Exam: Global Economy

Question 2

Global Economy

The global economy as a global system is a historical and dynamic phenomenon, which develops with the flow of time. Its evolution, or transition from one phase of development to another highlights theoretical concepts that explain these changes. Historically, the global economy was seen as a system of the national economy or its specific groups. Therefore, the national position of the economy in the global system becomes the center of the conceptual analysis. The general premise of these theories is that the domestic economy in the world occupies an unequal position. Among the leading global system concepts are the theories of imperialism and neo-imperialism, modernization and new evolution theory of dependence, growth stages, the theory of the world system as well as methods of production, interdependence, and partnership.

1. The theories of imperialism and neocolonialism explain the structure of the world as a struggle between major countries for new markets, sources of raw materials, and strengthening of their political and cultural influence. Imperialism is regarded as a stage of development, when the prevailing dominance of monopolies and finance capital is formed, the capital’s outflow acquires outstanding value, the division of the world into international trusts begins, and the division of the entire territory of the world between the largest capitalist countries comes to its end. The founders of the theory of imperialism are O. Bauer, R. Hilferding, and V. Lenin. The theory has several types, including social liberal, the representative of which was Hobson, who studied processes in the British Empire.

The Marxist theory of imperialism affected many world theories. After the collapse of the colonial empires the popularity of the imperialism theory reduced. However, if the imperialism is considered as a manifestation of the capital’s expansion and not merely a system of colonial subordination, then some forms of economic imperialism can exist even after the collapse of colonial empires.

2. The theory of modernization refers to the fact that all available human societies are bipolar. The theory is based on the differences in understanding of the traditional and modern. It connects the transition of the modern economic growth with the spiritual values, not just with the materialistic interests, but with the transition of the social structure to its mobilization type. The traditional society consists of the individuals who are not prepared to innovate while modern society includes the individuals who are ready to apply new ideas under the influence of rational thinking and practical experience.

The theory of modernization is an attempt to reveal theoretically the human mechanisms and social and structural processes that entail internal changes. As a result, these integral changes cause the transition of different societies to modern ones with the interior features of the social organization. It covers different aspects of cultural, political and economic development, social and psychological mobilization interpreted as independent tendencies of development that function in the mainstream of international relations changes. The theory replaced such terms as "Europeanization", "Americanization" or "Westernization", and superseded the ethnocentric idea of progress. The views of M. Weber, T. Pearson, C. Eyzenshtada became the background of the theory of methodological modernization. In particular, the German sociologist Max Weber tried to link the rise of the capitalism with Protestantism and show how other systems prevent the rise of modern society.

3. In the 60-70s, the theory of dependence (metatheory of dependence) became the most influential concept of global evolution. While a famous Argentine economist R. Prebisch founded it, a group of Latin American economists and sociologists put metatheory of dependence and peripheral development forward. At that time, the doctrines of national capitalism and integral modernization began to lose their influence because of the Cuban revolution in 1959.The supporters of the doctrines invoked masses to sacrifice their views in the name of formation of the "perfect market society" on a national and independent basis free from ailments of the capitalist developed countries.

4. The concept of world system promoted by I. Valershtayn is closely related to the theory of dependence. Based on the dynamic change of the division of labor, he divides the world into central (global core), and peripheral countries. A large part of it is devoted to the analysis of periphery, which includes some of the developed socialist countries like Ireland, Portugal, The Balkans, and the former Soviet Union. This concept defines the dependence of the periphery countries’ development within the scope of the world system based on the international distribution of toil. This creates the opportunities for international fragmentation of production process. As a rule, the production process demands cheap and low-skilled labor in these countries. The concept also includes the principle of the state dependency, whereby the gap between the center and the periphery indicates the basic contradiction of the world system.

5. In the 60 years, the concept of the growth stages has gained extreme popularity. U. Rostow was the first to examine the country’s development by stages. In terms of the level of economic development, the country is divided into traditional society; transitional society where the foundations of transformation are grounded; the society of recovery or upheaval; mature or industrial society, and the society of high level of mass consumption.

6. Since the mid-70s, the problems of the world economy became closely related to the concepts of interdependence of national economies. As a rule, these national economies were based on the internationalization of production and the differentiated impact of scientific and technological progress on structure reformation. The problem of interdependence and partnership is analyzed on various intersecting levels - global, between the center and periphery, and within subsystems. The American political scientist Hoffman introduced the term global interdependence and R. Cooper elucidated the concept. The growth of interdependence exposes the balance of payments to increasingly severe actions from the outside, making the government pay more attention to the problem of preserving external balance and coordinating the use of the entire set of tools at the disposal of states.

7. By the early 70s, there was established the concept of equal partnership. More or less complete definition of this concept was derived from L. Pearson report, prepared under the auspices of the World Bank to assess the strategy of relations between the Western and developing countries. It suggested integration of the politics with the help of trade and investment using a single strategy, grounded on the developing countries’ efforts. The concept of equal partnership preaches the creation of the equal system of development and Western countries’ interdependence, thus obscuring a huge gap in the development of the two subsystems of the world economy.

The treatment of the organic growth replaced the former concept of development regarded as the transition from traditional to modern production and transition of the industrial society to a qualitatively new level of development owing system interaction. This tendency indicates the need for long-term restructuring of Western countries, and the necessity to reduce the gap between highly developed and underdeveloped countries.

Conclusion

In conclusion, it can be claimed that the evolution of the global economy is an endless process, which brings both good and bad changes to the society. The continual improvement and development of the world always causes the chain reaction. If there were no evolution, the world would freeze at one point making the life senseless. The distinctive feature of every reformation stage is the applicability to a particular time and situation. The development of new technologies, invention of new gadgets, and introduction of new fields of science demand the evolution of the global economy. If it does not develop, it will start destroying the system of the new reformation era. Moreover, the process of global market evolution will never stop as long as the world exists. The things that will require replacement are the concepts, theories, or tendencies the global economy follows.

Question 3

The World Trade Organization

World Trade Organization (WTO) is the only international organization that cares about the global rules of trade between countries. Its main function is to ensure that commercial exchanges take place as easily, predictably and freely as possible. WTO replaced the General Agreement on Tariffs and Trade (GATT), signed after the Second World War. Despite the fact that the WTO is one of the youngest international organizations, the multilateral trading system, initially established by GATT, already has an over 50 year history.

Over the past 50 years, the world trade has grown rapidly. Trade of goods has been increasing on average by 6% annually. The total trade of the 2000 year exceeded the level of the 1950 year in approximately 22 times. GATT and the WTO created a strong and prosperous system of trade therefore encouraging the groundbreaking growth of trade.

Purpose, Principles, and Functions

World Trade Organization (WTO), which is the disciple of the 1947 General Agreement on Tariffs and Trade (GATT), started its operations on 1 January 1995. WTO was created “to regulate trade and political relations of the participants on the basis of a package of agreements of the Uruguay Round of multilateral trade negotiations (1986-1994 gg.)”. These legal documents are the basis of modern international trade.

The agreement about the establishment of the WTO provides a permanent forum of member states to resolve the problems affecting their multilateral trade relations, and monitor agreements implementation of the Uruguay Round. WTO operates in the same way as GATT, but it also controls a wider range of trade agreements (including the trade of services and trade-related issues of intellectual property rights). However, the WTO has much more power in terms of improving the decision-making procedures and their implementation by member states. An integral part of the WTO is a unique mechanism for settling trade disputes.

The basic principles and rules of WTO are:

• Trade without discrimination (mutual establishment of the highest form of assistance regime in trade and mutual assignment of the national regime to the goods and services of foreign origin;
• trade regulation is carried out mostly by tariff methods;
• avoiding the usage of quantitative and other restrictions;
• transparency of trade policy;
• settlement of trade disputes through consultations, negotiations, etc.

Among the WTO’s most important duties are the following:

• monitoring the implementation of agreements and arrangements of the Uruguay Round documentation package;
• multilateral trade negotiations and consultations between interested member countries;
• settlement of trade disputes; review of the national trade policies of member countries;
• technical help to developing countries on issues that are related to the WTO competence;
• collaboration with specialized international organizations.

The main advantages of WTO membership are the following:

• creation of more favorable conditions of goods’ and services’ access to world markets based on predictability and stability of trade relations of WTO members, including the transparency of their foreign policy;
• access to the WTO dispute settlement mechanism that ensures the protection of national interests and thereby eliminates discrimination;
• the possibility of implementing its current and strategic trade and economic interests by efficient participation in MTT in terms of the development of new international trade rules.

All WTO members accept an obligation to follow basic transactions and legal documents defined as "Multilateral Trade Agreements". From a judicial point of view, the WTO system is regarded as a multilateral contract (package deals), rules and regulations governed by about 97% of world trade of goods and services.

The package of the Uruguay Round agreements covers more than 50 multilateral trade agreements and other legal documents, the main of which are the Agreement of the WTO’s establishment and corresponding multilateral trade agreements.

The WTO system provides an effective mechanism for settling trade disputes. After World War II, the trading countries coordinated trade rules in the process of negotiation, which are now operated under the WTO boundaries. They include commitments to review the disputes in the WTO and not to apply the unilateral actions.

Every argument discussed by the WTO is seen primarily in view of the existing rules and regulations. After the approval of the decision, the countries focus their efforts on the performance of the decision, and perhaps on the next revision of rules and regulations through negotiations. Since the establishment of the WTO in 1995 about 200 trade disputes were submitted for its consideration. WTO Agreements create the legal basis for making a clear decision.

The number of disputes submitted to the WTO is constantly increasing. This indicates not about the increase of tension in the world, but also strengthening of economic relations and trust to the system of dispute settlement. The mechanism of the Trade Policy Review specifies general parameters and conditions of the members’ trade policy review.

Structure

The highest body that approves all decisions of the WTO is the Ministerial Conference that is held at least once every two years. The lower level is occupied by the General Council (normally it is composed of ambassadors and heads of delegation in Geneva, and sometimes officials specifically assigned by the governors of member countries). It holds a meeting several times a year at WTO headquarters in Geneva. The General Council also performs the function of supervision over trade policy and dispute settlement. The next level is occupied by the Council for Trade in Services, the Council for Trade in Goods, and the Council for Trade-Related Aspects of Intellectual Property reporting to the General Council. Numerous special committees, subcommittees and working groups dealing with regional trade agreements, individual agreements, and other areas such as the development, environment, and membership applications are also placed on the last level of organization’s structure.

Membership in the Organization

According to the Agreement on the WTO’s establishment, the founders of the organization were all the Contracting Parties - GATT members (128 states) that provided lists of commitments on “goods and services and ratified the Uruguay Round package of agreements”.

Currently, 153 countries are full members of the WTO. About thirty states have the status of observer in the WTO. Most of them, including Russia, Kazakhstan, and some other CIS countries remain at different stages of accession to the WTO.

In addition, more than 60 international organizations have an observer status in the various structures of WTO, including UN, UNCTAD, IMF, IBRD, regional groupings and trade association. Under the auspices of the WTO, there exists an international shopping center, which provides assistance to developing countries in the field of world trade.

The process of joining the World Trade Organization is multifaceted and consists of several stages. As the experience of the applicants shows, the process takes on an average 5-7 years.

At the first stage, a detailed consideration at the multicultural level of economic mechanism and the trade policy of the applicant country’s regime in terms of their compliance with the WTO rules and regulations is carried out by a special working group. As soon as this process is finished, the consultations and negotiations on the conditions of the applicant countries membership in this organization are held. These consultations and negotiations are typically conducted on a bilateral level with all interested member states.

First of all, the negotiations are related to "commercially significant" concessions that the joining country will be ready to give to the WTO members regarding access to its goods and service market as well as on the format and timing of the commitment by the agreements on WTO membership.

The country that joins, in its turn, usually acquires the rights enjoyed by all other WTO members. This means that the discrimination on the foreign markets is reduced to a minimum. In case of illegal actions by any member of the organization, any country can send a complaint to the Dispute Settlement Body, whose decisions are subjected to unconditional implementation at the national level by every member of the WTO.

According to the established procedure, all results of the negotiations about the liberalization of the market access and the conditions of the accession are drawn up by the following official documents:

• The Report of the Working Group, which contains a complete package of rights and obligations the applicant country will gain after the discussion;
• User commitments to tariff reductions for goods and the level of agricultural support area;
• List of specific commitments on services and lists of MFN exemptions;
• The protocol of accession that legally formalizes agreements reached at bilateral and multilateral levels.

One of the main conditions for the accession of new countries to the WTO is to comply their national law and practice of regulation of foreign economic activity to the provisions of the Uruguay Round agreements package.

At the final stage of accession, there takes place an internal procedure of ratification by the competitor country of the entire package of documents agreed by the Working Group and approved by the General Council. After the procedure, these commitments become a part of the WTO agreements and national legislation, and the candidate country gets the status of a member of the WTO.

Challenges

The WTO nowadays faces a range of serious challenges. First, it becomes more difficult to come to a joint solution to the problems taking place between two or more different countries. The economic situation, personal preferences and purposes entangle the process while every country proves and believes the WTO has to be on its side.

Secondly, a lot of current trade powers existing in the world aim at protecting their industries under unfavorable economic conditions. Finally, the growth of two-sided and territorial Free Trade Areas has made the global trading powers incline to compromise their trade rules, racking the WTO.

Conclusion

In conclusion, the World Trade Organization and its membership appear to have more advantages than disadvantages. It offers many opportunities to its members in terms of the development on the world trade market, therefore increasing the economic, social and political development. The rights provided by the WTO help the member-countries introduce themselves on the global market, find new partners and improve the life conditions of local population. Moreover, any unjustified action or situation will always be in the center of WTO’s attention that will do its best to come up with a reasonable and fair solution.