Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
Title: The Globalization of Economic Relations
Module No.4
I. Introduction
The Globalization of Economic Relations shows how people are apart (even
countries) in terms of economic globalization. It traces the development of economic
globalization, and intensive discussion of the function of World Trade Organizations
as well as the different kinds of economic trades.
II. Learning Objectives
After studying this module, you should be able to:
1. Define economic globalizations;
2. Distinguish globalization from internationalization;
3. Explain the important function of World Trade Organization;
4. Discuss the different types of trades;
5. Explain the importance of regional trade organizations and its implication to the
member countries; and
6. Assess the situation of the developing countries in terms of their international
trades.
III. Topics and Key Concepts
Interconnected Dimensions of Economic Globalization
Distinction of Globalization from Internationalization
The World Trade Organization and GATT
Preferential Trade Agreements
The Bretton Woods System
Developing Countries and International Trade
The McDonaldization of Society
IV. Teaching and Learning Materials and Resources
PowerPoint Presentation
The Contemporary World Book
V. Learning Task
Essay
1. Does McDonald’s success outside the United States provide support for
Levitt’s view about the global marketplace?
2. Do you think a company like McDonald’s is welcome in countries like
Syria, Yemen, Somalia and Libya as well as Iraq? What about North
Korea and Afghanistan? Why or Why not?
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Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
LESSON PROPER:
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)
Interconnected dimensions of economic globalization
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.
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.
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.
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.
Trade Barriers- Also called obstacles to trade– take many forms. The three most common are
tariffs, export subsidies, and quotas.
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.
Export Subsidies- Export Subsidies is a government payments made to domestic firms to
encourage exports-can also act as a barrier to trade.
Quota- 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.
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
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City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
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.
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.
The World Trade Organization and the GATT:
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.
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.
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.
Free-trade Area- 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.
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
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called for elimination of tariffs averaging 14% that added $1.5 billion each year to the cost of
European goods imported by Turkey.
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.
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.
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.
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).
Asia and the Pacific
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
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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.
Europe
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.
Middle East
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.
Africa
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 state’s 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.
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
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(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 free trade 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 prerequisite for
a regional customs union is missed.
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.
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.
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: [Link]
bretton-woods-monetary-conference-july-22-1944/
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
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state of affairs of developing nations into international trade as they did not participate actively
in multilateral trade negotiations for a relatively long time.
The Mcdonaldization of Society
Basic Organizational Principles
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.
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.
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.
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 customer’s orders is as simple as possible.
VI. Reference
Abelos, A., et al., (2018). The Contemporary World. Malabon City. Mutya
Publishing House, Inc.
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