to financial hand-outs
including creating floating currency and opening doors to trade as part of structural adjustment
programs.

Other international organisations such as the World Bank and the OECD also promote globalisation.
While the World Bank primarily aims to reduce poverty and aid economic development, it also
promotes globalisation with infrastructure spending to help trade and aid with designing multilateral
trade agreements. The OECD, on the other hand, has had great impacts on economic growth and
development synthesising macroeconomic policy, such as fiscal stimulus packages, during the GFC. It
has, however, being less impactful with globalisation with it not directly promoting trade
agreements.

International organisations in tandem have become less impactful in world globalisation. Major
economies such as America, China and the European Union have strived to create more favourable
deals for them by creating bilateral trade agreements and multilateral agreements separately and
delaying WTO decisions. For example, the Doha round has had difficulties in removing agricultural
protection with the EU Common Agricultural Policy in place. This means the bilateral and multilateral
agreements have become more instrumental in influencing globalisation instead of international
organisations. The IMF issues arise from criticism of their methods has been harmful by stopping
economic growth through requiring fiscal consolidation. This can have major negative consequences,
such as Greece which can resolve in financial instability. Likewise, the World Bank’s focus on
emerging nations means it is less impactful on the global scene.

Unlike international organisations, contemporary trading blocs have been increasing in popularity
and hence has increasing influence on globalisation. Contemporary trading blocs are made up of
bilateral trade agreements which are trade agreements between two countries such as China-
Australia Free Trade Agreement (ChAFTA) and multilateral trade agreements. Multilateral trade
agreements are trade agreements between three or more countries. In the second stimulus, it is
stated they can “influence participating countries in many ways” which can be supported by them
being able to both promote trade liberalisation and trade diversion acting as “stepping stones” or
“stumbling blocs” to global free trade, respectively.

In contrast to international organisations, trade blocs are increasing in importance and dominance
with approximately 50% of world trade occurring in 2017 between countries that had signed a trade
agreement and the number of trade agreements in force has more than doubled from less than 150
in 2005 to more than 300 in 2017. This is beneficial with trade blocs shown to act as a “stepping
stone” to globalisation by lowering tariffs which help increase trade intensity of countries and
promote trade liberalisation.

Effect of Tariffs on the quantity of goods exported and globalisation by looking at an export
competing country:
With a high original tariff, the price firms in an export competing country can sell at is OP W-OT
representing the price they can sell their good at before tariffs are applied and it to still be
competitive. By decreasing the tariff, exporting becomes more profitable to firms increasing the
quantity supplied shown by the rise in price minus tariff to P W-NT where exports have increased from
Q2Q3 to Q1Q4. This shows how a reduction in tariffs increases trade between countries promoting
globalisation. Trade blocs reducing tariffs seen by a 95% reduction in tariffs with the ChAFTA
meaning far greater trade between Australia and China as well as lower consumer prices and
increased quality of life.

On the other hand, bilateral and multilateral agreements have acted as “stumbling blocks” to global
free trade as argued in the stimulus by causing the emergence of regionalism. The ability for bilateral
and multilateral agreements to cause trade diversion causes them to be sometimes referred to as
preferential trade agreements (PTAs) instead of free trade agreements. The European Union
illustrates how to trade blocs can from protectionist groups with U.S. autos having 10% duties into
the EU.

While regionalism is often the result of PTAs some economists still argue bilateral and multilateral
agreements can be expanding to encompass other countries. Thus, they could further reduce tariffs
and promote global trade but for this to happen rules of origin with trade blocs need to be removed.

International organisations and bilateral agreements and trading blocs are similar in being able to
both promote globalisation although they all have their own issues. International organisations are
likely to become less prevalent in the future with them being averted for individualised agreements.
Consequently, in order for globalisation to be progressed, multilateral agreements over bilateral
agreements need to be used more often and be made with the ability to expand to include other
nations.