1.

Improved Quality of Products and Services: Globalization results

Unit – 6
in high level of competition among the business firms. It ultimately
helps to improve the quality of products and services.
Global Business Environment

2. Employment: With globalization, companies expand their business

in developing countries. It further helps to generate employment in
Concepts of Globalization
those countries.
Globalization is a process of integration among the people
companies and governments of different nations. It is driven by 3. Foreign Direct Investment: Globalization leads to increased
international trade and investment. Hence, it refers to the increasing foreign direct investment. The liberalized economic policies adopted
economic, socio-cultural, demographic, political, and environmental by the countries provide ground for the flow of capital from the
interdependence of different places around the world. Globalization is developed countries to the developing and under developed
facilitated by international organizations such as World Trade countries.
Organization, European Union, World Bank, International Monetary 4. Growth in Trade: Globalization is liberalizing the world trade.
Fund, etc. and is promoted by information technology. Globalization is There has been a dramatic decrease in the barriers of international
the process of transformation of local phenomena into global ones. trade due to globalization. The volume of import and export has
Trends and Issues of Globalization increased.
5. Internal Cooperation: Globalization promotes international
Globalization is bringing the world into a forum. It has created
cooperation through trade and economic relationship. Such
several benefits or positive issues. However it suffers from a number of
relationships are driven by multinational companies, reduced trade
drawbacks or negative issues. The issues of globalization are mentioned
barriers, and increased interdependence among the countries.
below:
Negative Issues of Globalization
Positive Issues of Globalization
Globalization also has some negative issues. Some of them are;
The positive issues of Globalization are Mentioned Below:
1. Loss of National Sovereignty: Multinational companies are the Regional Economic Groupings of Nations may be defined as the
drivers of globalization. They are very powerful. They may attempt association of nations in a particular region of the world. the main
to influence a country for their economic benefits. objective of regional economic groupings is to promote economic
activities within the region for mutual benefits. It promotes free flow of
2. Competition: Globalization increases the level of competition to
factors of production within the countries in the region. Similarly, the
international level. The local businesses may not be able to compete
groupings work towards removing trade and other barriers among the
with the multinationals due to lack of capital, technology and
countries. It increases the volume of trade within the region s it
economies of scale.
facilitates the cross border movement of goods and services. Regional
3. Environmental Degradation: Globalization may result in the economic grouping is based on the principles of reciprocity and
degradation of the environment. Multinational companies operate mutuality. It is an attempt to turn the local phenomenon into the regional
their operation in developing and least developed countries and phenomenon.
exploit the natural resources.
Concept of Economic Integration/Regional Trading Blocs
4. Unequal Partnership: Globalization does not benefit all the
Economic integration, also called regional trading blocs, involves the
countries equally. It is argued that the developing countries can rear
countries into groups that ultimately abolish trade restrictions with
the opportunities from the globalization.
member countries. They may also engage in other economic activities
5. Threat to Social and Cultural Value: Cultural globalization has that promote their citizen's welfare.
become an important form of globalization. It is integrating the
Movement of Regional Trade Agreement in South Asia.
world in terms of values, beliefs and norms.
The movement of regional trade agreement in south Asia are that the
Year phase ending 2012, the 20 percent duty will be reduced to
countries of south Asia (Bangladesh, Bhutan, India, Maldives, Nepal,
zero in a series of annual cuts. The least developed nations in South
Pakistan, and Srilanka) formed regional organization called south Asian
Asia consisting of Nepal, Bhutan, Bangladesh and Maldives have an
additional three years to reduce tariffs to zero. The agreement of Association for Regional cooperation (SAARC) on December 8, 1985
to work together towards finding solutions to their common problems.
SAFTA was enacted from January 1, 2006.
In April 2007, as the SAARC 14 th summit, Afghanistan became its eight
Regional Groupings of Nations member. The main objectives of SAARC are:

49
1. To improve regional cooperation, particularly in economic of the concerns and developments". Prompted the birth of SAARC
development. LAW in1991.
2. TO promote the welfare of the people of south Asian and improve iii. South Asian Federation of Accountants (SAFA): This organisation
their quality of life. came into existence with an objective of strengthening and serving
the accountancy profession in the South Asian Region.
3. To promote the strengthen collective self reliance among the south
Asian countries. iv. SOUTH Asia Initiative to end Violence Against Children
(SAIEVAC): Founded in 2005, this regional forum aims at "ending
4. To contribute to mutual trust, understanding and appreciation of one
all forms of violence against children in south Asia.
another problems.
v. Foundation of SAARC writers and Literature (FOSWAL): It's first
5. To strengthen cooperation with other developing countries.
non-government organization working towards nurturing and
6. To cooperate with international and regional organizations with strengthening cultural connectivity through interactions among
similar aims and purposes. SAARC nations.
SAARC is thus a manifestation of the determination of the The success of regional economic groupings of the nations
people of south Asia to work together towards finding solutions to their depends on the cooperation and trust among the countries. Some of the
common problems in a spirit of friendship, trust and understanding and regional economic groupings of the world are as follows.
to create an order based on mutual respect, equity and shared benefits.
No. of
SAARC mainly operates through six apex bodies which ensure regional Regional Economic Groupings Area
Countries
cooperation on mutual levels.
1. European Union (EU) European 28
i. SAARC chamber of commerce and industry (SCCI): The entity
2. North American Free Trade Area (NFFTA) North 3
encourages intra-regional trade by creating business linkage among America
the entrepreneurs.
3. South Asian Free Trade Area (SAFTA) South Asia 8
ii. SAARC LAW (South Asian Association for Regional Cooperation
4. Bay of Bengal Initiative for Multi Sectoral South Asia 6
in Law): The desire to establish an association within the SAARC Technical and Economic Cooperation and South
region "to disseminate information" and "promote an understanding (BIMSTEC) East Asia

5. Asia and Pacific Economic Cooperation Asia and 21

50
 (APEC) Pacific

6. Association for South-East Asian Nations South-East 10

(ASEAN) Asia
7. Latin American Free Trade Association Latin
13
(LAFTA) America
At one time stream we may find a truly global economy find a truly
global economy in which all country share a common frame work of
Stages of Economic Integration trade, including policy and currency. At other stream, they would be
country with a closed economy independent, self-sufficient.

Fully Regional Economic Closed Economy

Global Economy Corporation

Level of Economic Integration Regional Trade Agreement in South Asia

South Asian Association for Regional Cooperation (SAARC)
Economic Union
South Asian Association for Regional Cooperation (SAARC)
was established in 8th December 1985. The founding members are
Nepal, Bhutan, Bangladesh, India, Pakistan, Maldives and Sri lanka.
Common Market
Afghanistan became its eighth member in 2007. It is a platform of the
peoples of south Asia to work together in a spirit of friendship, trust and
understanding. Its goals are to promote the welfare of the peoples of
Customs Union south Asia and to improve their quality of life through accelerated
economic growth, social progress and cultural development in the
region.

Free Trade Area Objectives

 To improve regional cooperation, particularly in economic
development.
51
Preferential Trading Agreement
 To promote the welfare of the peoples of South Asian and imporve SAARCLAW in 1991. This association of legal communities of
their quality of life. SAARC nations was established in Collombo.
 To accelerate economic growth, social progress and cultural  South Asian Federation of Accountants (SAFA): This organisation
development in the region and provide all individuals the came into existence with an objective of strengthening and serving
opportunity to live in dignity and realize their full potential. the accountancy profession in the South Asian Region.
 To promote and strengthen collective self-reliance among the South  South Asia Initiative to End Violence Against Children
Asian countries. (SAIEVAC): Founded 2005, this regional forum aims at "ending all
forms of violence against children in South Asia.
 To contribute to mutual trust, understanding and appreciation of one
another's problems.  Foundation of SAARC Writers and Literature (FOSWAL): It's the
first government organisation working towards nurturing and
 To strengthen cooperation with other developing countries.
strengthening cultural connectivity through interactions among
 To cooperate with international and regional organizations with SAARC nations.
similar aims and purposes.
South Asian Preferential Trade Agreement (SAPTA)
SAARC Bodies
SAARC preferential Trading Arrangement (SAPTA) was an
SAARC mainly operates through six apex bodies which ensure regional attempt of the SAARC countries to promote economic cooperation in
cooperation on multiple levels. the south Asian region. The agreement on SAPTA was signed in Dhaka
 SAARC Chamber of Commerce and Industry (SCCI): The entity on the 11th April 1993. It provides preferential treatment to reduce
encourages regional trade by creating business linkages among the import tariff on preferential items. It is regarded as the first step towards
entrepreneurs. Its primary on the holistic growth of service sector the establishment of the South Asian Free Trade Area.
and small and medium enterprises. SAPTA was established for strengthening intra-regional
 SAARCLAW (South Asian Association for Regional Cooperation in economic cooperation and the development of national economies. It
Law: The desire to establish an association within the SAARC was motivated by the commitment to promote regional co-operation for
region "to disseminate information" and "promote an understanding the benefit of the peoples of south Asian region, in a spirit of mutual
of the concerns and development prompted the birth of accommodation, with full respect for the principles of sovereign

52
equality, territorial integrity. Political independence, non-interference in Objectives:
internal affairs of the member states and mutual benefit  Eliminating barriers in trade and facilitating to cross-border
Objectives movement of goods between the territories of the contracting states.
 Promoting cooperation for the benefit of their people;  Promoting conditions of fair competition in the free trade area, and
 Bringing awareness that the expansion of trade could act as a ensuring equitable benefits to all contracting states, taking into
powerful stimulus to the development of their national economics by account their respective levels and pattern of economic
expanding investment and production; development.
 Providing greater opportunities of employment and helping to  Creating effective mechanism for the implementation and
secure high living standards for their people; application of the agreement for its joint administration and the
 Strengthening intra-regional economic cooperation; and resolution of disputes.
 Increasing the share in the total volume of South Asian Trade.  Establishing a framework for further regional cooperation to expand
South Asian Free Trade Area (SAFTA) and enhance mutual benefits of the agreement.
South Asian Free Trade Area (SAFTA) is motivated by the Instruments
commitment to strengthen intra-SAARC economic cooperation to The SAFTA is to implemented through the following instruments:
maximize the realization of the regions potential for trade and
Trade Liberalization Program
development for the benefits of their people, in a spirit of mutual
accommodation, with full respect for the principles of sovereign  In the first phase, the non-LDCs will reduce their maximum tariff
equality, independence and territorial integrity of all Sates. It was signed rates to 20 percent within two years. While LDC members will
in January 6, 2004 in twelfth SAARC summit held in Islamabad. The reduce their maximum tariff rates to 30 percent within the same
agreement on SAPTA signed in Dhaka on the 11 th of April 1993 frame.
provides for the adoption of various instruments of trade liberalization  In the second phase, which starts from January 1, 2008, the import
on a preferential basis. tariff will be reduces to 0 to 5 percent by non-LDC members within
SAFTA requires the developing countries in South Asia that is, India, 5 years while the LDC members will do the same within 8 years.
Pakistan and Sri Lanka, to bring their duties down to 20 percent in the Rules of Origin
first phase of the two year period ending in 2007. In the final five

53
 It shall be negotiated and incorporated by the contracting states as an  Harmonization and simplification of customs clearance procedures.
integral part.  Customs cooperation to resolve disputes at customs entry points.
Institutional Arrangements  Simplification and harmonization of import licensing and
 SAFTA Ministerial Council (SMC) consists of Ministers of registration procedures.
Commerce is the apex decision-making body. This Council is  Simplification of banking procedures for import licensing.
responsible for the administration and implementation of the  Transit facilities for efficient intra-SAARC trade.
agreement.  Removal of barriers to intra - SAARC investments.
 The SMC will be supported by a committee of experts (COE)  Rules for fair competition and promotion of venture capital.
nominated from each contracting states having expertise in trade.
 Development of communication and transport infrastructure.
 The COE will also act as Dispute Settlement Body and meets at
 Simplification of procedures for business visas.
least once every six months.
Bay of Bengal Initiative for Multi Sectoral Technical and Economic
Consultation and Dispute Settlement Procedure
Cooperation (BIMSTEC)
 Any dispute between o among the contracting states regarding the
The Bay of Bengal Initiative for Multi-Sectoral Technical and
interpretations and application of the provisions and instrument will
Economic Cooperation (BIMSTEC) is a regional organization involving
be amicably settled through bilateral consultations.
a group of countries in South Asia and South East Asia. They are:
 If any fail to settle such disputes, COE looks the matter following its Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal.
own procedures.
In 6th June 1997, BIMSTEC was formed in the name of
Safeguard Measures Bangladesh, India, Myanmar, Sri lanka and Thailand Economic
 There is a provision in the agreement to suspend the concessions Cooperation. On 31st July 2004, it was renamed as Bay of Bengal
provisionally with prior consultations. Initiatives for Multi Sectoral Technical and Economic Cooperation.
Nepal got the membership of BIMSTEC in 2004. BIMSTEC free area
 Prior to such action, the competent authorities with the help of other
was signed in 2004 in Bangkok Summit.
economic factors and indices and their causal relationship0s would
hold an investigation and examination of the affected economy. BIMSTEC was initiated with the goal to combine the look west
policy of Thailand and the ASEAN and look east policy of India and
Additional Measures
54
South Asia. So, BIMSTEC may be taken as a link between the ASEAN BIMSTEC , on thte other hand, covers both trade in goods and
and the SAARC. services.
BIMSTEC represents one of the most diverse regions of the  Rates of tariff is another diffrence. SAFTA's aim is to bring down
world in terms of way of life, religion, language, and culture. It has been the tariff to a 0-5 percent level. BIMSTEC, on the other hand, aims
working on the Free Trade Agreement (FTA) and is looking forward to for total elimination of tariffs. As each member country would like
finalize it soon. to protect its local market, countries that are members of both these
FTAs may seek protection under the FTA that best fulfils their
Asian Development Bank (ADB) has become BIMSTEC’s
demands.
development partner since 2005. It undertakes a study which is designed
to help promote and improve transport infrastructure and logistics  Pakistan, Afghanistan and Maldives are not the members of
among the BIMSTEC countries. BIMSTEC, while Thailand and Myanmar are not part of SAFTA.
This composition of membership would create conflicting
obligations as some member countries belong to both SAARC and
Difference between SAFTA and BIMSTEC BIMSTEC.
Bimstec represents one of the most diverse regions of the world in terms  Poor connectivity and geo-political tensions between member
of way of life economic standing, religion, language, culture, etc. countries such as India decades of its existence.
Despite these differences, it provides a unique link between South Asia
 All SAARC countries do not share a common security perspective,
(SAARC) and Southeast Asia (ASEAN). Despite SAARC's Existence
which means that the requisite trust and mutual goodwill for
since the last 30 years, intra-regional trade stands at only around five
meaningful regional cooperation are missing.
percent, while on the other and intra-regional trade in BIMSTEC has
reached around six percent within the last decade. Thus, it shows greater  BIMSTEC provides India a platform to address a range of concerns,
chances of trade potentiality within BIMSTEC countries. The following as well as the opportunity to counter the underdevelopment of its
are some of the facts making differences between SAARC and northeast region. India states of
BIMSTEC: Assam, Arunachal Pradesh, Meghalaya, Mizoram, Manipur,
Nagaland, Tripura and Sikkim share international boundaries with
 SAFTA and BIMSTEC difference in so far as targets and depth of
Myanmar, Bangladesh and Bhutan, which are all members of
integration are concerned. SAFTA includes only trade in goods.
BIMSTEC. Therefore, BIMSTEC has a better balance of power than

55
 SAARC, since the dependence of India's northeast region on c. Management Development: Local managerial people get trained in
Bangladesh and Myanmar considerably reduces India's superiority foreign firms. They acquire new concepts, tools and techniques of
in the grouping. management. Management development takes place.
 BIMSTEC could be a practical and desirable bridge between South d. Employment: Foreign companies generate employment in Nepal.
Asia, as whole, and Association of Southeast Asian Nations Nepalese workers acquire new skills.
(ASEAN). e. Better Products: Foreign companies produce branded products.
Foreign Direct Investment in Nepal They have high image. They assure quality and supply of better
products in Nepal.
Foreign Direct Investment is investments made from one country to
another by Multinational Companies. It can be done by: f. Export: Foreign companies promote and increase exports. Unilever
Nepal and Dabur are major exporters in Nepal. MNCs help improve
 Floating a subsidiary for local manufacturing or assembly. It is
balance of payment.
fully owned and controlled company.
g. Industrialization: FDI results in the development of a variety of
 Purchase of existing foreign company through acquisition.
ancillary industries in Nepal. Such industries develop backward
 Participation in joint venture with a local partner. linkages to supply inputs. FDI creates competitive corporate culture
 Portfolio investment in the shares of foreign companies. for Nepal’s industrial development.

Contribution of Foreign Direct Investment in Nepalese Economy Current Scenario of FDI in Nepal

The contributions of FDI in Nepalese economy are: Nepal had a late start in FDI. Till March 2010, it had approved
1820 FDI projects. Almost 37% of FDI is for manufacturing projects.
a. Capital Transfer: Nepal lacks capital resources. FDI is an
The other important sectors are tourism and service. The total project
important means of capital inflow.
cost amounted to Rs. 14 billion till March 2010.
b. Productivity Improvement: FDI facilitates technology transfer in
46 countries have FDI in Nepal. India accounts for 26% of
Nepal. Technological up gradation results in productivity
projects and 39% of FDI. Other important countries are China, USA,
improvements. Economic growth improves.
Japan, South Korea, UK, and Germany.

56
 FDI is declining in Nepal. Out of 1646 projects approved, only WTO and Nepal
401 (24%) were operating.
Nepal is a least developed land-locked country. it is engaged in
Reason for the Poor Inflow of FDI in Nepal enhancing economic relations with the outside world. it has trade
The reasons for poor inflow of FDI in Nepal are as follows: relations with more than 100 countries.

1. In 2017, a total of 3905 industries have been awarded licenses for Since 1990, Nepal’s economic reforms aim at creating an open
foreign investment through which 224, 286 people were expected to liberalized economy. Trade and tariff barriers are being dismantled.
be employed. Nepal became a member of WTO (World Trade Organization) in 2004.
2. Of the total employment generated by these industries so far, WTO membership has both positive and negative impact on
production oriented industries account for 44.43 percent followed by Nepalese economy.
service oriented industries with 23.21 percent and tourism industries
Positive Impact of WTO on Nepal’s Economy
with 17.97 percent.
3. Among the countries that have established foreign investment 1. Trade Expansion: WTO membership allows Nepal to globalize its
industries in Nepal, China ranks first (1093) while India is at the trade in a more predictable and stable trading environment. It offers
second place (662), United States of America third. (334), South duty free market access and trading opportunities. Export volume
Korea fourth (312), and UK (160) at fifth place. will increase. The balance of trade and payments will improve.
4. Remarkable portion of FDI is in infrastructure sector (energy, Nepal will become a part of multilateral trading system with
telecommunication) and in manufacturing. harmonized set of rules.
5. Hydro-Power generation has become most attractive area for FDI 2. Trade Diversification: Nepal is dependent on India, Germany and
for huge investments. the USA for exports. Carpets, ready-made garments and selected
6. Service Sector (Banking, insurance, tourism and education) also is agricultural products constitute the key commodities of exports.
considered most attractive destination for FDI.
3. Freedom of Transit: Nepal is a land-lock country. Secure transit
7. Almost all banking, financing and insurance companies where there
rights are essential for its development. WTO rules provide freedom
exists FDI are in profit.
of transit to member countries without unnecessary delays or
8. Approximately50% out of 10% major tax payer companies are
restrictions.
under FDI.

57
4. Industrial Development: Foreign investment will increase. 2. Price Hike and Competition: Nepal’s WTO membership may
National treatment and low risks will attract foreign investors to result in steep price hikes of food, drugs, agricultural inputs and
setup industries in Nepal. other items of imports. Subsidies will be reduced or eliminated.
5. Dispute Settlement: The WTO regime provides common system of 3. Accession Commitments: Nepal has agreed to accept stringent
rules and procedures for settling disputes related to trade. Nepal’s commitments by existing members. They will have far reaching
WTO membership ensures access to a stronger, faster, impartial and adverse impacts on trade and economic development of Nepal.
binding mechanism for settlement of disputes related to trade. 4. Industrial Requirements: Nepal lacks adequate infrastructure,
6. End of Bilateralism: Nepal has bilateral trade agreements with 17 institutions and competent human resources to reap benefits of WTO
countries. It has a Treaty of Trade and Transit with India. Nepal’s membership. Dependence on foreign firms will increase for
membership of WTO does away with the need for bilateral trad technology and resources.
agreements. 5. Gaps in Theory and Practice: It is alleged that WTO is a trap set
7. Image and Power: WTO membership enhances Nepal’s image. by developed countries for developing countries to blindly walk in.
Almost three-quarters of WTO members are developing countries. WTO largely represents the interests of developed nations. WTO is
Decisions of WTO are based generally on unanimity of members neither pro-poor not growth-friendly.
views. This empowers Nepal through veto power.
8. Special Benefits: Nepal is a least developed food importing Objectives of WTO
country. WTO has special provisions to help least developed
countries. It also has provisions to provide technical assistance to  Raising standard of living and incomes, promoting full employment,
food importing countries. expanding production and trade, and optimum utilization of world's
resources.
Negative Impact of WTO on Nepal’s Economy
 Introducing sustainable development - a concept, which envisages
1. Erosion of Preferences: WTO rules impose obligations for that development and environment can go together.
concession of tariff rates, removal of subsidies in agriculture, and
opening-up of trades in services. Quota restrictions are totally  Taking positive steps to ensure that developing countries, especially
prohibited. Nepal’s WTO membership may adversely affect the the least developed countries (LDC's), secure a better share of
domestic industries. growth in trade.

58
 In 2017, a total aof 3905 industries have been awarded licenses for member countries provide an agreed degree of openness of domestic
foreign investment through which 224286 people we are expected to markets to imported goods and services. The agreements and
be employed. commitments have been negotiated multilaterally and agreed by all
WTO members. The WTO agreements cover goods, services and
 Of the total employment generated by these industries so far,
intellectual property. They spell out the principles of liberalization and
production oriented industries accounts for 44043 percent followed
the permitted exceptions. These agreements include individual country's
by service oriented industries with 23.21 percent and tourism
commitments to lower customs tariffs and other trade barriers, and to
industries with 17.97 percent.
open and keep open service markets. The agreements and commitments
 Among the countries that have established foreign investment of member nations must be ratified by their parliaments.
industries in Nepal, China rank first (1093) while India is a second
The WTO Agreement is a comprehensive document. It contains 29
place (662), united states of America third (344), South Korea fourth
individual legal texts, covering a wide spectrum of areas. Added to
(312), and UK at fifth place.
these, there are more than 25 additional Ministerial Declarations, which
 Remarkable portion of FDI is infrastructure sector (energy, spell out further obligations and commitments for WTO members.
telecommunication) and also in manufacturing. There are two types of agreements: multilateral and plurilateral.
 Hydro-power generation has become most attractive area for huge  Multilateral Agreements: Multilateral agreements are binding for
investments. all members. They are globally applicable.
 Service sector banking, insurance, tourism and education also is  Plurilateral Agreements: Plurilateral agreements have a small
considered most attractive destination for FDI. group of signatories with shared interest in a specific sector.
 Almost all banking, financing and insurance companies where there Most legal instruments of the WTO system are lengthy and complex.
exists FDI are in profit% These legal instruments and other major provisions are contained in the
 Approximately 50% out of 10 major tax payer companies are under Final Act. This Act deals with the following key subjects:
FDI.  General Agreement on Trade and Tariff (GATT)
WTO Agreements  General Agreement on Trade in Services (GATS)
WTO is a set of agreements that create legally binding rights and  Trade-related Intellectual Property Rights (TRIPS)
obligations for all member countries, Similarly, the commitments of the
59
 Technical Barriers to Trade (TBT)
 Trade-related Investment Measures (TRIMS)

60