By Aboobacker Siddique
“Today, local economies are being destroyed by the “pluralistic,” displaced, global economy, which has no respect for what works in a locality. The global economy is built on the principle that one place can be exploited, even destroyed, for the sake of another place.” (Wendell Berry)
Under the influence of globalization, the world is becoming a single unit. It has reduced the world into a single nation, a single village, allowing supposed free access to the market to everyone. It has expanded by unimaginable and unaccountable development because of innovations in the field of technology and modern science. However, it is trade and other related things that are considered the basis of globalization. The recent interventions by the World Bank, an international institution for financial management, in the Indian affairs recommending cut in farm subsidies and import duties on cars shows how trade functions in a globalized economy.
The trade and economic linkages among nations are the main components for global integration and inter-dependence between nations. Due to the single system existing in trade and the economic linkage, a small financial crisis in any remote area in any part of the world may cause global financial crisis. The economic crises of 1929-30, 1997, and 2008 bear evidence to this. These crises changed the world into a single nation as the economic depressions expanded.
In the aftermath of the economic depression of the 1930s, which affected many countries between the two world wars, various negotiations and round table conferences were held after the 1940s. The 1944 Breton Woods Conference paved way for the formation of the World Bank, International Monetary Fund, General Agreement on Trade and Tariff (GATT). While the International Monetary Fund stands for international financial management, the World Bank works for economic restructuring and for recovering the global economy. GATT or general agreement on trade and tariff signed by 23 countries initially at Geneva on 30 Nov, 1947 came into effect on 1 January, 1948. Although it was formed for one year, it continued for a long time.
As per the Most Favored Nation (MFN) theory, a trade concession granted by any country to another country shall be automatically available to all other countries without making any distinctions between the nations. This stands as the basic principle for globalization which came into existence after a series of economic developments such as mercantilism, industrialization, and colonization. In reality, under the MFN theory, the least developed nations become mere captive markets for giant countries in a globalized economy. Various international trade negotiations have been trying to reduce or to eliminate both Tariff and non-Tariff barriers, which will further expand the scope of globalization. These negotiations are based on the theory that liberalized trade will lead to global economic growth, instead of economic polarization that existed after the Second World War. The economic imbalance created by globalization, leading to an invisible stratification in society on the basis of economic disparity, was already anticipated by Dadabhai Naoroji in his ‘drain of wealth’ theory. While Tariff barriers refer to all those duties imposed on imported goods and services, the non-Tariff barriers stand for all those measures other than Tariff (including anti-dumping measures, internal trade negotiations, etc.), which are used to restrict directly or indirectly the importing of goods and services.
More than eight rounds of trade negotiations were conducted under the aegis of GATT. The 9th trade negotiation was held under the aegis of the World Trade Organization (WTO). Among these, the first 6 gatherings concentrated on Tariff reduction affairs and the 7th one focused on non-tariff affairs. The anti-dumping affair was discussed in the 6th negotiation. The 8th roundtable conference concentrated on 3 things:
- Trade related investment measures
- Trade related intellectual property rights
- Trade in service
The developing countries unanimously opposed the proposals of the eight roundtable talk, by arguing that they suffer from a lack of competition skill, posed by the giant MNCs from the developed nations. Neglecting the oppositions of the developing and the least developed countries, the proposals were passed at last on 1 December, 1993, with the pretext that they would expedite globalization and contribute to economic opportunity and equality. This proposal also included a provision for the formation of the World Trade Organization, which came into existence on 1 January, 1996, in Geneva.
What happened to GATT?
The WTO replaced GATT as an international organization, but the General Agreement still exists as the WTO’s umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations. Trade lawyers distinguish between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still at the heart of GATT 1994.
The trade negotiations and the globalized neo-colonialism, which are highly beneficial for the developed nations, suppressed the third world countries financially, politically, and culturally. The exploitation of developing countries has taken different forms through history: landlordism, socially formed class system (as opposed to class disparity on the basis of economy), mercantilism, industrialism, colonialism, and present neo-colonialism, active behind the curtain of globalization.
Uruguay Round Conference
The Uruguay Round was the 8th round of multilateral trade negotiation (MTN), conducted within the framework of the General Agreement on Tariffs and Trade (GATT), covering a period from 1986 to 1994 and containing 123 countries as “contracting parties”. The Roundtable led to the creation of the World Trade Organization, with GATT remaining as an integral part of the WTO agreements. The broad mandate of the Roundtable was to extend GATT trade rules to areas previously exempted as too difficult to liberalize (agriculture, textiles) and increasingly important new areas previously not included (trade in services, intellectual property, investment policy trade distortions). The proposals came into effect in 1995 with deadlines ending in 2000 (2004 in the case of developing country contracting parties) under the administrative direction of the newly created World Trade Organization (WTO).
Agricultural sector for fair market
The original GATT had contained provisions for agricultural trade. However, it contained a number of loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and provisions for subsidies. Agricultural trade became highly unclear, especially due to the use of export subsidies, which would not have been allowed for industrial products. The Uruguay Round Conference enacted the first multilateral agreement dedicated to the sector. It was a first step towards order, fair competition, and a less unclear sector. It was implemented over a six year period that began in 1995. The Uruguay Round agreement included a commitment to continue the reform through new negotiations. These were launched in 2000, as required by the Agriculture Agreement.
Doha negotiation: Causes of its failure in implementation
The Doha Development Round or Doha Development Agenda (DDA) is the latest trade-negotiation round of the World Trade Organization (WTO), which was conducted in November 2001 under the then director-general, Mike Moore. Its objective was to reduce trade barriers between nations and, thus, make expansion in global trade. Though the negotiations started in 2001, it was postponed until 2004 because of differences between the developed nations like European Union, USA, Japan and the developing nations such as Brazil, China, South Africa, and India.
The main difference existed on the issue of farm subsidies, which was granted by European Union countries and the USA to protect their agriculture sector from international market. The developing nations, which depend heavily on the agricultural sector, have been requesting the developed nations for reducing their farm subsidies because these subsidies restrict these developing nations from competing with them on agricultural production, by 70% in European countries and 80% in USA. And the developed nations have been requesting the developing nations to liberalize their markets, which is partially controlled by respective governments to protect them from the MNCs. While the developed nations are using protectionism in their market, neglecting some of the principles of globalization, for their own benefits, there is immense pressure on the developing nations to give away all safeguards.
While in theory, globalization stands for global economic equality and fair trade systems, it has been facing several critical challenges. One of them is financial insecurity and instability due to differential competitive ability between various countries. The deadlock in Doha was mainly because of this. While it is necessary to create a globally connected economic system, the policies must be acceptable to every nation without feeling exploited. The recent recommendations made by the World Bank to India for reducing farm subsidies should be evaluated on this basis. Globalization will be meaningful only when there are adequate measures to safeguard the interests of weak nations.
Aboobacker Siddique PK is a graduate student in Economics at Calicut University. He is also doing special studies on Islamic history. His areas of interest are ancient, medieval, and modern history of India, and current political and economic movements in the world, with a special focus on India.
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