Globalization and Trade Notes 10th Social Science
10th Social Science Lesson 11 Notes in English
11. Globalization and Trade
- Liberalization, Privatization and Globalization (LPG) have become a much talked of subjects among politicians, economists and businessmen in modern days.
- These three expressions are the supporting pillars of which the edifice of new economic policy of our Government has been erected and implemented since 1991.
- Globalization is the process of integrating various economies of the world without creating any barriers in the free flow of goods and services, technology, capital and even labour or human capital.
- Under globalization, the international markets for goods and services are integrated.
- Globalization is the integration of a country with the world economy.
- Basically, globalization signifies a process of internationalization plus liberalization.
History of Globalization
The term of ‘Globalization’ was introduced by Pro. Theodore Levitt. The historical backround of globalization can be discussed on three stages.
- Andre Gunder Frank argued that a form of globalization has been in existence since the rise of trade links between Sumer and Indus valley civilization in the third millennium BC (BCE).
- An early form of globalized economics and culture, known as Archaic globalization existed during the Hellenistic Age.
- When commercialized urban centers were focused around the axis of Greek culture over a wide range that stretched from India to Spain with such cities as Alexandria, Athens, and Anthioch, as its center.
- An early form of globalization in the trade link between the Roman Empire, Parthian Empire and the Han Dynasty made the commercial links between these powers inspired the development of the Silk Road.
- The Islamic Golden Age was also an important early stage of globalization.
- The advent of the Mongol Empire, though destabilizing to the commercial centers of the Middle East and China, greatly facilitated travel along the Silk Road.
- These Pre-modern phase of global exchange are sometimes known as archaic globalization.
- The next phase is known as proto – globalization.
- It was charterized by the rise of maritime European empires, in the 16th and 17th centuries, first the Portugues and Spanish Empires, and Dutch and British empires.
- In the 17th century, globalization became private business phenomenon like British East India Company [founded in 1600] described as the first multinational company, and the first Dutch East India Company [found in 1602] were established.
- In 16th century, Portuguese started establishing trading posts [factories] from Africa to Asia and Brazil.
- The 19th century witnessed the advent of globalization approaching its modern form. Between the globalization in the 19th and in he 20th century there are significant differences.
- There are two main points one is the global trade in his centuries as well as the capital, investment and the economy and another one is the global trade in the 20th century shows a higher share of trade in merchant production, a growth of the trade in services and the rise of production and trade by multinational firms.
- Multinational trade contracts and agreements have been signed, like the General Agreement on Tariffs and Trade [GATT] and World Trade Organization [WTO].
- From 1890 and up to World War 1 instability trade was a problem, but in the post war period there has mostly been economic expansion which leads to stability.
- Technological changes have caused lower transporting costs, it take just a few hours to transport goods between continents today.
Trade and Traders in South India historical perspective
Southern Indian trade guilds were formed by merchants in order to organize and expand their trading activities. Trade guilds become channels through which Indian culture was exported to other lands. South India trade was dominated by the Cholas, and it replaced the Pallavas.
- In the year 1053 AD (CE) the Kalinga traders (Modern Orissa) brought red colored stone decorative objects for trade and also cotton textile to Southeast Asia at an early date. Several trade guilds operated in medieval Southern India such as the Gatrigas, Nakaras, Mummuridandas, Ayyavole -500 Settis, Birudas, Gavaras, etc.
- Some European Traders in South India. This was due to the trading activities of the various European companies which came to India during this period.
- The discovery of a new all-sea route from Europe to India Via cape of Good Hope by Vasco do Gama had for reaching repercussions on the civilized world.
- India’s coastal and maritime trade was monopolized by the Europeans.
- The Portuguese under the leadership of Vasco da Gama landed at Calicut on the 17th May, 1498.
- Profits of goods brought by Vasco do Gama to Portugal were to 60 times cost of the entire expedition to India.
- The arrival of Pedro Alvarez cabral in India in 1500AD (CE) and the second trip of Vasco da Gama in 1502 led to the establishment of trading station at Calicut Cochin and Cannanore.
- Cochin was the early capital of the Portuguese in India.
The Dutch in South India
- Dutch undertook several voyages from 1596 and formed the Dutch East India company (VOC) I 1602.
- In 1605, Admiral van der Hagen established Dutch Factory at Masulipatnam and Pettapoli (Nizamapatanam), Devanampatinam.
- In 1610, upon negotiating with the king of Chandragiri, found another facatory at Pulicut. Other commodities exported by the Dutch were indigo, saltpeter and Bengal raw silk. Pulicut was the headquarters of the Dutch in India.
- Nagapatnam on the Tanjore coast acquired from the Portuguese in 1659.
The British Company (UK)
- On 31st December, 1600, Queen Elizabeth granted charter to The East India Company. On the south-eastern coast, the English established at Masulipatnam in 1611 and near Pulical in 1626.
- The Sultan of Golconda granted the English the “Golden Fireman” in 1632 by which they were allowed to trade freely in their “Kingdom Ports”.
- In 1639, built a fortified factory in Madras which known as Fort St.George, which soon displaced Masulipatnam as headquarters of the English settlement on the coromandel coast.
- The Danes formed an East India company and arrive in India in 1616.
- The Danish settlements were established at Tranguebar ( in Tamil nadu) in 1620 which was the headquarters of Danes in India.
- They failed to strengthen themselves, in India and in 1845 were forced to sell all their India settlements to the British.
- The first French factory in India was established in 1668 by obtaining permission from the Sultan of Golconda.
- In 1693, the Dutch captured Pondicherry but was handed back to the French.
- In 1701, Pondicherry was the headquarters of the French. Settlements in the East after 1742 Political motives began to overshadow the desire for commercial gain.
- Recently, the Government of India has set up Special Economic Zones in Southern States especially in Tamilnadu, Andhra, Karnataka and Kerala with a view to boost exports Nanguneri Sez, Ennore Sez, Coimbatore Sez are some in Tamilnadu.
Globalization in India
- In India the period after 1980-81 was marked by severe balance of payment difficulties mainly due to hike in oil price and Gulf war in 1990-91 and hostilities in West Asia.
- When the new government took over in June 1991. India had unprecedented balance of payment crisis.
- The finances of the central, and state Government had reached a situation of near bankruptcy.
- With the downgrading of India’s credit rating by some international agencies, there was heavy flight of capital out of India. Since India lost its credit worthiness in the international market, the government mortgaged 40 tons of gold to the Bank of England.
- Under these circumstances, the government for 1991-92 presented its budget in July 1991 with a series of policy changes which underlined globalization, liberalization and privatization. This has come to be called as India’s new economic policy.
- This policies were strengthened when India signed the Dunkel Draft in 1994.
Reforms made to adopt Globalization:- (New Economic policy in India)
1. Abolition of Industrial licensing, except for a few industries.
2. Reduction in the number of industries reserved for public sector.
3. Fixation of a realistic exchange rate of rupee to exchange exports of Indian goods.
4. Foreign private sector by making rupee convertible on trade, on current account and by reducing import duties.
5. Foreign exchanges regulations were suitably amended
6. The Statutory Liquidity Ratio (SLR) was reduced to increase lending by RBI.
Multi National Corporation (MNC)
- Multi National Corporation is a Corporate organization which owns or controls production of goods or services in at least one country other than its home country.
- Otherwise called Multinational Corporations (MNCs) or Transnational Corporation (TNC) or Multinational Enterprise (MNE).
Evolution of MNC
- Like, the East India Company, which came to India as a trading company and then its net throughout the country to become politically dominant, these multinationals first start their activities in extractive industries or control raw materials in the host countries during 1920s and then slowly entered.
- The manufacturing and service sectors after 1950s. Most of the MNC’s at present belong to the four major exporting countries viz., USA, UK, France, Germany.
- However, the largest is American. 11 of the 15 largest multinationals are American, In 1971, the American Corporations held 52 percent of the total world stock of foreign direct Investment.
- Great Britain held 14.5 percent followed by France 5 percent and Federal Republic of Germany 4.4 percent and Japan 2.7 percent.
- In 1969 the American Multinationals alone produced approximately 140 billion dollars worth of goods.
- The American multinationals realize quite substantial returns to the extent of 34 percent in Asiatic countries and 22 percent in African countries.
- They then acquire enormous powers in house countries, which smoothens the free flow of fund across international boundaries.
- They purchase the best brains in these countries and resort to unfair practices.
- With their huge resources, the MNCs are able to invest in research and development and exploit technological developments to manufacture new products, and discover new process.
Growth of MNCs in India
- A common form of MNC Participation in Indian industry is through entering into cooperation with Indian industrialist.
- Trends of liberalization in the 1980s gave a substantial spurt to foreign collaborations. This would be clear from the fact that of the total 12,760 foreign collaboration agreements in 40 years between 1948-1988.
- As a result of liberalized foreign investment policy (FIP) announced in July-Aug 1991 there has a further spurt of foreign collaborations and increase flow of foreign direct investment.
Reasons for the growth MNC
Expansion of Market territory.
As the operations of large sized firm expand, it seeks more and more extension of its activates beyond the physical boundaries of the country in which it is in corporate.
- A multinational firm enjoys a number of marketing superiorities over the national firms.
- It enjoys market reputation and faces less difficulty in selling its products it adopt more effective advertising and sales promotion techniques
It has financial resources and a h high level of funds utilization. It has easier access of external capital markets. Because of its international reputation it is able to raise more international resources.
The main reason why MNCs have been encouraged by the underdeveloped countries to participate in their industrial development is on account of the technological superiorities which these firms posses as compared to national companies.
MNCs have research and development engaged in the task of developing new products and superior designs of existing products.
Advantages of MNC
1. Producing the same quality of goods at lower cost and without transaction cost
2. MNC reduce prices and increase the Purchasing power of consumers world wide
3. A MNCs is able to take advantage of tax variation.
4. Spurring job growth in the local economies
Disadvantages of MNC
1. They are a way for the corporations to develop a monopoly (for certain products)
2. They are also a detrimental effect on the environment.
3. The introduction of MNC in to a host country’s economy may also lead to the downfall of smaller, local business.
4. MNC breach ethical standards, accusing them of evading ethical laws and leveraging their business agenda with capital.
Fair Trade Practices and World Trade Organization
Fair Trade is a way of doing business that ultimately aims to keep small farmers an active part of the world Market place, and aims to empower consumer to make purchases that support their values. Fair Trade is a set of business practices voluntarily adopted by the producers and buyers of agricultural commodities and hand-made crafts that are designed to advance many economic, social and environmental goals, including,
- Raising and stabilizing the incomes of small Scale farmers, farm workers and artisans.
- More equitably distributing the economic gains, opportunities and risks associated with the production and sale of these goods.
- Increasing the organizational and commercial capacities of producer groups.
- Promoting labor rights and the right workers to organize.
- Promoting safe and sustainable farming Methods and working conditions.
Fair trade is about better prices, decent working conditions and fair terms of trade for farmers and workers. It’s about supporting the development of thriving farming and worker communities that have more central over their futures and protecting the environment in which they live and work.
Beneficiaries of Fair trade practices:
- Consumer support enables Fair Trade Organisation to be advocates and comparing for wider reform of International trading rules.
- They can choose from an even growing range of great products.
- By buying Fair trade labeled products consumers support producers who are struggling to improve their lives.
- Since, it launch in 2002 the Fair trade mark has become the most widely, recognized social and development label in the world.
- Fair trade offers companies a credible way to ensure that their trade has a positive impact.
- Stable prices that cover the costs of sustainable production.
- Market access that enable buyers to trade with producers who would otherwise be excluded from market.
- Partnership (Producers are involved in decisions their future). The Empowerment of farmers and workers
Principles of Fair trade Organization
- Creating Opportunities for Economically Disadvantaged producers
- Transparency and Accountability
- Fair Trading Practices and Payment of a Fair Price
- Ensuring no child Labour and Forced Labour
- Commitment to Non Discrimination, Gender Equity and freedom of association
- Providing Capacity Building and Promoting Fair Building
- Respect for the Environment.
GATT: (General Agreement of Trade and Tariffs)
- GATT was signed by 23 countries in 1947. India was one of the founder members of GATT.
- In the seventh Round 99 countries participated. In the Eighth Round of 1986, (Uruguay Round), 117 countries participated.
- The Director General of GATT Arthur Dunkel came up with a Drafft Final Act, known as Dunked Draft and on April 15, 1994 the Final Act was ultimately approved and signed.
- GATT’s primary purpose was to increase International Trade by reducing various tariffs, quotas and subsidies while maintaining meaningful regulations.
World Trade Organization (WTO)
- The signing of the Final Act of the Uruguay Round by member nations of GATT in April 1994 paved the way for setting up of the WTO.
- An agreement to this effect was signed by 104 members. The WTO Agreement came into force from January 1, 1995 (the present membership of WTO is 164 countries)
Objectives of W.T.O
- To set and enforce rules for international trade
- To provide a forum for negotiating and monitoring further trade liberalization
- To resolve trade disputes
- Introduction the sustainable development and environment can go together
- To ensure that developing countries, secure a better share of growth in world Trade
- To resolve trade disputes
- To increase the transparency of decision making processes
- Introduction sustainable development the development and environment can go together
- To ensure full employment and broad increase in effective demand.
Trade Related aspects of Intellectual Property Rights (TRIPs)
- Intellectual Property Right may be defined as “Information with a commercial Value” Under TRIPs Patent shall be available for any invention whether product or process in all fields of industrial technologies.
- Trips agreement covers seven areas of intellectual’s property rights i.e. Copy rights, Trade Market, Trade Secrets, Industrial Design, Geographical appellations Integrated circuits and Patents.
Trade Related Investment Measures (TRIMs)
The Uruguay Round Agreement on TRIMs refers to certain conditions (or) restrictions imposed by a government in respect of foreign investment in the country in order to give adequate provisions for the home industries to develop.
Impact and Challenges of Globalization
- A better economy introduces rapid development of the capital market
- Standard of living has increased
- Globalization rapidly increase better trade so that more people are employed
- Introduced new technologies and new scientific research patterns
- Globalization increasing the GDP of a country
- It helps to increase in free flow of goods and also to increase Foreign Direct Investment.
- Too much flow of capital amongst countries, Introduces unfair and immoral distributors of Income
- Another fear is losing national integrity. Because of too much exchange of trade, independent domestic policies are lost
- Rapid growth of the economy has required a major infrastructure and resource extraction. This increase negative ecological and Social costs
- Rapid increases in exploitation of natural resources to earn foreign exchange
- Environmental standards and regulations have been relaxed.
Challenges of Globalization
- The benefits of globalization extend to all countries that will not happen automatically.
- The fear that globalization leads to instability in the developing world
- The industrial world that increased global competition will lead in race to the bottom in wages, labour right, and employment practice
- It leads to global inbalance
- Globalization has resulted with the embarrassment
- Globalization has led to an increase in activities such as child labor and slavery
- People started consuming more junk food. This caused, the degradation of health and spread of diseases
- Globalization has led to environmental degradation.
More to Know:
1. The WTO mentions five types of subsidies:
- Cash subsidies, such as the grants mentioned above
- Tax concessions, such as exemptions, credits, or deferrals
- Assumption of risk, such as loan guarantees
- Government procurement policies that pay more than the free-market price
- Stock purchases that keep a company’s stock price higher than market levels. These are all considered subsidies because they reduce the cost of doing business.
2. World Trade Organization (WTO):
Head Quarter: Geneva, Switzerland
Purpose: Regulation, International trade
Members of WTO: Director General, Four Deputy Director General, and other 600 Official Staff from around 80 member countries.
3. Rounds of GATT
- First in Geneva (Switzerland) (1947)
- Second in Annecy (France) in 1949
- Third in Torquay (UK) in 1950 – 51
- Fourth, fifth, and Sixth in Geneva (Switzerland) in 1956, 1960-61, 1964 -67
- Seventh in Tokyo (Japan) in 1973 – 79
- Eighth and final round at Punta del Este (Uruguay) in 1986 – 1994, known as ‘Uruguay Round’.
4. Fair trade food product such as coffee, tea, cocoa, honey and bananas. Non-food commodities include crafts, textile and flowers.
5. FERA (Foreign Exchange Regulation Act 1974)
This Act referred directly to the operations of MNCs in India
6. FEMA (Foreign Exchange Management Act 1999)
Under FEMA the emphasis is on ‘Management’ rather than ‘regulation’
7. Foreign Contribution (regulation) Act, 2010
FCRA, 2010 has been enacted by the Parliament to consolidate the law to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to national interest and for matters connected therewith or incidental thereto. The flow of foreign contribution to India is regulated under
- Foreign Contribution (Regulation) Act, 2010
- Foreign Contribution (Regulation) Rules, 2011
8. Top 10 Largest Multinational Companies in India 2018
1. Sony Corporation
2. Hew left Packard (HP)
3. Tata Group
4. Microsoft Corporation
5. IBM 6. Nettle
7. Procter & Gamble
8. City Group
9. Pepsi Company
10. The Coca-Cola Company