UNIT II – THE STRUCTURES OF

GLOBALIZATION
LESSON I – THE GLOBAL ECONOMY
Learning Goals
• 1. Identify the global actors in economic globalization
• 2. define the modern international monetary system
• 3. articulate a stance on global economic integration
• 4. enumerate the four monetary regimes
• 5. identify the effects of economic globalization
• Economic Globalization
• Benczes (2014) defines economic globalization as the
increasing integration of economies around the world.
- movement of goods, services, and capital across borders.
- movement of people and knowledge across international
borders.
- movement of people and knowledge across international
borders.
• What makes economic globalization distinct from internalization is
that:
-is about the extension of economic activities of nation states across
borders while the former is functional integration between internationally
dispersed activities.
-economic globalizations rather a qualitative transformation than just a
quantitative change.
-globalization is indeed a complex, indeterminate set of processes operating very
unevenly in both time and space, a more substantive definition for economic
globalization is required than the one offered by the IMF.
-In economic terms globalization is nothing but a process making the world
economy an organic system by extending transnational economic process and
economic relations to more countries and by depending the economic
interdependence among them.
• Interconnected Dimensions of Economic Globalization
The globalization of :
1. trade of goods and services
2. financial and capital market.
3. technology and communication
4. production
NOTE: it does not deny relevance of “international”, “regional”, or “national”
levels, it refuses the assumption that the nation is the only unit of analyst
and that current trends in the world economy are redesign of the external
relation of interacting nation. Instead, it claims the economic activities and
processes can be interpreted only in a global context, in an integrated word
of economy.
To what extent is the nation state still a relevant factors is a major
topic of Current debates.?

-For hyper globalist a state ceased to exist as a primary economic

organization units in the wake of global market.
-People are consuming highly standardized global products and services
produced by global corporations in a borderless world.
-Globalization transform, the national economy into a global one where
there will be no national products or technologies, no national
corporations , no national industries.
Globalization redefine the role of the nation-state as an:
-effective manager of the national economy.
-misleading to assume that globalization has relegated the nation/state
and its policies to am obsolete or irrelevant status government instead
are acting the midwives of globalization.
-liberals recognize the economic openness has increased vulnerability,
also admitting that states are not influenced by globalization.
-As new actor appear on the stage of political and cultural globalization
(such as the UN) or Non-Governmental Organization (NGOs)
economic globalization produces its own new entrants as well. In all
probability the major players of today global economy are the
transnational corporation (TNCs).
TNCs is:
- the main driving forces of economic globalization of the last 100 years.,
accounting for roughly two-third of world export.
- for realist TNCs still represent national interest,,
- while others such representatives of the dependency school are liable to
identify TNCs with the means through which the rich can exploit the
poor.
- important to note is that TNCs are constantly evolving as economic
integration is becoming more intensive , production disintegrates as a
result of the outsourcing activity of multinationals.
- A moved induce to develop the concept of global commodity chains, an
idea that reflects upon the increasing importance of global buyers in the
world of dispersed production.
THE ECONOMIC GLOBALIZATION PHENOMENON
- no single definition of globalization,
- no consensus on its origin,.
- Accepted as a process that creates an organic system of the world
economy.
- necessarily arises is how far we should look back.
- Globalization processes have been ongoing since Homo Sapiens
began migrating from the African continent ultimately to populate
the rest of the world.
- ongoing since the 16th century connections of the American to
Afro-Eurasia.
-The origin of globalization to the distant past the existence of the
same world system in which we live stretches back at least 5,000
years.
The best-known example of archaic globalization is the:
-Silk Road which connected Asia., Africa, and Europe. Adopting Fernand
Braudel’s innovative concepts of long duration i.e. slow moving , almost
imperceptible framework from historical analysis, world system analysis
identify the origins of modernity and globalization with the birth of 16th
century long-distance trade.
-When Adam Smith wrote his Magnum Opus , An inquiry of nation (1776)
he considered the discovery of America by Christopher Columbus in
1492. and the discovery of direct sea route to India by Vasco de Gama in
1498 as the two great achievements in human history. In the course of
couple of decades these two remarkable achievements was overshadowed
by breathtaking technological advances and organizations methods of
British Industrial Revolution, From the early 1800 following the
Napoleonic wars.
• The industrial Revolution spread on continental Europe and North
America, too.
• The economic nationalism of the 17th and 18th centuries coupled with
monopolized trade did not favor, however, international economic
integration. The total number of ships sailing to Asia from European
countries rose remarkably between 1500 and 1800 , but world export
to world GDP did not reach 1 to 2% in that period. If global economy
did exist in this period , then it was only in the sense of trade and
exchange, rather than production, Countries were mostly self-sufficient ,
the IK and Netherland being the only exception.
• The real break through came only in the 19th century. The annual average
compound growth rate of world trade saw a dramatic increase of 4.2%
between 1820 and 1870 , and was still relatively high at 3.4 % 2001.
• By 1913, trade equaled to 16-17% of world income, due to
transport revolution steamships and railroad reduced transaction
cost and holstered both external international exchange.
• Before WWI, often referred to as the golden age of globalization
characterized by relative peace free trade and financial and
economic stability,
• The structural transformation of the Western world was cause and
an effect of intensified economic integration.
• By the second half of 19th century, the division of labor entwined
modern world economy together with sceptics of globalization,
recognizing globalization to this particular era and argue that in
some respect, 19th century world economy was even more
integrated than the present. (Benczes, 2014).
THE INTERNATIONAL MONETARY SYSTEM
• Cohn (2005),Its the most central area in international
economy, because the most important transaction in the
international economy-including trade, investment and
finance-all depend in the availability of money and credit.
• long term of global monetary issues has stated that the most critical
issue to hegemonic stability theorist should not (be) what the
hegemon does or does not in trade but what it does or fails to do to
maintain peace and what it does or fail to do to keep the monetary
system stable credit flowing in a steady fashion
• About 29% of the world’s circulating currency is located outside the
country issuing it, during the mid 1990s at least 300$ billion. Of the
top currencies (the US dollars, German deutsch mark, and Japanese
yen) were largely from advances in communications, technology
difficult to regulate economic activities.
Realist scholars by contrast, argue:
-financial transaction increases with permission of most powerful states
and continue to dictate the terms for such transactions.
-point to the fact that international monetary transaction still rely
primarily in the existence of separate national currencies, such as special
drawing rights are international scope, and the establishment of new
“euro” currency members of the European Economic and Monetary
Union (EMU) is posing major challenge to the predominance of the
nationally based, US dollar.
- global monetary regime continues to function in a world of separate
national currencies, where states are inevitably concerned, about
current surplus.
- permits a country to have a capital account deficit through investment
abroad or the accumulation of foreign assets.
-The statistical discrepancy items result partly from errors in
collecting and computing data, but mainly from a government’s
failure to include all the goods, services and capital that cross its
borders. The final item is in change official reserves. Each
country has a Central Bank that holds foreign exchange and
gold reserves. When a country has a deficit in its current and
capital accounts , this amount should be matched by an
equivalent in reduction in reserves. When a country has a
surplus in its current and capital accounts, , it accumulates the
surplus in the reserves. The total of a country’s current accounts
statistical discrepancy, and change in reserve s equal zero, hence
the term balance of payments.
• Although the balance-of-payments account always balance (e.i
equals zero) in a bookkeeping sense, this does not indicate that a
country never has payments difficulties. In the country, a country
may have a balance-of-payments surplus or a balance-of-payments
deficits. These terms refer only to the current and capital accounts,
and exclude any change in a official financing . A government with a
balance-of-payments surplus reduces its liabilities to foreign
governments and or adds to its official reserves, whereas a
government with a balance-of-payments deficit increases its
liabilities and or reduces its official reserve. The main body of the
balance of payments therefore informs us about a state’s overall
position in terms of financial assets and liabilities.
 THE FOUR MONETARY REGIMES
• Cohn (2005), modern period of international monetary relations commonly
refers to the existence of four monetary regimes:
-The classical gold standard from the1870s to the out break of WWI in 1914:
-a gold exchange standard during the first part of the inter war period : -the
Bretton Woods system from 1944 to 1947 and “non-system” and
-floating and fixed exchange rates from 1973 to the present.
• The Classical Gold Standard Regimes (1814 to 1914)
The Classical gold standard was a fixed rate regime in which
government announce and adhere to specific exchange rate form their
currencies in relation to gold : By making the national currency values
more stable , the gold standard facilitated trade and other transaction
between economies. For example, if the U.S. dollar and British pound
were pegged at $35and at 14.5 pd per ounces of gold, the exchange rate
of dollar and the pound would remain constant at 2.41 dollar per 1.
• countries undergo adjustment to maintain their exchange rate, the
gold standard functioned reasonably well because , it was backed by
British hegemony and by cooperation among the major powers
(especially British , France and Germany).
• British stabilized the gold standard by providing public goods or
to other countries, such as investment capital, loans, and an open
market for imports., thus Western Europe and the United States
generally, maintained their official gold parties for about 35 yrs.
• The gold standard based on orthodox liberal ideas in some
important respect.
• promote monetary openness and stability through the maintenance of
stable exchange rate.is was a period before John Maynard Keynes
introduced interventionist liberal ideas to combat unemployment, and
countries were expected to sacrifice domestic social objectives for the
sake of monetary stability.
• Orthodox liberal sometimes refer to the gold standard on highly
idealized terms , and in 1981 President Ronald Reagan even created a
special commission to determine whether the US should return to the
gold standard . However, critics maintain that the poorest countries and
the poorest classes within countries often assumed the largest burden
of adjustment under the gold standard through sacrifices in welfare and
employment.
• The Gold Exchange Standard Regime (1914 to 1944)
• WWI completely disrupted international monetary relations , but after
the war, Britain attempted to establish a gold exchange standard regime.
• A gold exchange standard , like a gold standard , is base on fixed exchange
rate among currencies.
• country’s international reserves under the 19th century gold standard
were officially held in gold, whereas official reserves under a gold
exchange standard consist of both gold and reserve currencies which is
the British pound in the inter war period.
• Central Bank had in fact held reserve currencies in gold in earlier years as
gold exchange standard institutionalized this practiced due scarcity of
scarce supply and depend On new discoveries, of gold.
• Although British efforts to maintain a gold exchange standard
continued for several years, they eventually failed.
• This, monetary relations for much of the interwar period were marked
by competitive devaluation, a shift to floating rather than fixed exchange
rate destabilizing speculative capital flows, and increased trade
protectionism , which culminated in the Great Depression.
• Some theories maintain that the failure to re-establish monetary
stability was the growing reluctance of countries to sacrifice domestic
goals such as full employment for the sake of currency stability.Those
who argue that domestic factor were mainly responsible point to the
differences in domestic politics before and after WWI.
Before the warm voting in most countries was limited, labor
unions were weak, farmers were not organized, and left parties were
restricted. Thus governments generally felt to free to raise rates and
taxed and decrease government expenditures to bolster the value of their
currencies, even if these policies contribute to domestic hardships such as
unemployment. By the end of the WWI, however, domestics group had
gained more influence through the extensions of suffrage, legalization of
labor unions, organization of farmers, and development of mass political
parties, It was no accident that Keynes introduced his interventionist
liberal ideas with domestic economic problems. Thus governments could
no longer easily sacrifice the welfare of their citizens to maintain the gold
exchange standard, and one government after responded to economic
problem s during the interwar period by turning away from international
openness.
• The Bretton World System Regime
• WWII was marked by a break down of monetary cooperation and a
period of exchange controls, and planning for post-war monetary regime
culminated in 1944 Bretton Woods conference. The Bretton Wood
monetary regime was gold exchange standard in which the value of each
country ‘s currency was pegged to gold or the U.S. dollar Unlike the two
previous regimes, however, the Bretton Wood system was based on the
post-war interventionist liberal compromise. On the other hand, the
planners assumed that the pegged exchange rate would provide sufficient
monetary stability to permit a resumption of normal international trade.
On the other hand, the planners ensured that there was some flexibility
and assistance so that countries could pursue domestic objective related
to employment and inflation. This marked a contrast with the classical gold
standard in which long term exchange rate stability took precedence over
domestic requirements.
• According to Cohn (2005), the internationalist liberal ha three
major elements.
• 1. The first element was the Post-war gold exchange standard which
was in fact an adjustable peg exchange rate rather than exchange
rate system .Although countries were to maintain the par values of
their currencies in the short terms. All countries other than the US
could devalue or revalue their currencies under IMF guidance to
correct chronic balance-of-payments problems. The devaluation
lowers the value, revaluation raises the value of a currency. The
Bretton Wood negotiations hoped that the cooperative IMF
framework for changing currency values would provide flexibility
that was lacking with the classical gold standard and avoid
competitive such as those of the interwar period.
II. The second element of the interventionist liberal
compromise was the IMF, which would provide short-term
loans. Short term loans are provided to countries with temporary
balance-of-payments problems and thus alleviate domestic problems
resulting from the need to maintain exchange rate stability.
III. The third element of the compromise was support for
national controls over capital flows, Speculative capital flows
had contributed to great instability during the interwar period, and
the post was negotiators feared that such speculations could
undermine efforts to pegged exchange rates and promote freer trade
wood regime. under the Bretton Wood regime. The chief negotiator
also believed that unrestricted capital flows would interfere with the
functioning of the welfare state. If corporations and citizens could
freely moved capital abroad to evade taxes this jeopardize funding the
state required social welfare expenditure.
THE CREATION OF INTERNATIONAL MONETARY FUND
• The most important international organization embedded is the
Bretton Wood Monetary regime was the International Monetary
• Fund (IMF), located in Washington D.C. The IMF was created to
stabilize exchange rate and provide member states with short-term
loans for temporary balance-of –payments problems. Under the
IMF article of Agreements , members were required peg their
currencies to gold or to U.S. dollar, which was valued to at $34 per
ounce of gold. Member states where also to contribute to a pool
of national currencies that would be available for the IMF loans to
deficit countries . Each IMF members was given a quota on its
relative economic importance, which determined the size of
subscription or contribution to IMF resource pool. Under the IMFs
weighted voting system, the most economically powerful states have
the largest quotas and subscription and the most votes. At regular
intervals of not more than five years. The IMF decides whether to
propose adjustment in the members quotas in accordance with change
in their relative economic positions.
The Functioning pf the Bretton Wood Monetary Regime
Cohn (2005), States that Bretton Wood was gold exchange regime in
which the main reserves gold and U.S. dollar. Economist generally ask
three question about the adequacy of reserve assets in upholding a
monetary regime.
1. Are there sufficient reserve (e.g. gold and the U.S. dollar) for
liquidity , or financing purposes, As interdependence increases , more
liquidity is necessary to cover the growing number of economic
transaction , but if there is a surplus of liquidity , inflation, and other
Problems can result.
2. Is there a confidence problem with the existing reserve asset?
When countries lack confidence that an asset’s value will remain
reasonably stable, they are reluctant to hold the asset in their
reserve. Confidence problems have led to periodic efforts to sell
of British pound and U.S. dollars.
3. What adjustment options do reserve-currency countries have in
dealing with their balance-of-payments deficits? An effective
regime should provide all deficit countries with a sufficient range
of adjustment options.
THE ROLE OF THE US DOLLAR
• Because the Bretton Woods monetary regime was based on
a gold exchange standard, central bank could hold their
international reserves in two forms, - gold and foreign exchange-
in any proportion they chose. It is ironic, however, that the original
attraction of gold as reserve asset-its scarcity- became a liability as
increased trade and foreign investment led to growing demand for
international reserves. With gold mining sources limited and
Western Europe recovering from WWII , the U.S. dollar was the
only currency that could meet this need with increase liquidity.
Monetary relations immediately after the war were more unstable
than expected, with balance-of-payments deficits and lack of foreign
exchange seriously hindering Europe’s recovery.. Thus, Western
Europe was severely lacking in the main source of liquidity is
• required for making payments – US balanced-of-trade surpluses in
the late 1940s contributed to a dollar shortage. To remedy the
problem, the US distributed dollars throughout the world through
economic aide and military expenditures from 1947 to 1958. From
the liberal perspective , the US provided public goods to Europeans
and others during this period opening its market to imparts,
providing long term loans and grants through the Europeans
Recovery Program or Marshal Plan , and supplying the dollars s the
main source of International liquidity,
• Thus, the US agreed to exchange all dollars held by foreign
Central banks and treasures for gold as the official rate. This
commitment seemed to be perfectly reasonable because the US
held a much larger share of gold reserves after the war than any
other country. Most other countries in fact preferred US dollars
• to gold for their reserves and international transactions; dollars (unlike
gold) earned interest and did not have to be shipped and stored.
• Although the US as global hegemon was providing its currency as a
public good to meet international liquidity needs., it was also receiving
the private benefit of seignorage, Seignorage is the profit that comes to
the seignourn or sovereign power, from the issuance of money, As the
supplier of the key world currency, the US gained financial power and
influence and it was largely exempt from thediscipline the international
financial system imposed on other state. The US was also able to trade
and borrow in domestic currency and thus avoid exchange rate risks
and transaction costs, and the dollar leading role enabled New York
City to retain its position as the world ‘s financial capital US policy from
947 to the late 1950s was therefore based on a mixture of altruism and
self-interest, and other countries acquiesced to US monetary leadership
because of the benefits they received.
• Despite the early emergence of the US as hegemon in the
global monetary regime, several changes in the late 1950s led to
concerns about its continued leadership.The US regularly had a
substantial balance-of trade surplus to the post war period, nut it
had even a larger debts because of the economic and military
financing, it was providing through the Marshall Plan and other
assistance program. As a result, the US had an overall balance-of-
payments deficit beginning in 1950s. US payments deficit aceraged
about $1.5 billion per year for most of the decade., but they
increased rapidly in the late 1950s, and observers began to speak
of a dollar glut rather than dollar shortage . In 1960s , the US
payments deficit rose im $3.7 billion, and foreign dollar holdings
exceeded US gold reserve for the first time. Thus European which
have eager lt sought to obtain dollar, became reluctant to
accumulate excessive dollar reserves.
A major change that raised question about US control over
military relations was the growth of the Eurocurrency market.
Eurocurrencies are national currencies traded and deposited in
banks outside the home country. As the name connotes,
Eurocurrencies originally develop in Europe.
A Shift Toward Multilateralism
As US balance-of-payments deficits continued to increase the dollar
slipped from top currency to negotiated currency status during the
1960s . A top currency is favored for international monetary
transaction because other has confidence in the strong economic
position of the issuing state . A negotiated currency does not benefit
from this high degree confidence , do the issuing state must offer
inducement to others to continue accepting its leadership, and must
be open to more multilateral management. Thus, the G-10
established the General Arrangement to Borrow (GAB) in 1962
under which they agreed to lend the IMF to $6 billion in their own
currencies if needed for supplementary resources to cope with
international monetary problem. The G-10 represented a shift from
unilateral US management to more collective management of
monetary issues because ir had to approve each request for
supplementary support.
THE GROUP OF TEN MEMBERS(F-10)
1. Belgium 5. Japan 9. Italy
2. Canada 6 Netherlands 10. United Kingdom
3. France 7 Sweden 11. Switzerland
4. Germany 8 United States

• The G-10 could supply a substantial of financial resources, but there were
concerns that even G-10 resources were not sufficient to depend the
dollars if it came under attack, Indeed, a rush to change the dollar into
gold became more likely as the U.S. balance-of-payments deficits to
continued to increase. A series of measures were therefore adopted to
bolster the dollar, and the US sought to improve its balance of payments
by reducing capital outflows. In 1965 , for example the US impose limits
on foreign investment and loans by US firms and banks. Despite
• these efforts, US gold stocks fell from $22.7 billion on 1950 to $10.7 billion in
1970. Thus, by 1968 the dollar in the effect had become convertible into gold.
• The Flexible Exchange Rates Regime
• The Breton Wood agreement had outlawed freely floating exchange rates, so
all the major trading nations were “living in sin” by 1973. The IMF meeting
to Jamaica in January in 1976 finally legalized this situation by permitting
each government to decide whether to establish a par value for its currency
markets, and the market alone determine currency evaluations. In recent
years IMF members have in facts relied extensively on managed floating, in
which central banks intervene to deal with disruptive such as excessive
fluctuation in exchange rates. Although managed floating, or “manipulating
exchange rates. , , in order to prevent effective balance-of-payments
adjustment or to gain an unfair competitive advantage.” Today the monetary
regime is mixed in nature. Major industrial countries such as the US , Japan
and Canada (and a number of LDCs)) independently float their currencies,
the EU countries seek increase regional coordination of their policies: and
• many LDCs peg the value of their currencies to key currencies or
basket of currencies. It is not surprising that some observers refer
to the current system of monetary relations as a “nonsystem”.
• The move floating rates had an intellectual appeal for both
some liberals and realist. Orthodox liberals in particular argued
that floating rates were preferable because of adjustment of
international exchange rates would depend on market pressures
rather than government investment. Thus, as early as 1953, Milton
Friedman wrote a classic article favoring the establishment of “a
system of exchange rates freely determined in open market,
primarily by the private transaction, and the simultaneous
abandonment of direct controls over exchange transaction.”
Although some liberal feared that floating rates would lead to
• Instability because of speculative capital flows, as had occurred in
1930s, Friedman argued that instability during the 1930s had
resulted more fundamental economic and financial problem.
Ironically, floating rates were also appealing to some realist because
of the view that government would be able to adopt independent
monetary policies.
• In a fixed exchange regime, “monetary policy must be subordinated
to the requirements of maintain the peg, effectively eliminating the
discretion of authorities.” A floating regime by contrast “allows
monetary policy to be set autonomously, as deemed appropriate in
the domestic context (e.g. for stabilization purposes, and the
exchange rates because a residual, following whatever path is
consistent with the stabilization policy,. By the 1970s there were
additional reasons of liberal communist
• to favor a shift to floating rates. With the marked increase in capital
flows and speculative pressure , governments could no longer
defend fixed exchange rates and floating rates would contribute to
rapid adjustment of international payments imbalance in response to
market pressure (Cohn 2005)
GLOBAL ACTORS IN ECONOMIC GLOBALIZATION
1. International Government Organization (IGO) - It refers to an
entity created by treaty involving two or more nations, to work
in good faith, on issues of common interest. The IGO strive for
peace, security and deal with economic and social questions.
Examples include: The UN , the WB and on a regional level are
North Atlantic Treaty Organization (NATO) and Association of
South East Asian Nation (ASEAN) where the Phils. also belong.
2. International Non-Government Organization(NGOs) – The
NGOs work towards solutions that can benefit undeveloped
countries that face the backlash of economic globalization .
Classifies as any non-profit , voluntary citizen’s group which is
organized on a local, national
• or international level. NGOs perform various services and humanitarian
functions, bring citizen concerns to governments, advocate and monitor
policies and encourage political participation through provision of
information. Example of these are Red Cross, Greenpeace and Amnesty
International.
• 3. Multinational Corporations (MNCs) – MNCs are corporation which
have overseas branches. One of the many changes they have brought to
developing countries is increase in automation. Automation means the
use of various control systems for operating equipment such as
machinery with minimal or reduced human interventions. It may
damage less automated local firms and require workers to develop
new skills in order to transition into the changing economy , leaving
some behind. Corporation also outsourced in recent years. Example of
MNCs which are also present in the Philippines are Ford Motor Corp.,
Fujitsu, GE, GlaxoSmithKline, and Adidas.
THE EFFECT OF ECONOMICS GLOBALIZATION ON
DEVELOPING COUNTRIES
• Mohr (2017), states that financial and industrial globalization is
increasingly substantially and is creating new opportunities for
both industrialized and developing countries. The largest impact
has been on developing countries, who are now able to attract
foreign investors and foreign capital . This has both positive and
negative effect for those countries.
1. Increased Standard of Living – Economic Globalization gives
government of developing nations access to foreign lending. When
this funds are used in infrastructure including roads, health care,
education, and social services, the standard of living in the
country increases. If the money is used selectively , however, not
all citizens will participate in the benefits.
2. Access to New Markets – Globalization leads to freer between
countries. This is one of largest benefits to developing nations.
Home-grown industries see trade barriers fall and have access to
a much wider international market. The growth this generates
allows companies to develop new technologies and produce new
products and services.
3. Widening Disparity in Income – while an influx of foreign
companies and foreign capital creates a reduction in overall
unemployment and poverty, it can also increase the wage gap
between those who are educated and those who are not. Over
the longer term, education level will rise as the financial health of
developing countries rise, but in short term, some of the poor
become poorer. Not everyone will participate in an elevation of
living standard.
4. Decreased Employment – The influx of foreign companies into
developing countries increases employment in many sectors,
specially for skilled workers. However, improvements in
technology come with the new businesses and that technology
spreads to domestic companies. Automation in the
manufacturing and agricultural sectors lessens for unskilled labor
and unemployment rises in those sectors. If there is no
infrastructure to help the unemployed train for the globalized
economy, social services in the country may became strained
trying to cave for the new underclass.
LESSON II - MARKET INTEGRATION
Learning Objectives
1. Explain the role of financial institution in the creation of global
economy
2. Narrate a short story of global market integration in the
twentieth century
3. Identify the attributes of global corporations
4. Differentiate European integration from ASEAN integration
International Financial Institutions
International Financial Institution (IMIs) are institutions that provide
financial support via grant and loans for economic and social
development activities in developing countries. IFI include public
banks, such as the world bank, International Monetary Fund, and
Regional Development Banks.. They provide loans, , grants, and
technical assistance, to governments, as well. as loans to private
business investing in developing countries. They also play a significant
role in the privatization and regulation in public utilities and natural
resources.
These multilateral share a mission of combating poverty. It is
usually chartered by more than one country and its owner and
shareholder are national governments. Some of the IFIs are created
after the WWII to assist the reconstruction of Europe and other
countries affected by the devastation of the war(Global Greenfund
Grants 2017)
INTERNATIONAL FINANCIAL INSTITUTION
1. World Bank (WB)
2. International Monetary Fund (IMF)
3. European Investment Bank (EIB)
4. Islamic Development Bank (IDB)
5. Asian Development Bank (ADB)
6. European Bank for Reconstruction and Development (EBRD)
7. Development Bank of Latin America (CAF)
8. Inter-American and Development Bank Group (IADB)
9. African Development Bank (AfDB)
10. Asian Infrastructure Investment Bank (AIIB)
 THE WORLD BANK
• The World Bank is the world largest development institution. It has
worked to help more than 100 developing countries and countries
transaction adjust to this changes by offering loans and colored
knowledge and advice. The bank group work with country
governments., the private sector, civil society, organizations, regional
development bank, think tanks, and other international institutions
on issues ranging from climate change conflicts and food security to
education, agriculture, finance and trade. All of these efforts
support the Bank Group’s twin goals of ending extreme poverty by
2030 and hosting shared prosperity of the poorest 40% of the
population to all countries.
• It was founded in 1944, the International Bank of
Reconstruction and Development – soon called World Bank – has
expanded to a closely associated group of five development
institutions. Originally, its loan helped rebuilds countries
devastated by WWII. Intime. The focus shifted from reconstruction
to development, with a heavy emphasis on infrastructure such as
dams, electrical grids, irrigation system, and roads. With the
founding of the International Finance Corporation in 1956, the
institutions became able to lend to private companies and
financial institutions in developing countries, And the founding of
International Development Association in 1960 put greater
emphasis on the poorest countries, part of a steady shift toward
the eradication of poverty becoming the Bank’s Group primary
• goal. he subsequent launch of the International Center for
Settlement of Investment Dispute and the Multilateral Investment
Guarantee Agency further rounded out the Bank’s Group ability to
connect global financial resources to the needs of developing
countries.
• Today the Bank Group’s work touches nearly every sector that
is important to fighting poverty, supporting economic growth, and
ensuring sustainable gains in the quality of people’s lives in
developing countries. While sound project selection and design
remain paramount the Bank Group recognizes a wide range of
factors that are critical to success – effective institutions, sound
policies continuous learning through evaluation and knowledge –
sharing and partnership, including with the private sector World
Bank, 2017).
GOALS OF WORLD BANK (WB)
• The WB is a vital source of financial and technical assistance to
developing countries around the world. We are not a bank in the
ordinary sense but a unique partnership to reduce poverty and
support development According to WB (2017) it has set 2 goals for
the world to achieve by 2030.
• 1. End extreme of poverty by decreasing percentage of people
living on less than $1.90 a day to no more than 3 %
• 2. Promote shared prosperity by fostering the income growth of
the bottom 40 % every country.
• THE FIVE ORGANIZATION OF WORLD BANK
1. The International Bank for Reconstruction and Development
(IBRD) – it leads to government of middle-income and creditworthy
low income countries.
2. The International Development Association (IDA) – it provides
interest from loans – called credit – and grants to
 government of the poorest countries. Together, IBRD and IDA make
up the world bank.
3. The International Finance Corporation (IFC) – it is the largest
global development institution focused exclusively on the private
sector. They help developing countries achieve sustainable growth by
financing investment mobilizing , capital to international financial
market , and providing advisory services to business and
governments.
4. The Multilateral Investment Guarantee Agency (MIGA) –
created in 1988 to promote foreign direct investment into
developing countries to support economic growth , reduce poverty ,
and improve people lives . MIGA fulfills this mandate by offering
political risk insurance (guarantees) to investors and lenders.
5. The International Centre for Settlement of Investment
Dispute (ICSID), The ICSID provides international facilities for
conciliation and arbitration of investment dispute.
INTERNATIONAL MONETARY FUND )IMF)
The International Monetary Fund (IMF) – is an
organization of 189 countries , working to foster global monetary
cooperation , secure financial stability, facilitate international trade,
promote high employment and sustainable economic growth, and
reduce poverty around the world.. Created in 1945, the IMF is
governed by and accountable to the 189 countries that make up its
near global membership.
The IMF also known as the Fund, was conceived at a UN conference
in Bretton Woods, New Hampshire, U.S. in July 1944. The 44
countries at that conference sought to build a framework for
economic cooperation to avoid repetition of the competitive
devaluations that had contributed to the Great Depression of the
1930s.
The IMF responsibilities
The INPs primary purpose is to ensure the stability of the
international monetary system, the system of exchange rates and
international payments that enables countries and their citizens to
transact with each other. The funds mandate was updated in 2012to
include all macroeconomic and financial sector issues that bear on
global stability.
The Mission of IMF
• According to IMF (2017) and IMFs fundamental mission is to
ensure the stability if the international monetary system. It
does so in three ways , keeping track of the global economy
and the economies if member countries lending to countries
with balance- of payments difficulties, and giving practical help
to members.
1. Surveillance – the IMF oversees the international monetary system
and monitors the economic and financial policies of its 189 member
countries. As part of this process, which takes place both at the
global level and in individual countries, the IMF highlights possible
risks to stability and advises on needed policy adjustment.
2. Lending – A core responsibility of the IMF is to provide loans to
member countries experiencing actual or potential balance of
payments problem. This financial assistance enables countries to
rebuild their international reserves, stabilize their currencies,
continue paying for imports, and resource conditions for strong
economic growth, while undertaking policies to correct underlying
problems/ Unlike development banks, the IMF does not lend for
specific projects.
3. Capacity Development – IMF capacity development – technical
 implements economic policies that foster stability and growth
by strengthening their institutional capacity and skills.The IMF
seeks to build on synergies between technical assistance and
training to maximize their effectiveness.
Where IMF Gets its Money
Most resources for IMF loans are provided by member countries
primarily through payments of their quotas. Multilateral and Bilateral
borrowing work as a second and third line of defense by providing a
temporary supplements to quota resources. These temporary
resources played a critical role in enabling the IMF to provide
exceptional financial support to its member countries during the
global economic crisis. Concessional lending and debt relief for low
income countries are finance through separate contributions based
trust funds.
Lending Capacity of IMF
The IMF can use its quota funded holding of currencies of
financially strong economies to finance lending. The member
countries that participate in the financing of IMF transaction are
selected by the Executive Board on a periodic basis and include both
advanced sand emerging market economies. The IMFs holding of
these currencies , together with its own SDR holdings, make up its
usable resources. As explained above, the IMF can temporarily
supplement these resources by borrowing, (IMF, 2017)
MARKET INTEGRATION
Market Integration is a term that is used to identify the
phenomenon in which market of goods and services are
somehow related to one another being to experience similar
pattern of increase or decrease in terms of the prices of those
product. The term can also refer to a situation in which the pieces
of related goods and services sold in a defined geographical
location also begin to move in some sort of similar pattern to one
another. At times the integration may be intentional with a
governmental implementing certain strategies as a way to control
the direction of the economy. At other times, the integrating of
the markets nay be due to factor such as shifts in supply and
demand that have spillover effects on several markets.
• When market integration exists, the events occurring within
two or more markets are exerting effects that also prompt similar
changes or shifts in other market that focus on related goods. For
example, if the demand for baby dolls within a given geographical
market were to suddenly be reduced by 50% there is a good
chance that a demand for baby doll clothing would also decrease in
proportion within the same geographical market. Should the baby
doll market increase, this would usually ,mean that the market doll
clothing, would also increase. Both markets would also have the
chance to adjust pricing in order to deal with the new
circumstances surrounding the demand, as well as adjust other
factors as production.
• Market integration may also occur with just about any type of
related markets. With a stock market integration, similar trends in
trading prices for assets related to a given industry may be found
in two or more markets around the world. In like manner, financial
market integration may occur when leading rates in several
different markets begin to move in tandem with one another. In
some cases, the integration within a nation may involve the
emergence of similar patterns within capital stock and financial
markets within trends coming together to exert profound
influence on the economy of that nation (Shiferaw, 2017)
• Market Integration and How it Works
• Koester (2017) states that market integration is a state of
affairs or a process involving attempts to combine separate
national economics into larger economic regions. Integration as a
• means of stimulating trade and improving divisions of the
labor among countries has been recommended by many
economist. The foundation of General Agreement of Tariffs
and Trade (GATT) in 1948 gave further impetus to integration
by promoting, gender acceptance of the most favored nation
principle. The Article 1 of the GATT states “ all contracting
parties must accord any advantage favor, privilege of
immunity granted to any product from other country
immediately and unconditionally to all other members. This
resulted in significant integration of world market in
manufactured goods. Moreover, the eight GATT ounds have
led to considerable tariff reductions for trade in
manufactured goals, with average tariff level of less than 4%
• of OECD countries in 1997. Apart from integrating world markets
there is an increasing tendency to create new regional integration
schemes. The European Union (EU) is one of the most prominent
examples.
• Integration can be achieved by different means (Reducingnon-tariff
barriers to trade can be the main tool for integrating markets. This
type of integration is known as negative integration.The term
implies that a government’s only role if no withdraw from
interference in the movement of goods and factors of production
across national borders. Indeed, this may be sufficient to integrate
some markets for manufactured goods, where governmental
regulations play a minor role.
FORM OF INTEGRATION
1. Preferential Agreement – It involves lower trade barriers
between those countries which have signed the agreement. It is
considered the first and smallest step on the road to further
integration such schemes imply that a country or region grants
other countries preferential access the imports. Preferences can
be given in the form of tariff reductions, for unlimited volumes of
imports from specific countries or for specified import quantities.
2. Free Trade Agreement – It reduces barriers to trade among
member countries to zero, but each member country has
autonomy in deciding on the external rate of tariff for its trade
with non-member countries. The European Free Trade Area Is
one of the examples of it.
• 3. Customs Union – It represents a higher stages of economic
integration than a Free Trade Area as the member countries adopt
a common external tariff. In the Custom Union, countries agree to
abolish tariff and non-tariff barriers to trade in goods flowing
between them. In addition , they agree to a common external tariff.
This was in fact the first phase of integration of the European
Community on the way to Common Market.
• 4. Common Market – It goes beyond a Custom Union in
allowing for free movement of labor and capital within the Union.
Hence, the intention of a Common Market is to integrate both
product and factors market of member countries.
• 5. Economic Union – It is the highest form of economic integration
. In addition to the conditions of a Common Market , member
countries also agree to ingrate monetary, fiscal and other policies.
 It is obvious that the least developed forms of integration
can rely on negative integration alone. However, higher forms of
integration demand agreement on adjustment or even harmonization
of national policies. For example, internal free movement of goods
and factors not only requires removal of border restriction (negative
integration), but also removal of non-tariff trade barriers caused by
different legislation in the member countries (positive integration)
Thus, deeper integration necessarily implies surrendering some
national autonomy.
THE EUROPEAN INTEGRATION
• The European Union is a unique economic and political union
between 28 European countries that together cover much of the
continent. The EU was created in the aftermath of the Second
World War. The first step were to foster economic cooperation
the idea being that countries that trade with one another become
economically independent and so more likely to avoid conflict.
• The result was the European Economic Community (ECC) created
in 1958, and initially increasing economic cooperation the idea
being that countries that trade with one another become
economically interdependent and so more likely to avoid conflict.
• The result was European Economic Community (\ECC), created in
1958, initially increasing economic cooperation between six
countries, Belgium, Germany, France, Italy, Luxembourg, and the
Netherlands. Since then, a huge single market has been created and
continues to develop towards its potential,
• Legal Basis of European Union
• The European Union is based on the rule of law. This means that
every action taken by the EU is founded on treaties that have been
approved voluntarily and democratically by all EU member
countries. For example, if a policy area is not cited in a treaty, the
Commission cannot propose a law in that areas. .
• A treaty is a binding agreement between EU member
countries . It sets out Eu objectives, rules for EU institutions, how
decisions are made and the relationship between the RU and its
member countries.Treaties are amended to make the EU more
efficient and transparent, to prepare for new member countries
and to introduce new areas of cooperations – such as the single
currency.
 THE EUROPEAN COUNTRIES
1. Austria 11. Slovenia 21.. Lithuania
2. Belgium 12. Luxembourg 22. Sweden
3. Bulgaria 13. Germany 23. Malta
4. Croatia 14 Greece 24. Netherlands
5. Cyprus 15. Hungary 25. Poland
6. Czech Republic 16. Ireland 26. Portugal
7. Denmark 17. Italy 27. Romania
8. Estonia 18. Latvia 28. Slovakia
9. Finland 19. Spain
10. France 20. United Kingdom .
According to European (2017) the main treaties that help created
European Union are:
1. Treaty of Lisbon – signed on Dec 13, 2007 to make the EU more
democratic , more efficient and better able to address global problems
such as climate change , with one voice.
2. Treaty of Nice – Signed on 26 February 2001to reform the institutions
so that the Eu could function efficiently after reaching 25 member
countries.
3. Treaty of Amsterdam – Signed on 2 October 1997 to reform the
EU institution in preparation for the arrival of future member
countries.
4. Treaty of European Union - Maastricht defined on 7 February
1992 to prepare for European Monetary Union and introduce
elements of a political union such as citizenship common foreign
internal and affair policy.
5. Single European Act – Signed on 17 February 1986 in Luxembourg
and 28 February 1986 in Hague, Netherlands to reform the institutions in
preparation for Portugal and Spain’s membership and speed up decision
making in preparation for the single market.
6. Merger Treaty – Brussels Treaty – Signed om 8April 1965 to
streamline the European institution . It consist a single commission and a
single Council to serve the then three European Commission (EEC ,
Euratom , ECSC), Repeal by the Treaty of Amsterdam.
7. Treaties of Rome : EEC and EURATOM treaties, - Signed on 25 March
1957 to set up the Economic Community (EEC) and the European Atomic
Energy Community (Euratom)
8. Treaty Establishing the European Coal and Steel Community –
Signed on18 April 1918to create interdependence in coal and steel so that
one country could no longer mobilize the armed forces without others
knowing This eased distrust and tensions after WWII . The ECSC expired
treaty 2002.
EUROPEAN UNION, AN ECONOMIC UNION TO POLITICAL UNION
• What began as a purely economic union has evolved into an
organization spanning policy areas, from climate, environmental and
health to external relations and security, justice and migration. A
name change from European Economic Community (ECC) to the
European Union (EU) in 1993 reflected this.
• The EU is based on the rule of law everything it does is founded on
treaties, voluntarily and democratically agreed by its member
countries.The EU id also governed by the principle of
representative democracy, with citizens directly represented at
Union level in the European parliament and Member States
represented in the European Council and the Council of EU.
• A Union of Single Currency
– The Eu has delivered more that half a century of peace, capability
and prosperity, helped raise living standard and launched a single
European currency the sum, In 2012m, the EU was awarded the
Nobel Peace Prize for advancing the causes of peace, reconciliation,
democracy, and human rights in Europe. Thanks to the abolition of
border control between EU countries , people can travel freely
through out most of the continent . And it has become much easier
to live, work and travel abroad in Europe.
– The single or “internal market is the main economic engine, enabling
most good m services, money and people to move freely . Another
key objective is to develop also in other area like energy, knowledge
and capital markets to ensure that Europeans can draw the maximum
benefit from it.
THE BENEFITS OF EURO
Being the euro area guarantee stable prices/ The European Central
Ban (ECB) sets key interest rates at level designed to keep inflation close
to , but below 2%. It also manages a portion of the euro area’s foreign
exchange reserves and can intervene in foreign exchange markets to
influence the exchange rate of the euro. The combined size and strength
of the euro area also creates a stronger and more stable currency that is
better able to shield its members from external shocks and currency
market turbulence, then individual countries alone could achieve.
Used about by 340 million EU citizens , the single currency benefits
everybody;
1. People no longer need to change money when travelling doing
business within the Euro area, saving time and transaction cost.
2. It cost much less or nothing at all to make cross-border payments
3. Consumers and businesses can compare prices more easily , which
encourage businesses changing higher prices to bring them down.
 A UNION OF HUMAN RIGHTS AND EQUALITY
• One of the EU main goal is to promote human rights both internally
and around the world. Human dignity, freedom democracy, equality, the
rule of law and respect for human rights: these are the core values of the
EU. Since the Lisbon Treaty’s entry in force in 2009, the EU’s Charter of
Fundamental Rights brings all these rights together in a single document.
The EU’s institutions are legally bound to uphold them, as are EU
governments whenever they apply EU law.
• The enlarge EU remain focused on making its governing institutions
more transparent and democratic. More powers have been given to the
directly elected European Parliament, while national parliaments play a
greater role, working alongside the European institutions. In turn ,
European citizens have an ever increasing number of channels for taking
part in the political services (Europa. eu 2017)
ASEAN INTEGRATION
On 8 August 1967, five leaders- the Foreign Ministers od Indonesia,
Malaysia, the Philippines, Singapore and Thailand – set down together in
the main hall of the Department of Foreign Affairs building in Bangkok,
Thailand and signed a documents, By virtue of that document, the
Association of Southeast Asian Nation (ASEAN) was born. The five
Foreign Minister who signed it – Adam Malik of Indonesia, Narciso R.
Ramos of the Philippines, Tun Abdul Razak of Malaysia, S. Rajaratnam of
Singapore, And Thanat Khoman of Thailand- would subsequently be hailed
as the Founding Fathers of probably the most successful governmental
organization in the developing world today. And the document that they
signed would be known as the ASEAN declaration.
• Association of Southeast Asia Nation or the ASEAN was established in
8 August 1967 in Bangkok , Thailand, with the signing of the ASEAN
Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN,
Namely:
– Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei and
Darussalam then joined in 28 July 1995 . Vietnam on 28 July 1995,
Laos PDR and Myanmar on 23 July 1997 and Cambodia on 30April
1999, making up what is today the ten Member States of ASEAN.
ESTABLISHMENT OF THE ASEAN ECONOMIC COMMUNITY
• The establishment of the ASEAN Economic Community (AEC) in
2015 is a major milestone in the regional economic integration agenda in
ASEAN, offering opportunities in the form in the huge market of US %
2.6 trillion and over 622 million people. IN 2014, AEC, was collectively
the third largest economy in Asia and the seventh largest in the world.
• The AEC Blueprints 2025, adopted by the ASEAN Leaders at the 27th
ASEAN Summit on 22 November 2015 in Kuala Lumpur, Malaysia,
provides broad directions through strategic measures for the AEC from
2016 to 2025. Along with the ASEAN Community vision 2025 and the
ASEAN Political Security Community (APSC) Blueprints 2025 and the
ASEAN Socio-cultural Community (ASCC) Blueprint 2025, the AEC
Blueprint 2025 forms part of ASEAB 2025. Forging Ahead Together. It
• succeeded the AEC Blueprint 2008-2015) which was adopted in
2007,
• The AEC Blueprint 2025 is aimed towards achieving the vision
of having an AEC by 2025 that is highly integrated and cohesive
competitive , innovative and dynamic with enhanced connectivity
and sectoral cooperation and a more resilient inclusive and people
oriented, people centered community, integrated with the global
economy.
THE FIVE INTERREL ATED AND MUTUALLY REINFORCING
CHARACTERISTIC OF ASEAN ECONOMIC COMMUNIT Y ARE;

1. A highly integrated and cohesive economy

2. A competitive, Innovative, and Dynamic ASEAN
3. Enhanced connectivity and Sectoral Cooperation
4. A Resilient , Inclusive, People-Oriented and People –centered
ASEAN
5. A Global ASEAN
The AEV Blueprint2025 sets outs the strategic measures under
each of the five characteristics of AEC of 2025. To operationalize
the Blueprints implementation , these strategic measures will be
further elaborated in and implemented trough the work plans of
various sectoral bodies in ASEAN .The sectoral work plans will be
• reviewed and updated periodically to ensure their relevance and
effectiveness . Partnership arrangement with the private sector. , industry,
association and the wider community as the regional and national levels
will also be actively sought and fostered to ensure an inclusive and
participatory approach to the integration process. Institutions will be
strengthened and enhanced approaches to monitoring and public
outreach will likewise be developed to support the effective
implementation of the blueprint.
• The AEC blueprint2025 Consolidated Strategic Action Plan (CSAP)
comprises of key action lines that will operationalize the strategic
measure in the AEC Blueprint 2025. It takes into account the relevant
sectoral work plans , and will be reviewed periodically to account for
developments in each sector.
• The inaugural issue of the ASEAN Economic Integrated Brief
(AEIB) was released on 30 June 2017. The AEIB provides regular
• updates on ASEAN economic integration progress and outcomes,
and is demonstration of ASEAN, commitment to strengthen
communication and outreach to raise stakeholder awareness of
the AEC.
• The AEC Blueprint 2025will lead towards an ASEAN that is
more proactive m having had in place the structure and
frameworks to operate as an economic community , cultivating its
collective identity and strength to engage with the world,
responding to new developments, and seizing new opportunities.
The new Blueprint will not only ensure that the 10 ASEAN
members States are economically integrated m but also sustainably
and gainfully integrated in the global economy. Thus contributing
to the goal of shared prosperity.
• The AEC Blueprint 2025 will lead countries towards an ASEAN
that is more proactive, having had in place the structure and
frameworks to operate as an economic community, cultivating its
collective identity and strength to engage with the world, responding
to new developments and seizing opportunities . The new blueprint
will not only ensure that the 10 ASEAN Member States are
economically integrated, but are also sustainably and gainfully
integrated in the global economy, thus contributing to the goal of
shared prosperity.
THE ASEAN FREE TRADE AREA (AFTA)
• The ASEAN Free Trade Area (TAFA) has now neem virtually established.
ASEAN member countries have made significant progress in the lowering of
intra-regional tariff through the Common Effecti8ve Preferential Tariff (CEPT).
Scheme for AFTA , More than 99% of the products in the CEPT Inclusion List
(IL)of ASEAN-6, comprising Brunei, Darussalam, Indonesia, Malaysia, the
Philippines , Singapore and Thailand have been brought down to 0.5 % tariff
range
• ASEAN newer members Cambodia, Laos , Myanmar and Vietnam are not
far behind in the implementation of their CEPT commitments with almost 80
% of their products having been moved into their respective CEPT ILS. Of
these items about 66% already have tariffs within the 0.5 % tariff band. Vietnam
has until 2006 to bring down tariff of products in the Inclusion List to no
more than 5% duties, Laos and Myanmar in 2008 and Cambodia 2010
• Following he signing of the Protocol to amend the CEPR-AFTA Agreement for
• the Elimination of Import Duties on 30 January 2003, ASEAN-6
has committed to eliminate tariffs on 60% of their products in the
IL , by the year 2003, As of this date , tariffs on 60.12% of the
products in the IL pf ASEAN -6 have been eliminated. The average
tariff for ASEAN-6 under the CEPT Scheme is now down to 1.51%
from 12.76% when the tariff cutting exercises started in 1993,
• The implementation of CEPT-AFTA Scheme was significantly
boosted in January 2004 when Malaysia announced its tariff
reduction for completely built up (Cbus) and completely knocked
down (CKDs) automotive units to gradually meets its CEPT
commitment one year earlier than schedule . Malaysia has
previously been allowed to defer the transfer of 218 tariff lines of
CBUs and CKDs until 1 January 2005 (ASEAN 2017)
PRINCIPLES OF THE ASEAN ECONOMIC COMMUNITY
• The ASEAN countries are engaged in a process to transform
ASEAN into a real economic community by the end of 2015.
Originally built as a political alliance to limit the spread of
communism in Southeast Asia. ASEAN gradually became a
diplomatic organization to manage regional issue and expand trade
with the inclusion Vietnam, Cambodia and Laos and their opening
in a market economy.
• Having stood on a minimalist “smallest common denominator
approach that emphasized harmonious relation and respect of
sovereignties, ASEAN countries nonetheless also came to great
develop trade through quite ambitious economic treaties and free-
trade agreements for Southeast Asia.
• ASEAN leaders have now embarked the Southeast Asian
association to the next step of economic development, which will
also ultimately bring the Southeast Asian peoples closer. They have
engaged since 2007 towards the integration of ASEAN into an
ASEAN Economic community based on 4 economic pillars (ASEAN
2017).
• Single market Competitive economic
• production base region
+
• Equitable economic Fully integrated region
• development the global economy
• PIULLARS OF ASEAN ECONOMY
THE FOUR PILLARS OF THE ASEAN ECONOMIC
COMMUNITY
1. Single Market and Production Base – The region as a whole most
become a single market and production base to produce and commercialize
goods and services anywhere to ASEAN.
2. Competitive Economic Region – The region most emphasize on the
competitiveness of its production and capacity for export, as well as the free
competition inside of its frontiers.
3. Equitable Economic Development – To receive the benefits of the AEC
the people and businesses of ASEAN must be engaged into the integration
process of the AEC.
4. ASEANs –integration into globalized economy . ASEAN must not be
isolated but an integrated part of the global; economy.
THE FIVE CORE PRINCIPLES OF THE ASEAN SINGLE MARKET AND
PRODUCTION BASE
1. Free flow of goods
2. Free flow of services
3. Free flow of investment
4. Free flow of capital
5. Free flow of skilled labor
The Global Economy and Outsourcing
Outsourcing means findings a partner with which a firm can establish a
bilateral relationship and having the partner undertake relationship specific
investment so that it becomes able to produce goods or services that fit the
firm’s particular needs. We live in an age of outsourcing, Firms seem to be
subcontracting an ever expanding set of activities, ranging from product
design to assembly. From research and developments to marketing,
distribution and after sales service. Some firms have gone so far as to become
• “virtual” manufacturers, owning design for many products but
making almost nothing themselves.Virtual disintegration is
especially evident in international trade. A recewnt annual report
of the World Trade Organization (WHO) details, for example, the
production of a particular “American” car.
– 30% to the car’s value
– 17.5% to Japan for components
– 7.5% to Germany for design
– 4% to Taiwan and Singapore for minor parts
– 2.5% to the United Kingdom for advertising and marketing services
– 1.5% to Ireland and Barbados for data processing
– 37% only for the production value generated in the US
• Similarly the production of a Barbie doll procures raw
materials such as plastic and hair from Taiwan and Japan conducts
assembly in Indonesia and Malaysia, buys the moulds in the US, the
doll clothing in China and the paint used in decorating the dolls in
the US. Indeed many observers use the term “globalization” they
have in mind a manufacturing process similar to these.
• Outsourcing means more than just the purchase of raw
materials and standardized intermediate goods. Often, but not
always the bilateral relationship is governed by a contract, but even
in those cases the legal document does not ensure that the
partners will conduct the promised activities with the same care
that the firm would use if it were to perform the tasks. Because
outsourcing, involves more than just the purchase of particular
type of good or service, it has been difficult to measure the growth
• In international outsourcing(Grossman et. Al. 2016)
• In the Philippines, the call centers dominate the Filipino
outsourcing industry with voice-based services accounting for mote
than 70% of the Business Process Outsourcing (BPO) revenue
generated in 2010.The Philippines is currently ranked #1 in the world
in terms of offshore voice-based services. The strong growth pf this
BPO sector is likely to continue for at least another decade. The
reason behind all of this growth is simple the Philippines is the best
source for fluent English language speakers who are accent-neutral
and familiar with Western diction and figures of speech. Filipinos are
also very service-oriented people making in overall customer
satisfaction (Microsourcing, 2017)
Global Corporation
– Global Corporation is a business that operates in two or more
countries. It also goes by the name “multinational company”. Expanding
your business globally can offer several advantages over running a
strictly domestic company, but operating in multiple countries also
posed logistical and cultural challenges. A major motive of becoming a
global corporation is to expand revenue opportunities and to diversity
business risks. If you have a model that works well domestically and
translates well in foreign markets, you gain success to more customers
and capital. Operating in multiple countries allow you to achieve
success in different types of economies. If your local or domestic
company is stagnants or your market share has hit a plateau, you might
• Find more customers in a country whose economy is vibrant and
expanding.
• Global Corporations and Globalization
• Globalization can also offer the benefits of economies of scope and
economies of scale. Economies of scope means that you can take advantage
of different skill sets and market advantages. Many companies for instance
take advantage of efficient call center operations that Philippines and India
offer. Economies of scale means that where you use more equipment in
production or by supplies and resale products in larger quantities, you can
get better coats per unit., increasing profitability . Culture variance is a
major challenge for global corporations. Developing a positive, effective
work culture can be challenging enough in another country . Getting
workers to think globally when their values differ from that value of
colleagues in other countries is even harder. (Kokemuller, 2017)
LESSON III - THE GLOBAL INTERSTATE SYSTEM
Learning Goals
1. define state
2. explain the effects of globalization on stateS
3. identify the institutions that govern international relations anD.
4. differentiate internationalism from globalism
The Interstate System
State has been long recognized as fundamental actor in global
politics . Within the borders , there is no doubt that each State is
expected to maintain its unchallengeable power because of its possessed
sovereignty. Eventually states begun to interact with other states and
constitution beyond its territorial boundaries as motivated by certain
factors and events that demands cooperation and interdependence.
• The attempt to explain this decisions, interactions and
behavior that occur across boundaries of states are what scholars
refer as international relations, international studies or
international politics. While the relation of states (which
traditionally in military) , diplomatic and strategi9c terms) have
been the center of this discipline , its nature and focus has been
significantly changing over particularly under the realm of
globalization. Globalization is defined as the widening , intensifying
speeding up and growing impact of worldwide interconnected.
(Held and McGrew, 1999). Thus, it expectedly results to
intensification of relationship among nation-state which may either
Increase , decrease, or transform states that its usual position.
However, not l all processes of globalization occurs on the level of
• states as this extends to the politics and political patterns of
international institutions and organizations which are equally
important to what states and other political actors do.
• This chapter explain how globalization affects the states and its
interactions in the global politics. In the same way, an understanding
of the interstate system would lead the students to know how the
world is organized the way it is—of what is termed as
contemporary world politics.
• State and Sovereignty
• The state emerged in 15th and 16th century . Rurope as a system of
centralized rule that succeeded in subordinating all other
institutions and groups, temporal and spiritual (Heywood, 2011).
The concept of statehood was
• attributed to the Peace of Westphalia (1648), a package of treaties
that ended the 30 year war (1618-1648), where Europe’s ruler
would recognized each other’s right to rule their own territories
and free from outside interference. In turn, the Westphalian system
guarantees stability and unification for the nations of Europe which
was expressed by Giuseppe Mazzini (1805-72), an Italian
nationalist. The characteristic theme of this classical nationalism
reflected in Europe is linked with the idea of the nation based on
the belief in popular sovereignty. This was mostly signified in US
president Woodrow Wilson’s “Fourteen Points” in 1918, a blueprint
which proposed for the reconstruction of Europe after WWII.
Nations in Europe, according to Wilson, should achieve statehood
that is anchored from principle of national-determination. Its goal
eventually led to the construction of a nation (Heywood, 2011)
• During French Revolution the Westphalian system, was challenged
by Napoleon Bonaparte, a French leader who implemented the
Napoleonic Code., with his principle of liberty, equality and fraternity
against the power of kings, nobility, and religion in Europe. But after his
defeat in Battle of Waterloo in 1815, the Royal power founded an alliance
of great powers or the Concert of Europe-Austria. , Russia, Prussia and
United Kingdom , and created a new system, which in effect revived the
Westphalian system and restored the sovereignty of states.
• Therefore, these historical events established that the doctrine of
sovereign statehood was significant not only as the legal basis of
modern statehood but also the constitution of modern world order. In
fact , it was stated in 1933 Montevideo Convention on the Rights and
Duties of State as one of the four qualifying elements (a.) a defined
territory, (b) a permanent population, (c) an effective government, and
the (d) capacity to enter into relation with other states (Heywood, 2011)
• While internal sovereignty refers to the state’s authority within,
external sovereignty defines the relationship of states to other
states and international actors as it establishes state’s capacity to
act as an independent and autonomous entity in world affairs
(Heywood, 2011) It is the same principle of how international law
was created. Thus, United Nations, as the principal framework and
venue for convening member state’s leader., guarantee equal
participation in international relations that is according to the
principle of sovereign equality.
STATE AND GLOBALIZATION
• In the advent globalization, debates about the power and
significance of state in the world system have been found. Two
contrasting positions argue about the impact of the widening and
speeding interconnectedness brought about by the process of
globalization. Some believed that it bring about the demise of the
sovereign states as global forces weaken the power of the states to
control their own economies and societies. (Ohmae, 1995 Scholte
2000; Baylis et., al, 2011).
• Oppositely, some assumed That states remains as primary agent
which could even shape the world order (Krasner, 1999; Baylis et. Al
, 2011) Between these two views lies another perspective , which
recognizes that globalization would transform the role , significance
and nature of the sovereignty of the state.
• Globalization as process is more than simply growing connections or
interconnectedness between states. Rosenau (1997) suggests that
globalization implies a cumulative scale, scope, velocity and depth of
contemporary interconnectedness is dissolving the significance of the
borders and boundaries that separates the world into its many constituent
states or national economic and political spaces(Baylis et. Al, 2011) Instead
of looking at the interdependence or internationalization between nation-
states, the concept of globalization presents s dramatic shift leading to the
organization of human affairs – from the world of discreet but
interdependent nation-states to the world as a shares social space, In sense
concern about economies and security transcend the world’s major regions
and continents.
• Similarly, globalization represents the process of deterritorialization, when
social, political, and economic activities are increasingly stretched across the
globe and making geography and distance posing relative significance. For
instance, terrorist and criminal networks operate both locally and globally.
• Some is true for national economic space which is no longer
equivalent with national territorial space, under the condition of
globalization since Uks largest companies have overseas
headquarters. In this sense, globalization can be defined as (Baylis et.
Al, 2011)
• As the definition enable us to differentiate globalization from
spatially delimited processes such as internationalization and
regionalization, the nation state may no longer have the monopoly
of power resource. This is because of relative denationalization of
power brought by globalization where power is organized and
exercised on an trans regional , transnational, or transcontinental
basis while many actors, from international organization to criminal
networks. Exercise power from within, across, and against states in
an increasingly interconnected global system (Baylis et. Al, 2011)
SHIFTING FROM INTERNATIONAL POLITICS TO GLOBAL POLITICS
• The politics in the world stage has been conventionally understood
in international terms. But the term International relations has not been
used despite of the conflict and co-operation between and among
territorially based political units had been existed. Not until Jeremy
Bentham, a British philosopher and legal reformer , coined the term
international relations that was introduced in his Principles of Moral and
Legislation (1789). In the late 18th century , the said term eventually was
recognized as ‘Inter-national’ as the territorially based political units, have
gained clearer and genuine national character. Based on this shifting
concept from nationhood to statehood why most modern state and
interact could effectively act with one another on the global (world)
system or also described as inter-state system. The origin of this view are
drawn from aforementioned Peace of Westphalia which center on the
principle of sovereignty. Thus, state sovereignty became the fundamental
organizing principle of international politics.
• However, internationalization should be differentiated from
globalization. The former refers to growing interdependence between
states, its very idea presumes that state remain discrete national units with
clearly demarcated borders while the latter refers to a process in which
the very distinction between the domestic and the external breaks down.
The distance and time are irrelevant in the sense that level events and
impacts may be diffused rapidly around the globe (Baylis et. At, 2011)
• The growing number of complex political issues has eventually
acquired a global character which in that effect, extend actually or
potentially to all parts of the world. For instance, the issue of terrorism
and climate change are two of the most important events that had been
affecting all states because of increasing impact and expansion of various
terrorist group and from the nature operates its an interconnected
whole.
• These events and the following significant changes resulted to a shift of
paradigm from the usual ‘international’ politics to ‘global’ politics (Heywood,
2011).
– New Actors on the World Stage - Because of globalization, it is responsible
to regard state as the only significant actors in world stage. New key players
have come to exert influenced and identified as transnational corporation.
(TNCs), non-government organization (NGOs) and a range of non-state
institutions. Similarly, groups and organizations like terrorist group of Al Qaeda,
anti capitalist movement and Amnesty International to google HP and also
contribute in shaping the world politics.
– Increased Interdependence and Interconnected - As globalization
results to a substantial growth in cross-border or transnational, flows and
transaction, - movements of people, good, money, information and ideas the
phenomenon also increased the relations among states with interdependence
and interconnectedness.
• Problems and issues that are global in nature like global warming , terrorism,
and pandemic disease are impossible to resolve by any states alone, except for
powerful states. Thus, states generally resort on collective effort as they work
together to address the global issues. However, these may asymmetrical rather
than symmetrical where interdependence can lead on domination and conflict
rather than peace and harmony (Heywood, 2011).
• The Trend towards Global Governance – Since 1946, a new framework of
global governance and (regional governance) has been recognized. This is
attributed ton established international organization such as IMF , World Trade
Organization, (WTO), the European Union, and must significantly , the United
Nations, A member of UN for instance, states observe accountability to
international norm and principles set for: Most importantly, the increasing
number of member states reflects a growth of states who profess commitments
human rights and the rules of law.
• Conclusion-
• The idea about international system was explained in
this lesson./ Starting with the recognition of the state and
the principle of sovereignty ; identifying a range of new
actors; significant factors and events that resulted to
interstate relations; and the relative impact of globalization
paved the way for a creation of global governance or what
others identified as the ‘new international order’ as
reflected by the operating international organization
particularly , the United Nation.
LESSON IV : CONTEMPORARY GLOBAL GOVERNANCE
1. Identify what is meant by international organization and its
creation
2. describe the role and function of the United Nations
3. identify the challenges of global governance in the 21st century
4. explain the relevance of the state and globalization
Contemporary Global Governance
When people travel in multiple states; goods and services
delivered to and from different countries by air, land, sea, and
cyberspace: Filipino working as OFWs (Filipino overseas Workers) ;
and a different range of cross-border transactions, are quite puzzling
for some since there is no government or world government that
regulates, Even though, these activities still expect to be reliable
• , safer, and secure for the people, firms and government involved.
While these are evidently effective with domestic sphere
because of the government which controls, how could exchange
among states beyond their borders become possibly in order;
inevitable and stable.
• For instance as the world continuously expands and global
mobility increases, the borders of states expectedly are to be
flooded of goods, services, persons, and information. This became
possible when the Universal Postal Union, the first modern
international organization , was established in 1863.
• Similarly, the growing number of worldwide problems like terrorism
, climate change, threat of maritime conflicts, nuclear proliferation
• and among others which are beyond the capacity of individual states
to solve on their own, has been receiving attention with the aim of
securing international order and recognition of sovereignty of every
states. Analysis of these global activities and international problem
are taken up in a complex phenomenon called ‘global governance.
• However, global governance is oftentimes confused with
international organizations, an institutions with states’ membership
like European Union, UN, or ASEAN. This chapter explains how one
must understand the global governance and the role of international
organization, particularly the UN, in framing and contributing
improvement which may lead to the desired International order.
• Understanding the Idea of Global Governance
• With the absence of world government, the order, stability and
predictability of various international transaction are still possible
because of the idea of global governance. Global governance is the
sum of laws, norms, policies and institutions that define, constitute
and mediate trans-border relations between states, culture, citizens,
intergovernmental and non-governmental organization and the
market—the wielders and the object of the exercise of international
public order (Weis and Thakur, 2010). As such, it infers that
engagement and relations between states in global system are
regulated as everyone are expected to observe. With the same idea.
Karns and Mingst (2009) described global governance as the
collection of governance-related activities, rules and mechanism,
formal and informal, existing at a variety of levels in the world today
(cited by Haywood, 2011).Thus, it also refers to a collective and
cooperative arrangements involving international institutions
• and states as common features who are believed to facilitate
governance i.e. coordination of social life—ordered rule operating
through a system of enforceable decisions- rather than government
(Haywood, 2011), Being so, global governance is an order based on
set rules without government.
• Moreover,, as a dynamic and complex process of interactive
decision making at the global level, it also puts emphasis to different
international actors which are involved in formal and informal
mechanisms. Global governance is not only limited to states and
governments, as the fundamental institutions for articulating public
interest that is extended to global community, but also involves
intergovernmental and non-state agencies. The growth and
importance of non-state actors like civil society (activist,
environmentalist, feminist, scientist, etc.) and market are
• Undeniably observe. They too, play an active role in shaping norms,
laws and policies in global system. Thus, the states centered
structure (i.e. IGOs and particularly of the UN system) share the
governance stage with the pool of other factors with the purpose
of ensuring international system that made up the global politics.To
simplify, the term global governance according to Haywood (2011),
is used more to refer to the institutions through which these
interactions takes place.
• In global system, the following are commonly identified categories
of political actors who are interacting with a range of non-state
actors (Baylis et. Al, 2011)
– Nearly 200 government including 193 members of the UN (with the
inclusion of Sudan in 2011;
– 82,100 transnational companies (TNCs) such as Wal-Mart, Mitsubishi,
Volkswagen, General Electric, Microsoft, Nestle, Hewlett-Packard,
with these parent companies having 807, 400 foreign affiliates.
- Around 9,500 single-country non-governmental organization, like
Population Concern (UK) or the Sierra Club (USA), which engage in
significant international activities;
- 240 intergovernmental organization (INGOs) like Amnesty
International, the International Chamber of Shipping, Red Cross, plus a
similar number of less-established International caucases and networks
of NGOs.
THE ROLE OF INTERNATIONAL ORGANIZATION IN GLOBAL
POLITICS
• The ASEAN,, IMF, WTO, WB, and UN are some of the high
profile international organization which the Philippines and most of
sovereign state are members of. As a well-observed phenomenon,
international organizations foster cooperation among states
particularly on global issues.
• Sometimes called international governmental organization
(IGOs), as opposite of international non-government organization
(INGOs), international organization is an institution with formal
procedure and a membership comprising three or more states.
They are characterized by rules that seek to regulate the relations
amongst member states and by a formal structure that implement
and enforces these rules (Haywood, 2011). International
Organization, according to Rittberger and Zangl (2006), may be
• viewed as instrument, arenas or actors. As instrument, they are
mechanism through which states pursue their own interest. As they
facilitate debate and information exchange, it also serves as permanent
institution of conference diplomacy thus, regarded as arenas. And when
states are enable by Ios to take concern action, they are acting as an
actors.
• Historically, the earliest considered international organization is the
Concert of Europe after the Napoleonic war and continued until WWI.
The number and membership grew into 49 which had been in existence
until 1944 and 1929, it had reached an inter-war peak of 83, just at the
onset of world economic crisis. Then at the end of WWII, the number of
international organizations soared into 123 in 1949 that includes UN
and the institutions of the Breton Woods system.(INF, WB, WTC) . This
shows not only an increasing awareness of interdependence among
• states but more concerned with world economic crisis, human
rights violation, environmental degradation, disparities in terms of
development and the hegemonic role of the USA (Heywood, 2011).
In mid-1980s, it had reached 378 but subsequently decline after
Cold War due to the dissolution of Soviet Bloc organizations.This
result to s substantial increase in international agencies and similar
institution along with the continued growth of international
organizations.
• Although the rise of international organizations, Illustrate the
emergence of a global governance system., the latter is wider and
more extensive phenomenon than the former. Nevertheless,
international organization are often consider as key elenent in
global governance, particularly in the process of cooperative
• Problem–solving that lies at the heart of global governance is usually
facilitated by international organization (Weiss and Kamran, 2009) This
international organization are vital as formal or institutional face of global
governance.
• The United Nations
• The UN is considered as the world’s leading institutional
organization that has indispensable part of the global political arena.
According to Thakurr (2011) , it is both global governance actor and site.
Composed of universal state membership and mechanisms for involving
non-state actors, the UN is also regarded as a central clearing house for
information and actions. The UN was founded on October 24,
1945(since known as UN day by 51 countries of which Philippines was
the one the founding members. It has, to date, a total of 193 members,
nearly every state in the world, and counting. As a result of iniatives
moved by the government od states that had led the war against the
• Germany and Japan in WWII, the UN Charter clearly spelled out
the following basic principles of international relations.
– 1. To maintain international peace and security
- 2. To develop friendly relations among nation
- 3. To cooperate in solving international problems and in promoting
respect for human rights and
- 4. To be a center for harmonizing the action of nations.
In these sense, every member—r5icj and poor, large and small, with
differing political views and social system is givens voice and a vote in
UN processes (Baylis et. Al, 2011). Is not the first constructed
international organization to ensure global peace and security. The
League of Nation, is predecessor, was established at the Paris Peace
Conference of 1919 with very similar goals—enable collective security,
to arbitrate over international disputes and to bring about
• Disarmament. Heywood, (2011). Indeed, the league and UN were both
set up in the aftermath of world wars. But the former evidently suffered
from major drawbacks which even doubted its name as it was never
properly a league of nations. Key states did not join particularly USA
(because of the isolationist Congress to ratify membership while other
states abandoned the League. For instance, Germany joined in 1926 but
leave the organization after Nazis came to power in 1933, as Japan was
criticized for its invasion of Manchuria, also left in 1933; Italy walked out
o in 1936 after its occupation of Abyssinia; while the Soviet Union which
entered in 1933 was eventually expelled in 1939 when it attacked
Finland (Heywood, 2011)
• And by end of second World War, the league had failed to address the
number of state’s set of aggression, thus blamed to its ineffective power,.
Failure was likewise attributed to the absence of clear division between
m the main executive m committee the League Council) and the League
• Assembly, both of which could only make recommendation had to
be unanimous. Moreover, there was no mechanism existed for
coordinating military or economic action against miscreant states.
As a result these defects led to the outbreak of WWII
• The UN structure was intended tom prevent some of the
problems encountered by the League of Nations. It has main six
organs (bailey et al, 2011)
• The Security Council – Principally responsible for
maintaining international peace and security. Composed of 15
states including five permanent five members, namely the USA,
Britain, France, Russia (former Soviet Union), and China and ten
permanent members. Its decisions are binding and must only be
passed by a majority of nine out of 15 members, as well as each of
the five permanent members, which
• also were seen as major powers as they hold veto power over Security
Council decisions.
• The General Assembly – regarded as parliament of nations as this is
represented by all UN members. The assembly meet to consider the world’s
pressing problems while each has one vote, Decisions on key issues like
international peace and security, UN budget and admission of new members
must acquire the two-third majority vote of the General Assembly. But, the
decisions which are reached have only the status of recommendation
• The Secretariat – this carries the administrative and substantive work
of the UN as directed by the General Assembly, the Security Council, and the
other organs. It is headed by the Secretary General, who provides
administrative guidance. The Secretariat consists of departments and office
with a total staff pf 40,000 around the world. As primarily bureaucratic , the
Secretariat lacks the political power and the right of initiative.
• The Economic and Social Council (ECOSOC) – under
the overall authority of the General Assembly, the ECOSOC is
mandated to coordinate the economic and social work of UN and
the UN family organizations. Is serves as a link between UN and
civil society, thus consultations with non-governmental
organizations is maintained.
• The Trusteeship Council – as UN was created , (this
provides international supervision for 1 Trust Territories
administered by seven member states and to ensure that adequate
steps were followed to prepare the territories for self-government
or independence. In 1994, all Trust Territories had attained
independence. As works was completed, the Council now consist of
5 permanent members of Security Council and had amended the
role of procedure.
• International Court of Justice – serves as the main judicial
organ of UN. It consists of 5 judges elected jointly by General
Assembly and the Secretary Council. The court not only decides
dispute between countries but also provides advisory opinions to
other UN organs and Specialized Agencies upon request.
• Furthermore, , the UN also includes a range of specialized agencies,
funds and programs, including the International Monetary Fund
(IMF) World Bank (WB), and the World Health Organization
(WHO) , the UN Educational , Scientific and Cultural Organization
(UNESCO) and the UN Children’s Fund (UNICEF)
GLOBALIZATION AND THE UN SYSTEM
• While globalization is understood as a term that refers to the
expansion and intensification of social relations and consciousness
across world-time and world-space (Steger, 2003) which is not only
concern with expansion of economic activities across state borders
increasing volume of finance investment, goods, and service flows ;
ideas, information, organization and people and cultural exchanges,
but also reflects the rapidly and intensity of the interactions in real
time.
• From these occurrences, there are opposing views when
analyzing the effect of globalization. Some consider it is equally
desirable and an important engine of growth that paved the way
for progress and higher standard pf living while others see it as
form of Western dominance and that only big countries has positive
things to say.
– Weis and Thakur 2010 raised points for clarifications
– That even in globalization era, people’s movements remain restricted
and strictly regulated , more so the 9/11 attack.
– Economic independence is highly symmetrical industrialized
developing countries are either interdependent in their relations or
largely independent in economic relations with one another and
developing countries are highly dependent on industrialized
countries.
– Growing divergence, not comvergence, in income levels between
countries and people, with widening inequality amongand within
nations.
– It has unleashed many uncivil society forces like international
terrorism, drugs, people and gun trafficking and illicit money flows
(Heine and Thakur, 2011)
• Thus globalization is believed to create both losers and
winners and could also entail risk and opportunities for involving
players actors. But according to an International Labor
Organization (ILO) blue-ribbon panel the problems are not caused
by globalization but in the deficiencies in its governance. Poverty
and inequality as global concerns are vividly felt and observed in the
actual arena since there is no economic and social institution which
can effectively tackle these problems with greater legitimacy , lesser
transaction and compliance costs and higher comfort levels for
most countries.Than the system of UN do (Weis and Thakur, 2010)
ROLE OF UN IN GLOBAL POLITICS
• Among the operating international organization, UN has more
comparative advantage in identifying and resolving global concerns.
And as world organization, it will continue to play four essential
roles according to Weis and Thakur, (2011).
• 1. Managing Knowledge – from a range of issues such as atomic
bombing to HIVAIDS and climate change, and to various kinds of
services like regulations of the skies and seas, internet traffic and
nail, all had successfully reached the attention of every states mthat
prompted them eventually to be involved and acts towards
revolution.
• Before addressing the problems which directs state to recognize
its existence, it is important to gather first solid information about
the nature and causes of the problems. Though UN system is
comprised of members states, accredited NGOs, media
contacts, basic research about these global problems and
• issues are done in universities or which should be by a knowledge-
based and knowledge-management organization. UN makes use of
convening capacity and mobilizing power to help generate
knowledge from outside and ensure its discussion and
dissemination among the governments
• 2. Developing Norms – key actors in international arena are
institutions operated by human beings or social actors, thus, norms
or standards of behavior are necessary to the society’s functions
and existence, As data has been collected and knowledge gained
that a problem is serious to warrant attention by the international
policy community, new norms are thereby developed.This is turn
was articulated, disseminated and institutionalized.
• 3. Formulating Recommendations – as norms are developed a
myriad of possibilities must be formulated as how key actors i.e.
government and IGOs can alter the behavior . However, by the
21st century, the growth and presence of civil societies has led
them to warrant attention as they became louder and holder in
voicing their positions in various issues. Civil societies of NGOs
have been recognized as they were present in signing of the
Charter-Article 71 which provides their participation. However,
formulated recommendations and proposals may wither as the
next step would be given to the member states, who shall tahe
the responsibility.
• 4. Institutionalizing Ideas – Once the knowledge has been
acquired, norms articulated and policies formulated , and existing
institutions can oversee their implementation and monitoring
• (Weis and Thakur, 2011). Based on UN’s history, every problem
identified has several global institutions which are working on
important solutions. Once created, institutions can facilitate
problem solving despite of non-coercive power. In some cases,
when the problem is distinctive , particularly in term of gravity and
scale, from other problems, international community of states
would create a new IGO which focus on addressing such problems.
For instance, the Joint UN programs on HIV/AIDS (UNAIDS),
established in 1996 following a resolution of WHO’s World Health
Assembly, was created serving as principal instruments for global
action on HIV/AIDS and provide actions to the epidemic.
UN CHALLENGE AND RESPONSES TO ISSUES
• For more than seventy years of operation, UN has been
continuously challenge of different controversy and criticism . Given
the ideational role. It is inevitable that expectations do not meet
UN’s actual performance as the principal global governance actor.
• While UN was assumed to be active in area such as refuge
protection, environment, counter-terrorism, human rights,
disarmament, economic, and social development, UN’s main role
that is widely accepted is that of maintenance of peace and security
that is carried out by Security Council, as it’s the main organ.
Thought it has gained successes in peacekeeping(such as in
Mozambique and El Salvador ) and peace-building (East Timor,) in
mid 1990s, UN failed to prevent the large scale slaughter in Rwanda
and Bosnia which damaged its reputation (Heywood, 2011).These
• And other issues continue to challenge UN to take on a stranger
role in maintaining global order.
• Maritime Dispute in West Philippine Sea
• Similarly, the growing threat of maritime conflict defies UN’s
authority over its member states. . The growing tensions and
continued display of coastal power in order to retain control are
significant in from the East China Sea to the Eastern Mediterranean,
from the South China Sea to the South Atlantic,. Where Philippine is
one of the claimants, the risk is more threatening in the maritime
area of South China Sea. The dispute center on a collection of
largely uninhabited island in the East China Sea are the Paracels
• in the Northwest know Spratlys in the Southwest and the
Maclesfield Bank in the Northwest (known in China as the Xisha,
Nansha, and Zhongsha island, respectively. While Brunei Malaysia
and Vietnam, and Philippines claim some among them particularly
those that are near their shorelines (Klare, 2017)
• After the Scarborough shoal standoff in 2012 where Filipino
fishermen,.Where forcibly turned away by Chinese Maritime
Surveillance vessels and construction of artificial island over the
disputed island, these incident prompted Philippine government to
file an arbitration case in 2013 before the International Tribunal for
the Law of the Sea(ITLOS) citing provision of the UN Convention
• on the Law of the Sea (UNCLOS) to justify its claim while China
argues about the “nine-dash-line” as basis of their right. However,
when the Tribunal issued 2016 its decision in favor of the
Philippines and China has violated the Philippine Sovereign Rights,
China was absent throughout the proceedings and refuse to
recognize the case. The Tribunal ruled that
“.. . . That there was no legal basis for China to claim historic right
to resources within the sea areas fulling within the nine-dash-line .. . .
Having found that none of the features claimed by China was capable of
generating an exclusive economic zone, the Tribunal found that it could---
without delimiting a boundary—declare that certain sea areas are within
the exclusive economic zone of the Philippines, because these area are not
overlapped by any possible entitlement of China
• Having found that certain areas are within the exclusive economic zone of
the Philippines, the Tribunal found that China violated the Philippines’
sovereign rights in its exclusive economic zone by (a) interfering with
Philippine fishing and petroleum exploration (b) constructing srtificial island
and (d) failing to present Chinese fishermen from fihing in the zone”
• China said and that it was the victim in the maritime disputeover
the West Philippine Sea and it would never accept any decision by the
UN arbitral tribunal. Moreover, it was reported that China “will never
accept any imposed solution or unilaterally reporting to third-party
settlement” (www,globalnation.inquirer.com)
• Non-recognition of China to arbitration’s decision resulted to
different reaction from members of the international community. As
more countries and international organization agree with the
• use of peaceful means and this musr be according the principle ofm
international law, including the UNCLOS, China continuously
ignored. It was reported that China had almost finished
transforming the seven reefs claimed by the Philippines into military
bases After issuing its decision, (UN was found silent when it
Comes to strict imposition of its verdict against China. According to
Klare (2017), the legal machinery for adjudicating offshore boundary
remains underdeveloped, and because many states are reluctant to
cede authority over those matters, this makes the resolution more
difficult.
• Conclusion
• The world today has been challenged by the increasing and
complicated problems – which some attribute to the impact of
• globalization. Problems within geographical area may no longer be
effectively addressed by single state or “problems without
passport” which the former UN Secretary Kofi Annan identified.
Hence, this kind require globalization of policy making-finding
solutions without passport (Weis and Thakur, 2011). And just like in
internal affairs, the global affairs, issues require common political
responses since most problems are political in nature. These, as
Nowotny (2011), believes can be found in the process of global
governance which calls for a broader political input: more intense
negotiations for more give and take., for a greater involvement of
the Public , for more empathy for the views of other and for more
skills in reaching common goods. Similarly, world politics
essentially needs systemic interdependence that has global
• Thakur (2011) was regarded as the only custodian of sovereignty
because of its unique and universal legitimacy.Though this was
deemed as violation of non-interventions for state’s exclusive
jurisdiction within their own spheres, it was cleared that UN
Charter did not only assert the rights of the state but also the
rights of the people, like in case of extreme transgression of
human rights when justification for intervention by the
international community is essential *Baylis et. Al, 2011).
Clarification has been pointed that without the express consent of
the government of that state, non-intervention is respected.
prudential, monitoring and surveillance mechanism to which all
states including significant global actors (,IGOs, NGOs
transnational organizational, etc—should be subject (Weis and
Thakur, 2011)This is where the UN system, according to Weis and
• Moreover, other view that intervention is justifiable only when
threat to international peace and security is evident.
• Thus, the UN remains indispensable actror in world political
system. The proliferation of problem s and global actors are
believed to enhance the key role played by UN. In fact, it is not just
a site where world leaders meet but the most important actor is
global governance (Thakar, 2011), an effective process in global
arena. Hence, as human kind’s most ambitious organizational effort
and managing to fulfill its “ideational role” amid the challenges of
• 21st century , UN necessary needs to be improved and
complemented rather than abandoned and supplanted (Weis and
Thankur, 2011).