Economic Relations

1. The Globalization of
Economic Relations
Sir Malit

2. What is Economic Globalization?
Economic Globalization is a historical process, the
result of human innovation and technological progress.
It refers to increasing integration of economies around
the world, particularly through the movement of
goods, services, and capital across borders. The term
sometimes also refers to the movement of people
(labor) and knowledge (technology) across
international borders. (IMF, 2008)

3. Interconnected dimensions of economic
globalization

4. The globalization of trade goods and services
•When a country exports more than
imports, it runs a trade surplus. When a
country imports more than it exports, it
runs a trade deficit. The large trade
deficits in the middle and the late
1980s sparked political controversy that
still persist today.

5. The Globalization of Financial and Capital
Markets
•A country enjoys an absolute
advantage over another country in
the production of goods if it uses
fewer resources to produce that
good than the other country does.

6. For Example:
• Supposed Country A and Country B produce
coffee, but A’s climate is more suited to coffee
and its labor is more productive. Country A will
produce more coffee per acre than country B.
And use less labor in growing it and bringing it
to market. Country A enjoys an absolute
advantage over country B in production of
coffee.

7. Absolute Advantage
•Absolute Advantage in the
production of goods enjoyed by one
country over another when it uses
fewer resource to produce that
goods than the other country does.

8. Trade Barriers
Also called obstacles to
trade– take many forms. The
three most common are
tariffs, export subsidies, and
quotas.

9. Tariff
• A tariff is a tax on imports.
The average tariff on imports
into the United States is less
than .5%. Certain protected
items have much higher
tariffs. For example, in 2009,
former President Obama of the
United States imposed a tariff
of 35% on tire imports from
China.

10. Export Subsidies
•Export Subsidies is a
government
payments made to
domestic firms to
encourage exports-
can also act as a
barrier to trade.

11. Quotas
A quota is a limit on
the quantity of
imports. Quotas can be
mandatory or
voluntary, and they
may be legislated or
negotiated with foreign
governments.

12. The Globalization of Technology and
Communication
• Capital is not the only factor of production required to produce
output, labor is equally important. To be productive, the
workforce must be healthy. Health is not the only issue but basic
literacy as well as specialized training in farm management, for
example, can yield high returns to both the individual

13. Globalization of Production
• Production is the process of which inputs are combined and
transformed into output. Production technology relates inputs to
outputs. Specific quantities of inputs are needed to produce any
given service or good. Most outputs can be produced by a number
of different techniques. In choosing the most appropriate
technology, firms choose the one that maximize the cost of
production. For a firm, an economy with a plentiful supply of
inexpensive labor but not much capital, the optimal method of
production will involve labor-intensive techniques.

14. Distinction of Globalization from
Internationalization
• Dickens (2004) distinguished economic
globalization from internationalization by
stating that the former is functional in
integration between internationally dispersed
activities while the latter is about the extension
of economic activities of nation states across
borders. Hence, economic globalization is more
on qualitative change.

15. The World Trade Organization and the GATT

16. General Agreement on Tariff and Trade
(GATT)
• Year established: 1947
• 23 Nations
• Established on 3 principles
• Equal, nondiscriminatory trade
treatment for all member
nations;
• The reduction of tariffs by
multilateral negotiations;
• The elimination of import quotas.

17. World Trade Organization
• Regulates international trades
Deals with the rule of trade
between nations Ensures the
trade will flows smoothly,
predictably and freely as
possible.
• Acts as forum in negotiation
trade agreements

18. Preferential Trade Agreement
• In addition to multilateral initiative of GATT, countries in each of
the world’s region are seeking to lower barriers to trade within
their regions. Historically, when countries entered into preference
agreement, they notified GATT. Between 1947 and 1992, there
were 85 agreements that were notified while 77 new agreements
have been added since 1992. Strictly speaking few of the trade
agreements fully conform with GATT requirements, although none
was disallowed. Only Japan, Hong Kong, and South Korea among
the WTO members have not sign preferential trade agreements.

19. Free Trade Areas
• A free trade area (FTA) is formed when two or
more countries agree to abolish all internal
barriers to trade among themselves. Countries
that belong the free trade area can do and
maintain independent trade policies with respect
to non-FTA countries. A system of certificates of
origin is used to avoid trade diversion is in favor
of low-tariff members.

20. Customs Union
• A custom union represents the logical evolution of a free
trade area. In addition to eliminating internal barriers to
trade, members of a custom s union establish common
external barriers. On January 1, 1996, the European
Union and Turkey initiated a customs union in an effort
to boost two-way trade above the current annual level of
$20 billion. The arrangement called for elimination of
tariffs averaging 14% that added $1.5 billion each year to
the cost of European goods imported by Turkey.

21. Common Market
• A common Market is the next step in the
spectrum of economic integration. In addition to
the removal of internal barriers to trade and the
establishment of common external barriers, the
common market allows for free movements of
factors of production, including labor, capital
and information.

22. North American Free Trade Agreement
• The North American Free Trade is
an agreement signed by Canada,
Mexico, and the United States,
creating a trilateral trade bloc in
North America. The agreement
came into force on January 1,
1994. It superseded the 1988
Canada–United States Free Trade
Agreement between the U.S. and
Canada, and is set to be replaced
by the 2018 United States–
Mexico–Canada Agreement.

23. Andean Community
• The Andean Community (Spanish:
Comunidad Andina, CAN) is a customs union
comprising the South American countries of
Bolivia, Colombia, Ecuador, and Peru. The
trade bloc was called the Andean Pact until
1996 and came into existence when the
Cartagena Agreement was signed in 1969.
Its headquarters are in Lima, Peru.
• The Andean Community has 98 million
inhabitants living in an area of 4,700,000
square kilometers, whose Gross Domestic
Product amounted to US$745.3 billion in
2005, including Venezuela, who was a
member at that time. Its estimated GDP
PPP for 2011 amounts to US$902.86 billion,
excluding Venezuela.

24. Common Market of the South (Mercosur)
• Mercosur, officially Southern Common Market (Portuguese:
Mercado Comum do Sul or Mercosul; Guarani: Ñemby
Ñemuha) is a South American trade bloc established by the
Treaty of Asunción in 1991 and Protocol of Ouro Preto in
1994. Its full members are Argentina, Brazil, Paraguay and
Uruguay. Venezuela is a full member but has been suspended
since December 1, 2016. Associate countries are Bolivia,
Chile, Colombia, Ecuador, Guyana, Peru and Suriname.
Observer countries are New Zealand and Mexico.
• Mercosur's purpose is to promote free trade and the fluid
movement of goods, people, and currency. It currently
confines itself to a customs union, in which there is free
intra-zone trade and a common trade policy between
member countries. The official languages are Spanish,
Portuguese, and Guarani. Since its foundation, Mercosur's
functions have been updated, amended, and changed many
times: it is now a full customs union and a trading bloc.
Mercosur and the Andean Community of Nations are customs
unions that are components of a continuing process of South
American integration connected to the Union of South
American Nations (USAN).

25. Asia-Pacific

26. Association of Southeast Asian
Nation
ASEAN
It is a geo-political and economic
organization of ten countries located in
Southeast Asia, which was formed on 8
August 1967 by Indonesia, Malaysia, the
Philippines, Singapore and Thailand.
Since then, membership has expanded to
include Brunei, Burma (Myanmar),
Cambodia, Laos, and Vietnam. Its aims
include accelerating economic growth,
social progress, cultural development
among its members, protection of
regional peace and stability, and
opportunities for member countries to
discuss differences peacefully.

27. The European Union
• The European Union has established a
single market across the territory of all
its members representing 512 million
citizens. In 2017, the EU had a
combined GDP of $21 trillion
international dollars, a 17% share of
global gross domestic product by
purchasing power parity (PPP). As a
political entity the European Union is
represented in the World Trade
Organization (WTO). EU member states
own the estimated second largest after
the United States(US$93.6 trillion) net
wealth in the world, equal to 25%
(US$70.8 trillion) of the $280 trillion
global wealth.

28. The Middle East

29. The Gulf Cooperation Council
• A common market was launched on 1 January
2008 with plans to realise a fully integrated
single market. It eased the movement of goods
and services. However, implementation lagged
behind after the 2009 financial crisis. The
creation of a customs union began in 2003 and
was completed and fully operational on 1
January 2015. In January 2015, the common
market was also further integrated, allowing
full equality among GCC citizens to work in the
government and private sectors, social
insurance and retirement coverage, real estate
ownership, capital movement, access to
education, health and other social services in
all member states. However, some barriers
remained in the free movement of goods and
services. The coordination of taxation systems,
accounting standards and civil legislation is
currently in progress. The interoperability of
professional qualifications, insurance
certificates and identity documents is also
underway.

30. Economic Community of West African States
• The union was established on 28 May
1975, with the signing of the Treaty
of Lagos, with its stated mission to
promote economic integration across
the region. A revised version of the
treaty was agreed and signed on 24
July 1993 in Cotonou. Considered
one of the pillar regional blocs of the
continent-wide African Economic
Community (AEC), the states goal of
ECOWAS is to achieve "collective self-
sufficiency" for its member states by
creating a single large trade bloc by
building a full economic and trading
union.

31. South African Development Community
(SADC)
• The SADC Free Trade Area was established in August
2008, after the implementation of the SADC Protocol on
Trade in 2000 laid the foundation for its formation. Its
original members were Botswana, Lesotho, Madagascar,
Mauritius, Mozambique, Namibia, South Africa,
Swaziland, Tanzania, Zambia and Zimbabwe, with
Malawi and Seychelles joining later. Of the 15 SADC
member states, only Angola and the Democratic
Republic of Congo are not yet participating. The SADC-
Customs Union, scheduled to be established by 2010
according to SADC's Regional Indicative Strategic
Development Plan (RISDP), is unlikely to become reality
in the near future. This is because the European Union's
Economic Partnership Agreements (EPA) with their
inherent extra-regional freetrade regimes provided for
several SADC members more benefits than deeper
regional market integration within the framework of a
SADC-Customs Union. Since these SADC countries
formed four different groupings to negotiate and
implement different Economic Partnership Agreements
with European Union, the chance to establish a SADC-
wide common external tariff as prerequsite for a
regional customs union is missed.

32. Organization of the Petroleum Exporting
Countries (OPEC)
• The formation of OPEC marked a
turning point toward national
sovereignty over natural resources,
and OPEC decisions have come to play
a prominent role in the global oil
market and international relations.
The effect can be particularly strong
when wars or civil disorders lead to
extended interruptions in supply. In
the 1970s, restrictions in oil production
led to a dramatic rise in oil prices and
in the revenue and wealth of OPEC,
with long-lasting and far-reaching
consequences for the global economy.
In the 1980s, OPEC began setting
production targets for its member
nations; generally, when the targets
are reduced, oil prices increase. This
has occurred most recently from the
organization's 2008 and 2016 decisions
to trim oversupply.

34. The Bretton Woods System
• Preparing to rebuild the international economic system while World War
II was still raging, 730 delegates from all 44 Allied nations gathered at
the Mount Washington Hotel in Bretton Woods, New Hampshire, United
States, for the United Nations Monetary and Financial Conference, also
known as the Bretton Woods Conference. The delegates deliberated
during 1–22 July 1944, and signed the Bretton Woods agreement on its
final day. Setting up a system of rules, institutions, and procedures to
regulate the international monetary system, these accords established
the International Monetary Fund (IMF) and the International Bank for
Reconstruction and Development (IBRD), which today is part of the
World Bank Group. The United States, which controlled two thirds of the
world's gold, insisted that the Bretton Woods system rest on both gold
and the US dollar. Soviet representatives attended the conference but
later declined to ratify the final agreements, charging that the
institutions they had created were "branches of Wall Street". These
organizations became operational in 1945 after a sufficient number of
countries had ratified the agreement.

35. The Philippines and the Bretton Woods
Agreement
• On 5 December 1945, President Osmeña appointed Resident
Commissioner Carlos P. Romulo as his representative to accept Philippine
membership in the International Monetary Fund and in the International
Bank for Reconstruction and Development, which bodies had been
conceived in the Bretton Woods Agreement, in which the Philippine had
also taken part. Romulo signed said membership on 27 December 1945
on behalf of the Philippines.
• Source: https://www.officialgazette.gov.ph/1944/07/22/statement-
agreements-reached-at-the-bretton-woods-monetary-conference-july-
22-1944/

36. Developing Countries and International Trade
•When the United Nations Conference on
Trade and Development (UNCTAD) came
into being in 1964, that was the first major
change in the state of affairs of developing
nations into international trade as they did
not participate actively in multilateral
trade negotiations for a relatively long
time.

37. Some Key Trade Facts

38. Trade Deficit
•A trade deficit occurs when imports
exceed exports. The United States
has a trade deficit in goods. In
2012, U.S. imports of goods
exceeded U.S. export of Goods by
$735 Billion.

39. Trade Surplus
•A trade surplus occurs when exports
exceeds imports. The United States has
a trade surplus in services such as air
transportation services and financial
services. In 2012, U.S. exports of
services exceeded U.S. imports of
services by $196 Billion.

40. • Canada is the United States most important
trading partner quantitatively. In 2012 about 20%
of U.S. exported goods were sold to Canadians,
who in turn provided 15% of imported U.S. goods.
• The United States has a sizeable trade deficit
with China. In 2012, it was $315 Billion and in
2017, it was $375 Billion.

41. •China has become a major international
trader, with an estimated $2.05 Trillion of
exports in 2012. Other Asian economies–
including South Korea, Taiwan, and
Singapore- are also active in international
trade. Their combined exports exceeded
those of France, United Kingdom, and Italy.

42. •International trade links world economies.
Through trade, changes in economic
conditions in one place on the globe quickly
affect other places.
•International trade is often at the center of
debates over economic policies, both within
the United States and internationally.

43. Trade Barriers and Export Subsidies
• Tariffs are excise taxes or “duties” on the dollar values or
physical quantities of imported goods. They may be imposed to
obtain revenue or to protect domestic firms.
• A revenue tariff is usually applied to a product that is not being
produced domestically. For example, tin, coffee, or bananas in the
case of the United States. Rates on revenue tariffs tend to be
modest and are designed to provide the federal government with
revenue.
• A protective tariff is implemented to shield domestic producers
from foreign competition. These tariffs impede free trade by
increasing the prices of imported goods and therefore shifting
sales toward domestic producers.

44. • An import quota is a limit on the quantities or total values of
specific items that are imported in some period. Once a quota is
filled, further imports of that product are denied. Import quotas
are more effective than tariffs in impending international trade.
• An export subsidy consist of a government payment to a domestic
product or export goods and is designed to aid that producer. By
reducing production cost, the subsidies enable the domestic firm
to charge a lower price and thus sell more imports in a world
market.

45. The Mcdonaldization of Society

46. Basic Organizational Principles

47. Efficiency
• Ray Kroc, the marketing genius behind McDonald’s set
out with one goal: to serve a hamburger, French fries,
and milkshake to a customer in 50 seconds or less. In
the restaurant, most customers bus their own trays, or
better still, drive away from pick-up window taking
whatever mess they make with them. Efficiency is a
value virtually without criticism in our society. We tend
to think that anything done quickly is, for that reason
alone, good.

48. Calculability
• The first McDonald’s operating manual declared the weight of a
regular raw hamburger to be 1.6 ounces, its size to be 3.875
inches across and its fat content to 19%. A slice of cheese weighs
exactly half an ounce, and French fries are cut precisely 9/32 of
an inch thick. Think about how many objects around the home,
the workplace, or on the campus are designed and mass-produced
uniformly according to a standard plan. Not just our environment
but our life experiences-from traveling the nation’s interests to
sitting at home viewing television-are now more deliberately
planned than ever before.

49. Uniformity and predictability
•An individual can walk into a McDonalds’s
restaurant almost anywhere and buy the
same sandwiches, drinks, and desserts
prepared in precisely the same way.
Uniformity results from a highly rational
system that specifies every action and
leaves nothing to chance.

50. Control Through automation
• The most unreliable element in the McDonald’s system is human
beings. People, after all, have good and bad days, sometimes let
their minds wander, or decide to try something a different way. To
minimize the unpredictable human element, McDonald’s has
automated their equipment to cook food at a fixed temperature
for a set lengths of time. Even the cash register at a McDonald’s is
keyed to picture of the items, so that ringing up a customers
orders is as simple as possible.