Liberalization of International Trade Agreements - Literature review Example

Running Head: Globalization Globalization [Institute’s Table of Contents Introduction 3 Benefits of International Trade Liberalization 4 Further Liberalization of International Trade Agreements 7 Conclusion 10 References 10 Introduction International trade liberalization agreements play a major role in driving the globalization. Integration into the global financial system has shown an influential way for nations to support economic development, improvement, and decline in poverty. During the last two decades, the intensification of international trade has averaged seven percent per annum, two times as quickly as global productivity. However, trade has been the driver of development for a long time. Since the introduction of GATT (General Agreement on Tariffs and Trade) in the year 1947, the global trading structure has gained from “eight rounds of multilateral trade liberalization” (Rodrik, 2011, p. 192), plus from independent as well as regional liberalization. In fact, the final round of these eight rounds initiated the foundation of the WTO (World Trade Organization) to assist in managing the rapid increase in multilateral trade agreements. The consequential incorporation of the global financial system has enhanced standard of living all over world. The majority of developing nations have benefitted from this affluence; in a few, incomes have increased considerably. As a cluster, developing nations have turn out to be a lot more significant within globalization - at the present, they form one-third of the entire global trade. A large number of developing nations have significantly increased their “exports of manufactures and services compared with exports of conventional products” (Trebilcock et al, 2012, p. 22): manufactures have increased by more or less eighty percent of developing nation exports. In addition, trade between developing nation has developed quickly, with around forty percent of their exports currently available to other developing nations. On the other hand, the advancement of integration has been irregular during recent decades. Advancement has been quite remarkable for many developing nations within Asia as well as within Latin America to a certain level. These nations are successful as they decided to take active part in globalization, facilitating them to draw the huge volume of foreign direct investment within developing nations. This stands true for China as well as for India because they adopted international trade liberalization along with other market related modifications, and also for higher income nations in Asia (Bernard et al, 2011, p. 88)), for instance, Singapore and Korea. However, advancement has not been fast for a number of other nations, mainly the ones in Africa as well as in the Middle East. The most underprivileged nations have witnessed their share of global trade to drop significantly, and without lessening their individual hurdles to trade, there is a possibility of additional marginalization. More than seventy developing as well as transition economies, together with almost every under-developed nation, fit this account. Contrary to the successful integrators, they rely excessively on creation and exports of conventional supplies (Narlikar, 2013, p. 41). The bases for their marginalization are intricate, together with inherent structural issues, poor policy structures as well as governmental bodies, and security at home as well as overseas. Benefits of International Trade Liberalization Policies that create an economy open for trade as well as investment with the world are considered necessary for continued economic development. The proof on this is clear - no country during recent decades has attained economic success, with respect to considerable raise in standard of living for its citizens, without being open to the world (Lambin & Meyfroidt, 2011, p. 3469). On the contrary, trade opening - in addition to opening of foreign direct investment - has been a significant component within the economic achievement of East Asia, where the standard ‘trade in’ tariff has dropped from thirty percent to only ten percent during the last two decades. “Opening up their economies to the global economy” (Chen & Hsu, 2012, p. 1639) has been vital in facilitating a number of developing nations to acquire competitive gain with the production of some specific goods. In these nations, termed “new globalizers” (Chen & Hsu, 2012, p. 1640) by the World Bank, the number of individuals in complete poverty dropped by more or less fifteen percent (120 million) during 1995 and 2010. There is significant proof that further outward looking nations are likely to develop constantly quicker as compared to those which are inward looking. In fact, one finding is that the advantages of international trade liberalization can go beyond the costs by “more than a factor of 10” (Felbermayr, 2011, p. 45). Nations that have opened their financial systems during the recent years, together with Uganda, Vietnam and India, have seen more rapid development as well as more lessening in poverty. Overall, those developing nations that decreased tariffs sharply during 1980s, developed more rapidly during 1990s as compared to those that did not. Opening trade regularly helps the underprivileged in particular. Developing nations can “ill-afford the huge implied subsidies” (McMillan & Rodrik, 2001, p. 65), usually directed at narrow interests that trade security offers. Besides, the improved growth that as a result of freer trade itself likely to enhance the incomes of the underprivileged in more or less the similar percentage as those of the population all together. New career opportunities are formed for inexperienced people, lifting them up into the middle class. In general, disparity between countries has been decreasing from 1990, showing more swift economic development and increase in globalization, which is the outcome of international trade liberalization to a certain extent. The possible benefits from removing other trade hurdles are substantial - Estimates of the benefits from removing every obstacle to international trade in between 275 billion USD to 680 billion USD each year. More or less two-thirds of these benefits would accrue to developed countries. However, the sum accruing to developing nations would still be over twofold the level of support they getting at the moment. In addition, developing countries would benefit more from international trade liberalization agreements as a percentage of their gross domestic product as compared to developed countries, since their economies are better protected and since they are in front of increased obstacles (Rugman, 2012, p. 92). Even though there are gains from enhanced access to other countries markets, countries gain mainly from liberalizing their individual markets. The key advantages for developed countries would originate from the liberalization of their farming markets. Developing countries would benefit in the same way from liberalization of production as well as of agriculture. On the other hand, the set of low income nations would benefit mainly from agricultural liberalization within developed countries as a result of the better comparative significance of cultivation within their economies. The economic gain of international trade liberalization agreements to support economic integration can no longer be assessed by the economic influence of eliminating of hurdles to trade in commodities only. This is one outcome of the achievement of progressive liberalization of international barriers to trade as well as globalization which it promoted. The focus of earlier agreements to decrease obstacles to trade is now consistently developed to incorporate steps to ease the “free movement of the factors of production” (Meyfroidt et al, 2013, p. 441). It is obvious that considerable gains are to be acquired from elimination of hurdles to services. The worth of eliminating these hurdles to services is tricky to assess. Nonetheless, according to the estimates of World Trade Organisation, the value of global cross border trade was 2150 billion USD, or more or less 25 percent of the entire cross border trade during 2010. Although constraints on global trade are significant, elimination of obstacles to investment is expected to generate bigger benefits. The majority of constraints on investment are qualitative and hence the economic influence is not easy to evaluate. As it is more convenient to innovate within “bilateral” and “regional” (Nocke & Yeaple, 2013, p. 27) agreements as compared to multilateral agreements, the drift to expand the application of mechanisms increases for better integration. These agreements are the contemporary instruments for profound economic integration supported by neoliberal economic ideology. In a thorough evaluation of these agreements in addition to their economic influence, a report by World Bank indicates them as “Regional Integration Agreements” (Amiti & Cameron, 2012, p. 280). They could similarly be expressed as “Free Market Agreements” (Amiti & Cameron, 2012, p. 281). The report mentions such agreements for attaining better integration, given that they are appropriately structured. On the other hand, not all agreements supporting the growth of trade between countries have the preferred outcome. For instance, if countries decrease hurdles to trade among themselves but maintain high trade restraints with other countries, there will be a negative influence on economic interests. The hypothetical case for the possible negative economic influence of bilateral as well as regional agreements when “global trade diversion exceeds trade creation is well established” (Egger & Kreickemeier, 2012, p. 189). Further Liberalization of International Trade Agreements These concerns identify the need to liberalize trade further. Even though security has dropped to a large extent during the last 30 years, it stays noteworthy within both industrial as well as developing countries, mainly in fields like “agriculture products or labor intensive manufactures and services” (Athukorala, 2011, p. 83) where developing countries have comparative lead. Developed countries preserve increased protection in cultivation by means of many high tariffs, together with tariff peaks (more than 15 percent), tariff, and limiting tariff proportions. Standard tariff security within cultivation is more or less nine times higher as compared to production. Besides, these subsidies in developed countries, which are equal to two-third of Africas overall gross domestic product, destabilize developing countries agricultural divisions as well as exports by lowering global prices and forestalling markets. In developed nations, safety of production is usually small; however, it continues to be high on a number of labor focused products generated by developing nations. For instance, US, having a standard import tariff of merely five percent, have highest tariff on more or less 300 individual goods. These are mainly on textiles and garments, which comprise more than 85 percent of the one billion USD per annum (Breslin et al, 2013, p. 12) in United States imports from the most underprivileged nations - the amount that is kept down by import quotas in addition to tariffs. Other labor focused goods are as well excessively conditional on tariff peaks and tariff increase, which slow down the diversification of exports toward better value added goods. A large number of developing nations themselves have high tariffs. Normally, their tariffs on the industrialized goods they import are almost four times as high as that of developed nations, and they show the similar features of tariff peaks as well as intensification. Tariffs on agriculture are even higher in comparison to that of industrial goods. Nonconventional steps to obstruct trade are more difficult to evaluate; however, they are turning out to be all the more important as conventional tariff security and such obstacles as import quotas decline. ‘Antidumping’ steps are rising in both developed as well as developing nations, but are taken disproportionately by developing nations. Policies regarding imports to follow technological as well as hygienic principles include another key barrier. They inflict expenses on exporters that can surpass the advantages to customers. For various reasons, privileged access systems for underprivileged nations have not shown to be very successful in rising market access for these nations (Nesadurai, 2012, p. 103). These systems mostly eliminate, or give less liberal gains for, the extremely secured goods of major benefit to exporters within the underprivileged countries. They are usually difficult, nontransparent, and conditional on a number of exceptions and circumstances that restrict gains or cease them as soon as considerable market access is attained. Further liberalization - by both developed as well as developing nations - will be considered necessary to appreciate trades potential as a source of power for economic development and progress. Better efforts by developed nations, in addition to the global community more widely, are necessary to eliminate the trade obstacles that are in front of developing nations. In the same way, the removal of tariff peaks as well as intensification in agriculture and manufacturing should also be followed (Krautheim, 2012, p. 29). Consecutively, developing countries would reinforce their individual economies if they made a persistent attempt to decrease their individual trade hurdles. Better access to global markets for the developing countries would offer them the way to control trade for progress as well as for lessening the poverty. Providing the underprivileged countries with duty-free as well as quota-free access to global markets would significantly do well to them at small cost. The latest market opening schemes of European Union and a number of other countries are significant steps for the same purpose. To be entirely successful, this sort of access should be made permanent, including all commodities, and together with uncomplicated, transparent policy (Margalit, 2012, p. 486). This would offer the underprivileged countries the assurance to carry on with complicated domestic restructuring and ascertain efficient utilization of debt assistance. Conclusion The inability to initiate a fresh round of mutual trade negotiations was a setback for the global trading structure. These international bilateral discussions are very significant since they offer a chance for countries to achieve obvious gains for their exporters from market opening by others. This view offers an additional inducement for nations to open their own markets, and to prevail over resistance from the deep-rooted benefit gaining from protection. Thus, the “packages of international trade liberalization” (Novy, 2013, p. 119) measures that outcome for these discussions are guaranteed of benefiting all of the concerned nations. A fresh round of discussions would increase global developmental prospects and support the globalization. The International Monetary Fund highlights a successful trade round to be a vital move toward meeting the objective of making globalization to benefit all. It is obvious now that international trade liberalization agreements have attained a new significance in globalization. To a certain extent, they constantly supported a political function of representing closer links with one country to another. Nonetheless, in the period of globalization, this takes on a completely new aspect (Colantone & Sleuwaegen, 2010, p. 1243) - They have turned into a tool for speeding up the integration of financial systems within a global economy where international trade is more open and global economic incorporation is stronger. References Amiti, M., & Cameron, L. 2012. Trade liberalization and the wage skill premium. Journal of International Economics, 87(2), 277-287. Athukorala, P. C. 2011. Production Networks and Trade Patterns in East Asia: Regionalization or Globalization? 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