Study Notes on Globalisation and Trade

Key Players in Globalisation

Working Outside the Main Blocs

  • International Agreements: Required to achieve the aims of the World Trade Organization (WTO).

    • Countries often pursue their own trade deals.

    • Examples include:

    • USA: Free-trade agreements with countries like the UAE and South Africa.

    • China: Deals with ASEAN (Association of Southeast Asian Nations) and APEC (Asia-Pacific Economic Cooperation) member states to form a new East Asian bloc.

    • European Union (EU): Economic partnership agreements with 69 African, Caribbean, and Pacific nations, many of which are former colonies.

Inter-Governmental Organisations (IGOs)

  • IGOs are influential partnerships constructed by the governments of wealthiest nations to develop policies of mutual interest, such as tax payments by Transnational Corporations (TNCs).

  • Some IGOs create informal partnerships, such as China’s engagement with sub-Saharan African nations.

  • Notable formal IGOs include:

    • OPEC (Organization of the Petroleum Exporting Countries): Represents 40% of global oil producers, significantly influencing oil prices.

    • OECD (Organisation for Economic Co-operation and Development): A global 'think tank' consisting of 34 of the wealthiest nations, focusing on economic research and policy advising.

    • G8: Comprises the USA, UK, France, Canada, Germany, Italy, Japan, and Russia, collectively representing 50% of global GDP; meets annually to discuss development issues.

    • G20: Consists of 19 individual countries plus the EU; formed in 1999 to unite developed and developing economies to tackle key economic issues like debt relief.

Case Studies

Case Study 1: Ghana's Cocoa Trade

  • Historical Context: Under British colonial rule, Ghana was the world's largest cocoa supplier, with prices set by the British government.

  • Current Pricing Factors Affecting Cocoa in Ghana:

    • Commodity Traders: Trading on the futures market allows traders to buy cocoa in advance for TNCs. Prices and delivery dates are agreed upon months ahead, but competition from other suppliers puts downward pressure on prices.

    • Overseas Tariffs: WTO rules promote tariff-free trade, yet the EU applies tariffs on processed cocoa while raw cocoa beans remain tariff-free. Ghana loses potential revenue from processing cocoa into higher-value products because tariffs on processed goods raise the final price for consumers.

    • Unequal Power Dynamics: Ghana joined the WTO in 1995, which required the cessation of subsidizing local farmers. In contrast, the USA and EU subsidize their farmers extensively, allowing them to outsell Ghanaian products.

    • Result: Ghanaian farmers struggle to compete, leading to a decline in local production of staple crops like rice and tomatoes due to cheaper imported goods.

  • Visual Example: Figure 6 illustrates tomato farmers in Ghana unable to sell their crops due to the influx of subsidized EU imports.

Case Study 2: Vietnam's Trade Agreements

  • WTO and Trade Links: Agreement to WTO guidelines can enhance opportunities for trade.

  • Significant Trade Deal:

    • In 2014-2015, the EU and ASEAN negotiated a major deal with Vietnam, removing import duties and quotas on goods traded between the regions.

    • EU trade with Vietnam was valued at US$30 billion in 2014.

  • Vietnam's Exports to the EU:

    • Products include telephones, electronic goods, footwear, clothing, coffee, rice, seafood, and furniture.

  • EU’s Exports to Vietnam:

    • Items include electrical machinery, aircraft, vehicles, and pharmaceuticals.

  • Economic Implication: Vietnam's labor costs are lower than China's, allowing Western consumers to benefit from reduced prices, continuing the trend known as the "race to the bottom."

Case Study 3: Cotton in Guatemala

  • Historical Exporting Context: In the 1980s, 75% of Guatemala's cotton was exported, with income reinvested into future crop production.

  • Value Addition Dilemma: If Guatemala had processed its cotton into clothing, it would have earned greater revenue, requiring only 1% of land compared to raw cotton production, thereby enabling more diverse agricultural production.

  • WTO Policy Impact: Guatemala was restricted to exporting raw cotton under WTO guidelines. By 2005, competition drove cotton production out altogether.

  • Current Trend: Now, TNCs import raw cotton and utilize local labor to produce inexpensive T-shirts for export.

Further Discussion and Exploration

  1. Make a larger diagram illustrating all organisations/players impacting globalisation decision-making and their contributions.

  2. Compare the functions of the IMF (International Monetary Fund) vs World Bank.

  3. Create spider diagrams for Pakistan, Ghana, and Guatemala to discuss their gains and losses from global connections and use distinct colors for each.

  4. Analyze the experiences of Ghana, Guatemala, and Pakistan compared to China and Vietnam. Identify potential lessons for successful globalisation.

Exam-Style Questions

  1. Define 'liberalisation of trade' (4 marks).

  2. Assess the extent to which trade globalisation presents both problems and benefits (12 marks).

  3. Compare the following terms:

    • (a) Colonialism vs. Globalisation

    • (b) Trade Liberalisation vs. Subsidies

    • (c) Tariffs vs. Quotas

    • (d) Special Economic Zones vs. Trading Blocs

    • (e) FDI (Foreign Direct Investment) vs. Investment.

  4. Outline the parallels and contrasts between the adoption of globalisation in the UK vs. China.

  5. Research Chinese FDI impact on a specific sub-Saharan African country and prepare a six-slide PowerPoint presentation detailing the effects of FDI in that country.