GE 319 – THE CONTEMPORARY WORLD

Module 2
THE STRUCTURES OF GLOBALIZATION
Module Overview
The previous unit introduced us to some basic concepts of Globalization. We are
now equipped with various definitions as well as theoretical anchorage that
extensively cover the dynamic and complex nature of the concept. In this Module,
we shall try to proceed with a more detailed understanding of other important facets
associated with Globalization as we embark on a fuller appraisal of the structures
of Globalization. Susan Strange (as cited in Balaam & Dillman, 2014) defines the
underlying foundations of the system of the international political economy into four
structures: production and trade; money and finance; security; and knowledge and
technology. She describes these structures as "webs" of complex arrangements
constituted of rules, conventions, norms that govern and facilitate the interactions
of state and non-state actors with each other (as cited in Balaam and Dillman,
2014, p. 15). Module Two aims to introduce the reader to these structures that
govern political and economic relations at the international level. The readers will
be guided in learning on how institutions such as the IMF, WB, GATT/WTO, and
the UN were created and transformed overtime at whose terms and whose
expense, and which groups are trying to change these structures.

Module Outcomes

By the end of this module, we hope to achieve the following objectives:

 Define economic globalization, and identify the actors that facilitate
economic globalization;
 Articulate a stance on global economic integration;
 Explain the effects of globalization on governments and the relevance of the
state amid globalization;
 Identify the institutions that govern international relations;
 Differentiate internationalism and globalism, and;
 Identify the challenges of global governance in the 21st century.

40 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Lesson 1
The Global Economy
Learning Outcomes
 Define economic globalization;
 Understand why nations trade with each other.
 Summarize the different theories explaining trade flows between nations, and;
 Identify the policy instruments used by governments to influence international
trade flows.

Time Frame: 1 Week

Overview
Globalization involves the "broadening and deepening of interdependence among peoples
and states” (Cohn, 2011: 6). It leads to an extension of geographic linkages,
encompassing societies and states and deepens interaction among them such that
policies and events of one state also affect distant ones. Globalization is a
multidimensional phenomenon comprised of political, economic and cultural features. To
dismiss the multifaceted nature of the globalization would be inappropriate; the same goes
as to how it would be incorrect to dismiss the essential and crucial role that economic
dimension plays in as much as it as a driving force of globalization (Benczes, 2014).
Szentes (2003) defines
economic globalization as "a
process making the world
economy an "organic system"
by extending transnational
economic processes and
economic relations to more
and more countries and by
deepening the economic
interdependencies among
them" (p. 69). Benczes
(2014) follows this definition
and emphasizes that
interpretation of the current
trends in the world economy
must be understood in the
global context of an
integrated world economy.
Moreover, while the state
does not remain as the sole
unit of analysis; non-state
actors such as international
organizations, non-
governmental organizations,
and multinational or
transnational corporations
play significant roles in the international economic processes. This chapter will primarily
discuss the concept of economic globalization, the actors that facilitate it and the modern
global economic system it has built today.

41 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Activity (Let’s Get Started!)

In the COVID-19 crisis, governments have struggled to find the right national policies—
and also to coordinate an effective global response. They’ll have to do better when it
comes to confronting the biggest challenges of the age: fracturing world economy. This
activity focuses on the workings of the global economy from a very macroeconomic
viewpoint and looks at the impact of globalization on individual economies.
 Discuss the impact of globalization and trade liberalization (removal of trade
barriers) on the global economy.
 Discuss the advantages and disadvantages of free trade and analyze how
technology has increased the quantity of world trade.
 Explain how globalization has led to variations in the standard of living and
differences in the level of development between nations.

Analysis (Let’s Think

About it!)
Now think about the
questions below:

 Can trade in services

deliver for developing
nations?
 Is trade an opportunity
or threat to workers?
Does trade create or
destroy jobs?
 If an economy overall
benefits from trade, why
do governments often
restrict trade?
 In what sense is it a
fallacy that exports are
good and imports are
bad?

Abstraction (Let’s Explore!)

In today’s borderless economy, the workings of the “invisible hand” have a reach and
strength beyond anything Adam Smith ever could have imagined. In Smith’s day,
economic activity took place on a landscape largely defined—and circumscribed—by the
political borders of nation-states: Ireland with its wool, Portugal with its wines. Now, by
contrast, economic activity is what defines the landscape on which all other institutions,
including political institutions, must operate. Business and government are just beginning
to live with the consequences.

This inquiry begins by defining the term global economy. The global economy is the result
of the development of an economy that rises above borders and is free moving between
the different nation states of the world. A direct result of an economy that defies borders
or governments is that it has openly called into question not only how much room
governments have to maneuver but how much they can affect such an economy in the
future. States are beginning to see themselves playing a diminished role when it comes to
their own economies (Shively, 2012). Although this economic reallocation of power may
be symbolic in nature it is representative of a loss of control not only in the economic arena

42 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

but also potentially in the social arena as the concept of “globalization” takes a hold on the
world. In this particular case, there are whole areas of economic policy in which states
may wish to act on, but in the end is ultimately proven impossible for it to control. A state
remains a state and its governments remain in power of said state however the range of
things the state has the capacity to control is greatly diminished and part that diminishment
can be seen as a diminishment of sovereignty. In this sense, while globalization has led to
the convergence of more developed economies, many argue that the welfare gap between
the more and less developed economies is growing. ‘Global economics’ looks at how trade
has shaped the global economy and considers the costs and benefits of free trade – it also
provides an analysis of the major problems facing the global economy in the 21st Century,
and provides an analysis of the financial crisis and the rise of powerful trading blocs.

But why do countries trade? Countries trade with each other when, on their own, they do
not have the resources, or capacity to satisfy their own needs and wants. By developing
and exploiting their domestic scarce resources, countries can produce a surplus, and trade
this for the resources they need. Goods and services are likely to be imported from abroad
for several reasons. Imports may be cheaper, or of better quality. They may also be more
easily available or simply more appealing than locally produced goods. In many instances,
no local alternatives exist, and importing is essential. This is highlighted today in the case
of Japan, which has no oil reserves of its own, yet it is the world’s fourth largest consumer
of oil, and must import all it requires.

The production of goods and services in countries that need to trade is based on two
fundamental principles, first analyzed by Adam Smith in the late 18th Century (in The
Wealth of Nations, 1776), these being the division of labor and specialization. In its strictest
sense, a division of labor means breaking down production into small, interconnected
tasks, and then allocating these tasks to different workers based on their suitability to
undertake the task efficiently. When applied internationally, a division of labor means that
countries produce just a small range of goods or services, and may contribute only a small
part to finished products sold in global markets. For example, a bar of chocolate is likely
to contain many ingredients from numerous countries, with each country contributing,
perhaps, just one ingredient to the final product.

On the other hand, specialization is the second fundamental principle associated with
trade, and results from the division of labor. Given that each worker, or each producer, is

43 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

given a specialist role, they are likely to become efficient contributors to the overall process
of production, and to the finished product. Hence, specialization can generate further
benefits in terms of efficiency and productivity.

Specialization can be applied to individuals, firms, machinery and technology, and to whole
countries. International specialization is increased when countries use their scarce
resources to produce just a small range of products in high volume. Mass production
allows a surplus of goods to be produced, which can then be exported. This means that
goods and resources must be imported from other countries that have also specialized,
and produced surpluses of their own.

Countries specialize in producing commodities where they have an advantage in

production over other countries. How do we know which commodities countries will
specialize on?

a. Principle of absolute advantage – supposed there are two countries, A and B,

producing only two commodities, potatoes and clothes. Let us assume that given the
raw materials, the productivity of labor in producing potatoes and clothes determines
the quantity of commodities actually produced. How will trade occur?

In general, trade between the two countries will likely take place of country A can produce
one good more efficiently than country B and country B can produce the other good more
efficiently than country A. Consider table 2.1

Country Sack of Pieces

potatoes of
clothes
A 6 4
B 3 12
Table 2.1 Output of potatoes and clothes by a worker per
day

Country A can produce six sacks of potatoes for every worker it employs in one day. On
the other hand, it can produce four pieces of clothes per day if that worker was employed
in the clothes industry. Looking at country B, we see that each of its workers can produce
3 sacks of potatoes or twelve pieces of clothes per day. It is obvious that country A is more
efficient in producing potatoes that country B since it can produce more sacks of potatoes
for every worker it employs than country B can. Country B is more efficient in the
production of clothes than country A since it can produce more pieces of clothes for every
worker it hires than country A can. We see from our example that country A has an
absolute advantage over country B in the production of potatoes and country B has an
absolute advantage over country A in the production of clothes. We can say that a country
has absolute advantage in one commodity over another country if that country can
produce the commodity more efficiently than the other country can. If the two countries are
allowed to trade, countries A and B will specialize in producing commodities that each can
produce more efficiently relative to the other country. Why?

Suppose that each country is endowed with units of labor. Countries A and B have the
option of either specializing in one commodity or dividing their labor resources for the
production of both potatoes and clothes. Let us examine the case where the countries are
not allowed to trade. This means that both commodities to satisfy domestic demand. To
make things simple, let us assume that preferences are such that labor is divided equally
between the two industries in each country. Table 2.2 shows the production schedules of
countries A and B for potatoes and clothes.

44 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Country Labor Potatoes Labor Clothes

Allocated produced Allocated produced
(Potatoes) (Clothes)
A 5 30 5 20
B 5 15 5 60
Total 10 10
Table 2.2 Production schedule for potatoes and clothes
without trade

Country Labor Potatoes Labor Clothes

Allocated produced Allocated produced
(Potatoes) (Clothes)
A 10 60 0 0
B 0 0 10 120
Total 10 10
Table 2.3 Production schedule for potatoes and clothes
with trade

In a situation without trade, the amount of potatoes available for country A is 30 while the
amount of clothes available is 20. For country B, available potatoes is 15 sacks and clothes
produced is 60 pieces. Now suppose that the countries are allowed to trade and each
country specializes in the commodity where it is relatively more efficient in production.
Country A, therefore, will specialize in the production of potatoes and country B will
specialize in production of clothes. Table 2.3 shows the resulting production schedule with
specialization and trade.

Notice from table 2.3 that potato production for country A doubles from 30 to 60 sacks with
the reallocation of labor from clothes to potato production. For country B, the production
of clothes also doubles from 60 to 120 pieces. Suppose that the countries trade with each
other with the assumption that one piece of cloth exchanges for one sack of potatoes. Will
both countries be better off? If country A exports the additional sacks of potatoes it
produces (30 sacks) and exchanges them for clothes, then more clothes would be
available for the domestic market of country A. The same thing will be true for country B.
More potatoes are now available for domestic market of country B. Clothes available in
country A increase from 120 pieces to 30 pieces while potatoes available in country B
expand from 15 sacks to 30 sacks. Specialization and trade expand production and
consumer choices because more commodities become available.

b. Principle of comparative advantage - David Ricardo took Adam Smith’s theory one
step further by exploring what might happen when one country has an absolute
advantage in the production of all goods. Smith’s theory of absolute advantage
suggests that such a country might derive no benefits from international trade. In his
1817 book Principles of Political Economy, Ricardo showed that this was not the case.
According to Ricardo’s theory of comparative advantage, it makes sense for a country
to specialize in the production of those goods that it produces most efficiently and to
buy the goods that it produces less efficiently from other countries, even if this means
buying goods from other countries that it could produce more efficiently itself.

We have structured the above situation in such a way that one country would have
absolute advantage in one commodity and the other country will have absolute advantage
on the other commodity. What if one country has absolute advantage in both commodities?
Would trade and specialization still occur? Obviously a country like the United States has
absolute advantage over the Philippines in almost all commodities. But why is it that

45 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

trading still occurs? Let us take the case of two countries C and D with rice and shoes as
the commodities. Table 2.4 shows the productivity of one unit of labor per day.

Country Rice Shoes

produced produced
C 12 6
D 2 4
Table 2.4 Output of rice and shoes by a worker per day

According to table 2.4, in country C, a worker can produce 12 sacks of rice or 6 pairs of
shoes for a day’s work. In country D, one worker can produce two sacks of rice or four
pairs of shoes. Thus, country C can produce both commodities more efficiently relative to
country D. Clearly, we can see that country C has absolute advantage in producing rice
and shoes because it can produce more of both commodities per unit of labor than country
D. Would there be benefits accruing to both countries if they were to trade? What would
be their bases for trading?

Note that a worker in country C can produce six times as many sacks of rice as a worker
in country D. However, country C can only produce one and a half times more pairs of
shoes. Country C is more efficient in producing rice than shoes while country D is more
efficient in the production of shoes relative to the production of rice. Country C has
comparative advantage in the production of rice while country D has comparative
advantage in the production of shoes. To further illustrate the concept of comparative
advantage, let us look at the opportunity costs for each country in producing the two
commodities. To produce 6 more pairs of shoes, country C has to give up producing 12
sacks of rice. Thus, the opportunity cost of producing one pair of shoes, country C is two
sacks of rice. In country D, to be able to produce 4 additional pairs of shoes, it must
sacrifice producing 2 sacks of rice. In other words, the opportunity cost in producing one
more pair of shoes is only ½ sack of rice. Country D has lower opportunity cost in producing
shoes than country C. Hence, country D has comparative advantage over country C in the
production of shoes. We say that a country has comparative advantage in the production
of a commodity if that country can produce that commodity more efficiently (or at a lower
opportunity costs) than another commodity relative to another country.

Each country will specialize in the production of a commodity where it has comparative
(not absolute) advantage. Country C will specialize in the production of shoes. The basis,
therefore, for specialization and trade, in general, is comparative advantage and not
absolute advantage. Absolute advantage could only be used as a basis in special cases
like one we ha earlier. Thus, countries specialize in and export those goods and services
where they have comparative advantage and import those commodities where they do not
have comparative advantage. This is the law of comparative advantage.

What would the countries gain from trading? Using the same example, let us again assume
that each country is endowed with ten units of labor. Suppose initially, that there is no
trade. Table 2.5 shows each country’s production without trade and specialization.

Country Labor used Rice Labor used Shoes

for rice produced for shoe produced
production production
C 8 96 2 12
D 4 8 6 24
Table 2.5 Production schedule for rice and shoes without trade

46 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Country Rice Shoes

produced produced
C 120 0
D 0 40
Table 2.6 Production schedule for rice and shoes with trade

Without trade, country C produces 96 sacks of rice and 12 pairs of shoes. Country D
produces 8 sacks of rice and 24 pairs of shoes. If the countries were to trade and
specialize, will they be better off? Table 2.6 gives the situation where trading and
specialization occurs.
With specialization, country C produces 120 sacks of rice as compared to 96 sacks without
specialization. Country D, on the other hand, is able to produce 40 pairs of shoes as
compared to only 24 pairs before. Assuming again that all the increase in the production
of each commodity brought about by specialization is exported at the rate of one sack of
rice for one pair of shoes. We see that shoes available in country C increases by 4 (16-
12) while rice for country D increases by 8 (16-8) sacks compared to pre-
trade/specialization levels. Again, production and consumption possibilities are expanded.

After all the adjustments in international trade have taken place, assuming that there are
no barriers to trade like tariffs and that there are no transportation costs, we will see that
prices of rice and shoes equalize across countries. Rice will cost the same in country C
and D and so will shoes. Our example does not permit us to calculate the exact prices of
the commodities. However, we are sure that the trading prices of the goods will be between
the pre-trade prices.

The advantages of trade

International trade brings a number of valuable benefits to a country, including:

 The exploitation of a country’s comparative advantage, which means that trade

encourages a country to specialize in producing only those goods and services
which it can produce more effectively and efficiently, and at the lowest opportunity
cost.
 Producing a narrow range of goods and services for the domestic and export
market means that a country can produce in at higher volumes, which provides
further cost benefits in terms of economies of scale.
 Trade increases competition and lowers world prices, which provides benefits to
consumers by raising the purchasing power of their own income, and leads a rise
in consumer surplus.
 Trade also breaks down domestic monopolies, which face competition from more
efficient foreign firms.
 The quality of goods and services is likely to increases as competition encourages
innovation, design and the application of new technologies. Trade will also
encourage the transfer of technology between countries.
 Trade is also likely to increase employment, given that employment is closely
related to production. Trade means that more will be employed in the export sector
and, through the multiplier process, more jobs will be created across the whole
economy.

The disadvantages of trade

Despite the benefits, trade can also bring some disadvantages, including:

 Trade can lead to over-specialization, with workers at risk of losing their jobs should
world demand fall or when goods for domestic consumption can be produced more

47 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

cheaply abroad. Jobs lost through such changes cause severe structural
unemployment.
 Certain industries do not get a chance to grow because they face competition from
more established foreign firms, such as new infant industries which may find it
difficult to establish themselves.
 Local producers, who may supply a unique product tailored to meet the needs of
the domestic market, may suffer because cheaper imports may destroy their
market. Over time, the diversity of output in an economy may diminish as local
producers leave the market.

The Pattern of International Trade

The theories of Smith, Ricardo, and Heckscher–Ohlin help explain the pattern of
international trade that we observe in the world economy. Some aspects of the pattern are
easy to understand. Climate and natural resource endowments explain why Ghana
exports cocoa, Brazil exports coffee, Saudi Arabia exports oil, and China exports crawfish.
However, much of the observed pattern of international trade is more difficult to explain.
For example, why does Japan export automobiles, consumer electronics, and machine
tools? Why does Switzerland export chemicals, pharmaceuticals, watches, and jewelry?
Why does Bangladesh export garments? David Ricardo’s theory of comparative
advantage offers an explanation in terms of international differences in labor productivity.
The more sophisticated Heckscher–Ohlin theory emphasizes the interplay between the
proportions in which the factors of production (such as land, labor, and capital) are
available in different countries and the proportions in which they are needed for producing
particular goods. This explanation rests on the assumption that countries have varying
endowments of the various factors of production. Tests of this theory, however, suggest
that it is a less powerful explanation of real-world trade patterns than once thought.

One early response to the failure of the Heckscher–Ohlin theory to explain the observed
pattern of international trade was the product life-cycle theory. Proposed by Raymond
Vernon, this theory suggests that early in their life cycle, most new products are produced
in and exported from the country in which they were developed. As a new product
becomes widely accepted internationally, however, production starts in other countries. As
a result, the theory suggests, the product may ultimately be exported back to the country
of its original innovation.

In a similar vein, during the 1980s, economists such as Paul Krugman developed what
has come to be known as the new trade theory. New trade theory (for which Krugman won
the Nobel Prize in economics in 2008) stresses that in some cases, countries specialize
in the production and export of particular products not because of underlying differences
in factor endowments but because in certain industries the world market can support only
a limited number of firms. (This is argued to be the case for the commercial aircraft
industry.) In such industries, firms that enter the market first are able to build a competitive
advantage that is subsequently difficult to challenge. Thus, the observed pattern of trade
between nations may be due in part to the ability of firms within a given nation to capture
first-mover advantages. The United States is a major exporter of commercial jet aircraft
because American firms such as Boeing were first movers in the world market. Boeing
built a competitive advantage that has subsequently been difficult for firms from countries
with equally favorable factor endowments to challenge (although Europe’s Airbus has
succeeded in doing that). In a work related to the new trade theory, Michael Porter
developed a theory referred to as the theory of national competitive advantage. This
attempts to explain why particular nations achieve international success in particular
industries. In addition to factor endowments, Porter points out the importance of country
factors such as domestic demand and domestic rivalry in explaining a nation’s dominance
in the production and export of particular products.

48 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Trade Theory and Government Policy

Although all these theories agree that international trade is beneficial to a country, they
lack agreement in their recommendations for government policy. Mercantilism makes a
case for government involvement in promoting exports and limiting imports (and Donald
Trump seems to advocate such policies). The theories of Smith, Ricardo, and Heckscher–
Ohlin form part of the case for unrestricted free trade. The argument for unrestricted free
trade is that both import controls and export incentives (such as subsidies) are self-
defeating and result in wasted resources. Both the new trade theory and Porter’s theory
of national competitive advantage can be interpreted as justifying some limited
government intervention to support the development of certain export oriented industries.

Evidence for the Link between Trade and Growth

Many economic studies have looked at the relationship between trade and economic
growth. In general, these studies suggest that as predicted by the standard theory of
comparative advantage, countries that adopt a more open stance toward international
trade enjoy higher growth rates than those that close their economies to trade. Jeffrey
Sachs and Andrew Warner created a measure of how “open” to international trade an
economy was and then looked at the relationship between “openness” and economic
growth for a sample of more than 100 countries from 1970 to 1990. Among other findings,
they reported:

We find a strong association between openness and growth, both within the group of
developing and the group of developed countries. Within the group of developing countries,
the open economies grew at 4.49 percent per year, and the closed economies grew at 0.69
percent per year. Within the group of developed economies, the open economies grew at
2.29 percent per year, and the closed economies grew at 0.74 percent per year.

A study by Wacziarg and Welch updated the Sachs and Warner data through the late
1990s. They found that over the period 1950–1998, countries that liberalized their trade
regimes experienced, on average, increases in their annual growth rates of 1.5–2.0
percent compared to pre-liberalization times. An exhaustive survey of 61 studies published
between 1967 and 2009 concluded: “The macroeconomic evidence provides dominant
support for the positive and significant effects of trade on output and growth.” The message
seems clear: Adopt an open economy and embrace free trade, and your nation will be
rewarded with higher economic growth rates. Higher growth will raise income levels and
living standards. This last point has been confirmed by a study that looked at the
relationship between trade and growth in incomes. The study, undertaken by Jeffrey
Frankel and David Romer, found that on average, a 1 percentage point increase in the
ratio of a country’s trade to its gross domestic product increases income per person by at
least 0.5 percent. For every 10 percent increase in the importance of international trade in
an economy, average income levels will rise by at least 5 percent. Despite the short-term
adjustment costs associated with adopting a free trade regime, which can be significant,
trade would seem to produce greater economic growth and higher living standards in the
long run, just as the theory of Ricardo would lead us to expect.

Trading with Many Commodities among Many Countries

To simplify things, we have confined ourselves to a two-country, two-commodity case in
discussing international trade. This, obviously, is not the situation in the real world. The
Philippines has more than one trading partner and our exports are not just confined to one
good like handicrafts. Also, trading nowadays, is usually done between regions. Will our
principles still be applicable to reality? The many goods-many countries case is, in general,
no different from our previous example. Countries simply have to rank commodities
according to which good the country has the most comparative advantage down to the
good with which it has the least comparative advantage. The law of comparative
advantage still holds. Countries will export commodities where they have comparative
advantage in production over its trading partner. The question of which commodity to

49 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

export given a ranking of comparative advantage, however, is another area of concern.

Generally, the choice would depend on the demand conditions prevailing in the
international market. If demand is high for a commodity and if the country has comparative
advantage in that commodity, it will export that good. What about the case of many
countries? This could still be treated like a two-country case. Trade occurs between the
exporting country on one side and the rest of the world on the other. It is just like trading
with a very big country.

Another fact that we have to contend with in reality is the truth that countries do not only
trade bilaterally (i.e., between two countries). In fact, most of the trading that occurs in the
international market is multilateral trade (i.e., among many countries). How does this affect
our principle of comparative advantage? Countries will still export commodities where they
do not have comparative advantage regardless of the origin of those imports. We must be
careful, though, in making generalizations about the impact of trade. While it is true that
countries will gain from trade, matters of policy like what to do with labor that is displaced
as industries shut down because specialization cannot be answered by our theory. But as
we have seen, trade is better than no trade at all. Policymakers only need to put up a
system of safety nets so that the gains from trade will be maximized.

Trade: Free Trade Vs Protectionism Overview

One view says that we should make it as easy as possible for goods and services to move
between countries. This approach is based on the argument that more trade makes us
wealthier and is therefore a good thing. It is known as free trade.

Another approach says that we should restrict trade. We might do this to protect certain
jobs. We might think that we need certain industries – such as food production or steel-
making – just in case things go wrong in the wider world. We might want to restrict imports
from countries with lower labor or environmental standards so they can’t undercut our
industries. This approach is known as protectionism.

Many economists agree that some restrictions on trade are desirable, but that we should
be careful, as such restrictions can make us poorer overall. For example, limits on
agricultural imports may be good for British farmers, but they also increase food prices.

The following sections set out some of the arguments in more detail.

Arguments for Free Trade

There are several key arguments in favor of free trade:
 Free trade increases the size of the economy as a whole. It allows goods and services
to be produced more efficiently. That’s because it encourages goods or services to be
produced where natural resources, infrastructure, or skills and expertise are best
suited to them. It increases productivity, which can lead to higher wages in the long
term. There is widespread agreement that rising global trade in recent decades has
increased economic growth.
 Free trade is good for consumers. It reduces prices by eliminating tariffs and increasing
competition. Greater competition is also likely to improve quality and choice. Some
things, such as tropical fruit, would not be available in the UK without trade.
 Reducing non-tariff barriers can remove red tape, thus reducing the cost of trading. If
companies that trade in several countries have to work with only one set of regulations,
their costs of ‘compliance’ come down. In principle, this will make goods and services
cheaper.
 In contrast, protectionism can result in destructive trade wars that increase costs and
uncertainty as each side attempts to protect its own economy. Protectionist rules can
tend to favor big business and vested interests, as they have the resources to lobby
most effectively.

50 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Arguments for Protectionism

While free trade increases the size of the economy as a whole, it isn’t always good for
everyone:

 As more countries experience industrial development, traditional domestic industries

can decline. In the UK, for example, the shipbuilding industry has declined in the face
of international competition since the 1950s and currently steel production faces
increasing competition. Protectionism can help preserve jobs in these sectors, or at
least slow the process of change.
 Protectionism can also help build up new industries. In sectors with high start-up costs,
new firms might find it difficult to compete if there is not support from government in
the form of tariffs or subsidies. Once they have become competitive, such barriers can
be removed.
 Protectionism can be used to safeguard ‘strategic’ industries such as energy, water,
steel, armaments and food. For example, ‘food security’ may be seen as important so
that we can feed ourselves if something terrible happens to disrupt the system of world
trade.
 Some people worry that free trade deals can lead to a lowering of standards. Such
deals might require us to let in goods and services even though they don’t meet our
standards, which might then be cheaper than those made by domestic industries. For
example, some people have been worried recently that a free trade deal with the US
might let in imports of chlorine-washed chicken. There might also be pressure to
reduce our standards for workers’ rights or environmental protection so that our
companies can compete with companies in countries that have lower standards.

NOTE: Please read the attached file in the UVE.

re: Global Outlook–Pandemic–Recession.pdf

51 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Application (Let’s Do It!)

Learner Worksheet 3
Student Name: ______________________________ Score: ____________

Course/ Year/ Section: _______________________________

1. Give at least ten partners of the Philippines?

___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________

2. In what commodities do you think the Philippines has comparative advantage?

Why?
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________

3. Does the Philippines practice protectionism? In what ways?

___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________

4. Why do countries adopt protectionist policies?

___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________

52 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Submitting Your Work. If you do not have Internet Connectivity, neatly detach this page
from your module and submit via University Drop Box or by courier/ mail together with your
other Learner Activity Worksheets once you reach the prescribed Learning Checkpoint. If
you have Internet connectivity, you may answer directly on the online version of this
worksheet through the University Virtual Environment.

Closure
Well done! You have just finished Lesson 1 of this module.

If you have questions or need to make clarifications take note of them in the space
provided below to ask your Course Professor through direct messaging or through the
University Virtual Environment (UVE).

Notes from this Lesson

Now that you have completed Lesson 1, let us move on to the next lesson in this
module.

53 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Lesson 2
Market Integration
Learning Outcomes
 Identify the actors that facilitate economic globalization;
 Explain the role of international financial institutions in the creation of a global
economy, and;
 Equip students with 21" century learning and develop higher order thinking skills
that will lead towards a deeper understanding of Global economic structures as
well as articulate a stance on global economic integration and how it impacts the
Philippines.

Time Frame: 1 Week

Overview

The social institution that has one of the biggest impacts in society is the economy. You
might think of the economy in terms of number – number of unemployed, gross domestic
product (GDP), or whatever the stock market is doing today. While we often talk about it
in numerical terms, the economy is composed of people. It is the social institution that
organizes all production, consumption, and trade of goods in the society. There are many
ways in which products can be made, exchanged, and used. Think about capitalism or
socialism. These economic systems – and the economic revolutions that created them –
shape the way people live their lives.

Economic systems vary from one society to another. But in any given economy,
production typically splits into three sectors. The primary sector extracts raw materials
from natural environments. Workers like farmers or miners fit in the primary sector. The
secondary sector gains the raw materials and transforms them into manufactured goods.
This means, for example, that someone from the primary sectors extracts oil from the earth
then someone from the secondary sector refines the petroleum to gasoline. Whereas, the
tertiary sector involves services rather than goods. It offers services by doing things rather
than making things. Thus, economic system is more sophisticated or at least, more
sophisticated than the way things used to be for much of human history.

This lesson will show the

contributions of the different
financial and economic institutions
that facilitated the growth of the
global economy. The history of the
global market will be discussed by
looking at the different economic
revolution. The growth and
dynamics of multinational
corporations that are emerging in
today’s world economy will also be
examined.

54 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Activity (Let’s Get Started!)

At this point, markets will be assessed through your own perspective provided that you
already had a good grasp of the different concepts in economic and financial globalization.
This activity will help you understand the benefits and harms of global economic
processes, structures, and technologies.
 Analyze the "global" nature of multinational corporations.
 Do you think the positive effects of multinational corporations outweigh the
negative effects? Why or why not?
 What do you think are the ways to lessen, if not eliminate, the negative
consequences of multinational corporations?
Analysis (Let’s Think About it!)
Now think about the questions below:

 What does the world think about globalization?

 Are multicultural/multi-ethnic societies more positive about globalization than
monocultural/monoethnic societies?
 Why is Global Integration necessary in a capitalist economy/

Abstraction (Let’s Explore!)

The Post-World War II Economic System and The Role of international financial
institutions in the creation of a global economy -The Bretton Woods Conference in
July 1944, formally known as the United Nations Monetary and Financial Conference,
marked the birth of a new international economic framework. Delegates from 44 countries
convened in Bretton Woods, New Hampshire, United States and agreed on the creation
of two international economic organizations: International Monetary Fund (IMF) and World
Bank or the International Bank for Reconstruction and Development. These institutions
are known as the Bretton Woods Institutions. It also includes a third entity, the General
Agreement on Tariffs and Trade
(GATT). Albeit created in 1947 after
the Bretton Woods Conference, this
much more informal institution than
the IMF and WB served as the
primary global trade organization.
The postwar institutional framework
was created to address the problems
that occurred during the interwar
period, trade protectionism and
exchange controls, which led to the
Great Depression and the World War
II (Cohn, 2011).

The Bretton Woods institutions were

known keystone international economic organizations (KIEOs) due to their central role in
trade, development, and monetary relations (Cohn, 2011; Jacobson and Oksenberg,
1990). The functions of these institutions will be discussed in detail, as well as how their
roles have changed in the contemporary period.

International Monetary Fund (IMF) - The primary purpose of the IMF is to promote global
monetary cooperation and international financial stability. The institution, created in 1945,
was designed to monitor the system of pegged or fixed exchange rates. In this system,

55 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

official exchange rates of currencies were related to gold and U.S. dollar. It was designed
to prevent the trade wars that occurred during the interwar period due to competitive
devaluations of states of their currencies (Cohn, 2011). When states suffer from balance-
of-payments deficits, they reduce the value of their currencies to boost exports with
cheaper products and decrease imports. A balance-of-payment deficit occurs when a
country spends more than it takes in. The role of IMF is to provide short-term loans to
prevent devaluation and retain the state's fixed exchange rate in instances of the
temporary balance of payment deficits. The institution was designed for the mandate of
ensuring international financial cooperation and reinforces international trade (Benczes,
2014). IMF's role changed when the fixed-exchange-rate system collapsed and was
replaced by floating exchange rates in 1971.It still had the role of providing liquidity but
has more focus on countries tied to major currencies instead of countries supplying them
(Garber, 1993).

The IMF is an institution

based on quotas which
determine the maximum
amount of financial resources
that a state is obliged to
provide to the fund. The quota
of states reflects their relative
position is the global economy
and determines the voting
power of states in IMF
decisions. The IMF has since
been dominated by the West
and has been much criticized
for marginalizing the South
and failing to include
emerging economies in its
decision-making. The Global
Financial Crisis of 2007-2009
has prompted the IMF to
undergo a reform process
consisting of two elements: (1)
IMF resource expansion to
enhance capacity for financial
crisis management, and (2)
increase in quota and voting
power of emerging economies within the institution (Lesage et al., 2013). The 2010 reform
structure package involved doubling of the IMF quota, shifting of quota shares; and
preserved quota and voting shares of poorest member states. The reform shifted more
than six percent from over-represented to under-represented member countries, and to
developing and dynamic emerging market and reshuffling seats of the Executive Board to
both restore the institution' legitimacy and crisis management capacity.

Lesage et al. (2013) explain the outcome of the reform negotiations as a trade- off between
money and power. It was an agreement particularly between the BRIC grouping among
Brazil, Russia, India, and China to contribute to the Fund's resources in exchange to quota
and governance reforms about the redistribution of the quota and Executive Board seats
from the West to the South. The 2010 reform, however, has not led to the long-expected
reform and strengthening of the IMF. While the IMF resources have tripled with the
doubling of the quota complemented by the New Arrangements to Borrow (NAB), a
supplementary source of funding from countries that are not tied to voting-rights, there are
still doubts on the capacity of the Fund to bailout larger countries (Lesage et.al., 2013).

56 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Moreover, the quota and governance reform have not been revolutionary, with the status
quo of power relations remain intact as the USA remains to vote shares constituting its
veto power but not in the case of the BRIC countries as a bloc (Lesage et al., 2013).

International Bank for Reconstruction and the Development or World Bank - While
IMF was designed to provide short-term loans to aid countries facing balance-of-payments
deficits, the role of International Bank for Reconstruction and Development (the World
Bank) was created to grant long-term loans for the economic development of less
developed countries and the
reconstruction of war-torn countries
in Europe. The World Bank today is
made up of two institutions. One is
the International Bank for
Reconstruction and Development
(IBRD) which provides International
Development Association (IDA)
which grants credits and loans to
lowest income countries. The World
Bank is only a component of the
World Bank Group which is
comprised of three other institutions:
International Finance Corporation (IFC), Multilateral Investment Guarantee Agency
(MIGA), and the International Centre for Settlement of Investment Disputes.

The renewed role of the World Bank in the modern economy is to reduce extreme poverty
while addressing the imperfections of global capital markets continues to be secondary
importance (Clemens & Kremer, 2016), Donor countries with recipient countries that
involve policy changes. Its policy influence is grounded on the legitimacy and credibility
enhanced by its commitment to reducing poverty, along with its technocratic staff and its
status as a multilateral organization (Clemens & Kremer, 2016).

Contrary to the Bank's supposed normative commitment, the Bank's impact on growth
outcomes has been contested. Easterly (2005) finds severe macroeconomic distortions
suffered by loan recipients and no statistical evidence of per capita growth improving from
increased structural adjustment lending. More than that, the programs have been accused
of worsening the state of poverty and underdevelopment of recipient countries. Shandra
et al. (2011) find empirical evidence that the Bank's structural adjustment resulted in
adverse effects on children in Sub-Saharan Africa. Furthermore, there exists robust
evidence in the literature that structural adjustment programs not only of the Bank but also
other international financial institutions such as IMF, and the African Development Bank
(ADB) have detrimental effects on child and maternal health in the developing world
(Thomson, Kentikelenis, & Stubbs, 2013). Such policy reforms significantly undermine
access to health care and adversely impact on income and food availability which are
social determinants of health (Thomson, Kentikelenis, & Stubbs, 2013).

General Agreement on Tariffs and Trade (GATT) and the World Trade Organization
(WTO) - The purpose of the GATT was to avoid trade wars by raising protectionist barriers
as witnessed during the interwar period. The forum was created years after the Bretton
Woods due to the refusal of the U.S. to sign the Havana Charter that would create an
International Trade Organization (ITO) at par with that of the IMF and GATT. The
agricultural sector in the US feared for losses that may be brought by the ITO and
pressures in the US Congress resulted to the failure of reaching an agreement, thus
resulting to the informal GATT. States who took part in the GATT were "contracting parties"
instead of formal members due to the nature of the agreement as a provisional treaty
(Cohn, 2011: 23).

57 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

While it was effective in liberalizing

trade, GAT T was unable to address
the expansion of trade in services,
investment, and intellectual
property. It was also incapable of
providing a strong and efficient
system for dispute settlement. GATT
was eventually superseded by a
more formal World Trade
Organization (WTO) in 1995 that
managed to address these issues.

The establishment of a global

economic order was heavily
influenced by the Western
developed countries. The South, comprising of less developed economies, were
marginalized while the Soviet Union refused to participate, with attempts to create an
alternative economic framework and institutions. Less developed economies The South
and the Soviet Union, however, gradually became integrated into the liberal economic
order at the end of the twentieth century.

The Organization for Economic Cooperation and Development (OECD), the

Organization of Petroleum Exporting Countries (OPEC), and the European Union
(EU) - The most encompassing club of the richest countries in the world is the Organization
for Economic Cooperation and Development (OECD) with 35 member states as of 2016,
with Latvia as its latest member. It is highly influential, despite the group having little formal
power. This emanates from the member countries' resources and economic power. In
1960, the Organization of Petroleum Exporting Countries (OPEC) was originally
comprised of Saudi Arabia, Iraq, Kuwait, Iran, and Venezuela. They are still part of the
major exporters of oil in the world today. OPEC was formed because member countries
wanted to increase the price of oil, which in the past had a relatively low price and had
failed in keeping up with inflation. Today, the United Arab Emirates, Algeria, Libya, Qatar,
Nigeria, and Indonesia are also included as members.

The European Union (EU) is made up of 28 member states. Most members in the
Eurozone adopted the euro as basic currency but some Western European nations like
the Great Britain, Sweden, and Denmark did not. Critics argue that the euro increased the
prices in Eurozones and resulted in depressed economic growth rates, like in Greece,
Spain, and Portugal. The policies of the European Central Bank are considered to be a
significant contributor in these situations.

North American Free Trade Agreement (NAFTA) - (NAFTA) is a trade pact between the
United States, Mexico, and Canada created on January 1, 1994 when Mexico joined the
two other nations. It was first created in 1989 with only Canada and the United States as
trading partners. NAFTA helps in developing and expanding world trade by broadening
international cooperation. It also aims to increase cooperation for improving working
conditions in North America by reducing barriers to trade as it expands the markets of the
three countries.

The creation of NAFTA has caused manufacturing jobs from developed nations (Canada
or the United States) to transfer to less developed nations (Mexico) in order to reduce the
cost of their products. In Mexico, producer prices dropped and some two million farmers
were forced to leave their farms. During this time, consumer food prices rose, causing 20
million Mexicans, about 25% of their population, to live in "food poverty."

58 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

The free trade, however, gave a modest impact on US GDP. It has become $127 billion
richer each year due to trade growth. One can argue that NAFTA was to blame for job
losses and wage stagnation in the United States because competition from Mexican firms
had forced many U.S. firms to relocate to Mexico. This is because developing nations have
less government regulations
and cheaper labor. This is
called outsourcing. As an
example, the United States
outsourced approximately
791,000 jobs to Mexico in
2010.

As for Canada, 76% of

Canadian exports go to the
United States and a quarter of
the jobs in Canada are
dependent in some way on the
trade with the United States.
This means that if NAFTA
changes or is eradicated, it
would be devastating for
Canada's economy.

Generally, NAFTA has its positive and negative consequences. It lowered prices by
removing tariffs, opened up new opportunities for small- and medium sized businesses to
establish a name for itself, quadrupled trade between three countries, and created five
million U.S. jobs. Some of the negative effects, however, include excessive pollution, loss
of more than 682,000 manufacturing jobs, exploitation of workers in Mexico, and moving
Mexican farmers out of business.

International Monetary System - The International Monetary System is defined as "a set
of general rules, legal norms, instruments, and institutions shaping payment conditions in
foreign trade (international scale)" (Mikita, 2015, p. 505). It is brought by the multilateral
international agreements of trading participants, facilitated by international financial
organizations. The Gold Standard adopted by England in 1816, being the first country to
industrialize, was the first international monetary system (Mikita, 2015). It would later be
joined by European countries and the United States. It functioned as a fixed exchange rate
regime where countries determined the gold content of their national currencies which
would define the fixed exchange rates (Benczes, 2014).

The primary features of the gold standard were the unlimited convertibility of currencies
into gold and high stability facilitated by trade among countries that eliminated exchange
rate fluctuations and risks (Mikita, 2015). The system maintained the equilibrium of the
trade balance automatically. The deficit in balance-of-payments due to gold reserve
outflows would result inthe fewer money supply in the domestic market, causing a decline
in domestic prices. This is beneficial to exporting cheaper goods but not on imports of
higher priced goods, which then contributes to the balance. This can be derailed by
financial policies of raising interest rates to promote capital inflow and to maintain the gold
reserves at a fixed level, reversing the downward pressures on prices and influencing
demands for imports and exports (Mikita, 2015). The Gold Standard was also non-
inflationary because the issuance of money is dependent on a state's gold resources. Price
fluctuations would occur due to gold outflows or discovery of gold mines. This, however,
also served as the primary weaknesses of this fixed exchange rate system are limited cash
flow and curbed economic development (Cohn, 2011). World War I marked the dissolution
of the classical gold standard and the shift to paper money that is not tied to gold reserves

59 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

and whose exchange ratewas determined by the supply and demand in the foreign
exchange market. Military spendings of states could not be backed up by gold reserves
anymore (Mikita, 2015).

An attempt to return to modify the gold started was held in a 1922 conference in Genoa.
The new international monetary system was named the "Gold Bullion Standard." In this
standard, bank notes were exchangeable for gold bullion of fixed weight, therefore
involving only the exchange of large sums of money. The system failed to facilitate the

free convertibility of currencies to gold, and it collapsed in 1931 with the outbreak of Great
Depression in the 1930s (Mikita, 2015). The first symptoms of the economic crisis were
the Great Crash or the Wall Street Crash of 1929, of stock market prices which delivered
a wave of bankruptcies, a decrease in trade and production, and unemployment in the
United States, also hitting hard cities around the world.

The period of the 1930s interwar period would increase intensity beggar-thy- neighbor
policies, trade protectionism, competitive devaluation, rigid capital controls among states.
The harsh impacts of these policies to the society steered economic policy toward state
interventionism, with primary objectives of increasing employment, income and production
based on Keynesian principles of state intervention.

In the Bretton Woods Conference of 1994, 44 countries agreed in creating a new

international system that would prevent the chaos that occurred during the interwar period.
The Bretton Woods System was established, an adjustable-peg system that is also known
as the dollar-gold standard or gold-exchange standard, with the US dollar as the only
convertible currency that is considered to be as good as gold. As the emerging hegemon,
US committed itself to purchase and sell gold at US$35 dollar an ounce without
restrictions, while other currencies, in turn, were fixed to the dollar (Benczes, 2014). The
stability of currency exchange rates was maintained, and the system bounded member
states to maintain the narrow limits of their currency exchange rate within the +/- 1% range
(Mikita, 2015).

As the world leader sustaining the new regime, US managed to maintain its balance-of-
payments surplus. With the restoration and reemergence of the economic powers in
Europe and (Japan), US gradually faced persistent deficits which were an inevitable
consequence of serving as the world's reserve currency (Benczes, 2014). The stability of
operations of the Bretton Woods System was conceived to have only lasted from 1959 to
1968 (Garber, 1993). The growth of private and official private liquid dollar claims of
foreigners, reduction in official gold holdings especially that of the US, persistent balance-
of-payments problems of the US contributed to the collapse of the system (Cohn, 2011;
Garber, 1993; Mikita, 2015). Problems of the Bretton Woods system would be exposed in

60 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

the 1960s when the United States began to suffer from its balance-of-payments deficits. It
was difficult to maintain the stable price of gold - maintaining the fixed gold price in the
face of constant price increase globally resulted in its reduction of production (Mikita,
2015). International reserve of gold had stagnant growth due to low official price while
most of the growth was seen in foreign-owned US dollars – the growth encountered
problems due to deficits and states started losing confidence in the strength of the dollar
and began purchasing gold reserves from the US.

In the 1960s and the 1970s, a series of changes were introduced to maintain the
operations of the Bretton Woods system and to resolve its deficiencies. The series of
interventions involved solutions such as the formation Gold Pool and the Special Drawing
Rights to expand resources and means for payment (Garber, 1993; Mikita, 2015).
However, these changes were insufficient in the face of worsening US deficit, currency
speculation, and inflation. The problems would eventually result to US abandonment of
the gold-exchange standard and the eventual collapse of the Bretton Woods system in
1973, forcing states to fluctuate their exchange rates to be determined by market forces.
Succeeding attempts to return to a regulated exchange rate system would be pursued but
to no avail.

With the shift from a pegged-system to a floating one, IMF allows flexibility among member
states to determine their exchange rates or tie them to major currencies such as the dollar
or the SDR. The IMF also allows a managed float system where central banks are allowed
to intervene to address the fluctuations in the exchange rate by buying and selling
currencies. However, countries are not allowed to manipulate their currencies to achieve
short-term gains at the expense of other economies.

History of Market Integration: From a Unilateral to a Multilateral Trade Order

The mercantilist period during the seventeenth and eighteenth centuries in European
international trade was marked with colonial expansionism and surplus accumulation of
gold stocks in the balance of payments which boosted exports and curtailed imports
(Benczes, 2014). This period was situated in a zero-sum game in economic relations, the
pursuit of beggar-thy-neighbor policies with led to trade wars. Industrialization in the 19th
century advanced trade liberalization under the leadership of United Kingdom, the first
country to industrialize and the hegemon, particularly in 1846 during the Repeal of the
British Corn Laws (Benczes, 2014). Not all states, however, embraced free trade during
the era of industrialization. The United States together with Germany initially pursued
import substitution industrialization, imposing tariffs on manufactured goods to protect their
infant industries.

The outbreak of World War I resulted to the overturning of the free trade regime and the
return of protectionism. The US was unwilling to take over as hegemon after the decline
of British hegemony and served as the primary drivers of protectionist policies during the
Great Depression of 1929-33 (Benczes, 2014). Other states would respond through a
cycle of retaliation, severely reducing the extent and amount of trade among countries.
The US Reciprocal Trade Agreements Act in 1932 addressed the decline in international
trade by transferring authority to decide on trade matters to the US president, freeing the
Congress from pressure coming from protectionist interest (Benczes, 2014).

The post-World War II trade regime was established in the backdrop of what Ruggie (1983)
calls as "embedded liberal compromise," an offshoot of Keynesianism economics where
the promotion of an open global economy was accompanied by government safeguards
that would protect the domestic economy and social policies. The trade regime was unique
because it was informal and constituted by multilateral trade agreements. Negotiations are
guided by the following principles: trade liberalization via tariff reductions;
nondiscrimination, reciprocity, safeguards, and development (Cohn, 2011). The

61 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

development principle, however, has not been sufficiently prioritized by major trading
powers. GATT was unable to fully impose the limitations of free trade in exceptional cases
concerning essential policy objects such as health, and public moral grounds, which ought
to trump over the market goals (Ala'i, 2011)

Other criticisms pertained to the inadequate the dispute settlement mechanisms of the
institution. Moreover, while GATT was successful in substantively reducing tariffs, these
were eventually replaced with non-tariff barriers (NTBs) in forms such as environmental
regulations and health and safety requirement, constituting new challenges and limitations
to global trade (Ala'i, 2011).

The creation of the WTO as "a legitimate multilateral institution, with formal legal status as
an international organization and formal diplomatic status for its secretariat" was a
development from the informal "club" of Western trading nations in GATT (Barton,
Goldstein, Josling, & Steinberg, 2008, p. 1). Detailed rules extensively covered not only
goods but also intellectual property, investment, services. WTO has also become "one of
the most legalized international institutions in the world" with its binding and automatic
dispute settlement mechanism.

The developing states, however, were disillusioned by the outcomes of the Uruguay round
where less developed countries were perceived to have given up more with the inclusion
of services trade and intellectual property than what they have reaped from limited
agreements for textile and agriculture (Cohn, 2011). The Uruguay round would then
proceed to the Doha round, dubbed as the “development round, which was unable to
produce successful agreements. The increasing membership of the organization made it
more difficult to reach consensus and countries were not willing to make significant
concessions to avoid the failure of the negotiations (Cohn, 2011). The opposing positions
of parties also led to its demise. Demands of developing countries to fully implement the
Uruguay agreement particularly in the agricultural sector, and demands of the US and EU
focusing on matters such as labor, environment, and investment concerns became
irreconcilable matters (Benczes, 2014).

From Keynesianism to Neoliberalism

During the Great Depression in the 1930s, the ideas of John Maynard Keynes, a prominent
British economist, have been influential in shaping the economic policy of developed
countries. In his seminal work entitled The General Theory of Employment, Interests, and
Money (1936), Keynes argued that market-generated equilibrium results in unemployment
which causes a decrease in demand. This, in turn, is related to the decrease in investment
and production. He sees government spending as a solution to revive the economy by
bolstering aggregate demand through fiscal and monetary policies. The Keynes' liberal
interventionism approach influenced states to invest in big governments and shaped the
post-war global economic order that is grounded on the Keynesian compromise in of
promoting open markets without undermining the protection of the society and the
domestic market. This allowed exceptions to be accepted in the form of capital controls
and domestic trade protections (Balaam & Dillman, 2014).

The Keynesian paradigm, however, would be challenged during the economic crisis of
stagflation (a combination of rising unemployment and inflation) that occurred in the 1970s
(Heywood, 2011). This would mark the entry of resurgence of liberalism through neo-
liberalism on a global scale due to the technological advancement that allowed the free
flow of capital and goods across the globe. Grounded in the ideas of Friedrich Hayek and
Milton Friedman, the neoliberal solution was to have an unregulated market with as little
state intervention as possible. It involved the having the market take over tasks and
services that ought to be provided by the government.

62 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

The key neoliberal policies were comprised of privatization, deregulation, lesser public
spending, and reduced corporate taxes. The economic paradigm would expand through
British Prime Minister Margaret Thatcher and U.S. President Ronald Reagan who
popularized the policies and ideas dubbed as Thatcherism and Reaganism, which would
then be followed by the emerging economies of East and Southeast Asia (Balaam &
Dillman, 2014). The United States and Great Britain, together with the industrialized
nations, would promote globalization and integration into the global economy with the
promise that capitalism would lead to economic prosperity alongside democratization. The
IMF and World Bank also aligned their policies to neo-liberalism through the "Washington
Consensus," a set of ten economic policy prescriptions for the recovering and crisis-ridden
countries implemented by Washington-based institutions: the IMF, WB, and the US
Treasury. The term was coined by John Williamson (2004) which constituted the following
principles:

1. Fiscal discipline
2. Reordering Public Expenditure Priorities
3. Tax Reform
4. Liberalizing Interest Rates
5. A Competitive Exchange Rate
6. Trade Liberalization
7, Liberalization of Inward Foreign Direct Investment
8. Privatization
9. Deregulation
10. Property Rights

These policies were applied through the structural adjustment programmes (SAP) of the
IMF and the WB that imposed conditionality clauses attached to loans which have been
criticized for its adverse effects on developing nations. With the expansion of globalization
came the reaction from the civil society in the form of transnational and national resistance
due to the widening gap between the North and the South. The Zapatista Movement in
Mexico against the North American Free Trade Agreement and the Battle of Seattle during
the WTO Ministerial Conference in the 1990s were the prominent transnational
movements that first sought to challenge against global capitalism and neoliberal
globalization. Offshoots of these movements would emerge in the twenty-first century, with
the Spanish Indignados Movement, the Arab Spring, and the Occupy Movement. Such
movements are part of the broader collective resistance known as the "global justice
movement" that fights against inequality and the concentration of wealth among the
wealthy minority. These movements have yet to produce strong enough pressure to these
international institutions. However, the global civil society continues to persistently and
relentlessly expose the ills of today's global economic system.

63 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Application (Let’s Do It!)

Learner Worksheet 4
Student Name: ______________________________ Score: ____________

Course/ Year/ Section: _______________________________

Case In Point: The Filipino Farmer and GATT; Quo Vadis?

Mang Rene is a 48 year old farmer who rotationally plants rice and corn in a small
subsistence farm land. This morning however, he cannot go on his daily farming
routine as his farm and crops which were scheduled to be harvested were all wiped
out by Typhoon Pablo. He laments at how he can feed his family of 3, not to
mention that his son who is taking up a college course in the city is scheduled to
pay his tuition fee at the end of the month. He said that the farm earnings has
severely depleted to the point that he never wished his eldest son to be a farmer
like him who only finished fifth grade, that is why he is doinghis very best to see
that his son will become an engineer someday. When asked why his earnings
dipped, he has this to say, "mababa ang bilihan ng palay, madali kasi makapasok
yung mga bigas galing Vietnam tsaka Thailand ba yun? Kaya kami binabarat ng
husto, kapos sa Suporta ng gobyerno tapos eto babagyuhin pa. Kawava talaga
kaming magsasaka lang...

Weak government policies and programs, an excessive reliance on agricultural

imports, and corruption, have taken their toll on the agricultural sector, say experts.
According to the 2012 Bureau of Agricultural Statistics, the agricultural sector
employs an estimated 12 million people, making up 33 percent of the country's
labor force. About 70 percent of the rural poor are farmers and fishermen.

The Philippine government's formal accession to the GATT-WTO was made

possible by the ratification of the Philippine Senate of the GATT-UR in December
1994. Along with it, the government’s commitments to the various agreements
embodied in the Uruguay Round including the Agreement on Agriculture were
made legally binding. To pursue the full completion of its commitments to the
embodied in the Uruguay Round including the Agreement on Agriculture were
organization, the government has subsequently amended and revised existing
laws and policy measures that were not in congruence with the rules of the WTO

Through RA 8178 or the law on quantitative restrictions on agricultural products,

which repealed the Magna Carta of Small Farmers of 1991 (which protected the
small farmers and replaced all quantitative restrictions with tariffs), the Philippines
surrendered completely to WTO thus endangering rice, corn, coconut, sugar and
other food products to its mandate.

64 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

'Billions of Promises

The hype for people to accept WTO included: P3.4 billion annual agricultural export
earnings; P60 billion increase in annual gross value added of agriculture and
500,000 jobs to be created annually. But all these were promises.

In reality, agricultural output as measured by GVA has minimally increased at 1.38

percent lower than the average rate of 1.62 percent from 19991-1994 due to
declining agriculture's capacity to supply the food needs of the population. But
Agriculture officials blamed the weather disturbances for the overall decline in crop
production.

Prices of coconut, sugar, rice and corn post GATT showed declines since the
seventies due to insufficient support and investments, declining hectarage and
surging importation of cheaper products. This resulted in the ballooning of trade
deficit for agriculture.

Consequently, the promised millions of jobs under the post GATT era never
materialized and the livelihoods of farmers were threatened by globalization.

Because of government's commitment to remove trade distorting subsidies and

support to agriculture, it left the sector to fend for itself and reduced its price
support, credit, research and development and infrastructure support.

Back in the early 2000, the study called for Congress to thoroughly review the
Philippine commitments to WTO from the perspective of the small peasants and
their organizations, not by agribusinesses and traders. Agriculture, being a major
pillar of the economy, is where an overwhelming number of peasants are
vulnerable to the vagaries of the world trading system. Of the small peasants that
constitute 95 percent of the agricultural labor force, 50 percent till the land as
tenants or owner cultivators. The other half work as itinerant labor force moving
from one area to another.
Courtesy of http://www.opinyon.com.ph

Inquiry Based Learning Guide Questions:

1. How does the experience of Mang Rene mirror the sad plight of Philippine
agriculture in particular and reflect the conditions of the national economy
in general with reference to Globalization.

2. If you will be able to talk to Mang Rene, how are you going to explain to him
(in the simplest way possible) the workings of the GATT- WTO, what it
stands for and how Globalization can positively affect him?

3. Research on the advantages and disadvantages of the GATT, be able to

construct a matrix showing which of these has directly impacted the
Philippines. Be able to weigh your findings and assess whether the GATT
WTO has indeed been instrumental for us or not in our quest for
development.

65 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Submitting Your Work. If you do not have Internet Connectivity, neatly detach this page
from your module and submit via University Drop Box or by courier/ mail together with your
other Learner Activity Worksheets once you reach the prescribed Learning Checkpoint. If
you have Internet connectivity, you may answer directly on the online version of this
worksheet through the University Virtual Environment.

Closure
Well done! You have just finished Lesson 2 of this module.

If you have questions or need to make clarifications take note of them in the space
provided below to ask your Course Professor through direct messaging or through the
University Virtual Environment (UVE).

Notes from this Lesson

Now that you have completed Lesson 2, let us move on to the next lesson in this module.

66 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Lesson 3
The Global Interstate System and Global
Governance
Learning Outcomes
 Understand the structure and dynamics of the Interstate System;
 Explain the challenges of global governance in the 21st century;
 Identify possible solutions to the problems in the United Nations structure and
dynamics, and;
 Equip students with 21" century learning and develop higher order thinking skills
that will lead towards a deeper understanding of Global Interstate System and
Global Governance as well as articulate a stance on these concepts while
demonstrating effectively how these ideas impact the Philippines.

Time Frame: 1 Week

Overview
In a world where there is anarchy, where no overpowering state-like entity imposes rules
and order, it is imperative that the nation state impose its sovereign power within it domain.
The state is the legitimate user of physical violence (Weber, 1964), through its military and
police apparatus, together with its territorial, fiscal, and ideological monopolies
(Wallensteen, 2012). The global system is anarchic, and this necessitates global
governance to maintain
international peace and security.

How do we govern in the absence

of a cosmopolitan state? This
chapter aims to answer this
question by focusing on the United
Nations as the primary venue and
formal arrangement for global
governance involving states and
non-state actors, In sum, global
governance is defined as "the
formal and informal arrangements
that produce a degree of order and
collective action above the state in
the absence of a global
government," that involve coordination among state and non-state actors (Young, 1999:
2). However, governance in an anarchic setting has been challenged by the self-interest
of major states and has exposed the limitations which this lesson intends to discuss.

Activity – Experiential Learning (Let’s Get Started!)

1. On a piece of paper, write at least 3 concepts that you remembered the most from
modules 1 and 2. Write one sentence description of the concept you chose for
each of the three.
2. Grab Bag – after writing the description of the concept you chose for each the
three, draw an object from your bag, and explain or illustrate how the object is
related to what you have learned.

67 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Example: The object grabbed was a mobile phone. The student can then explain
that the mobile phone represent either the presence of necessary communication
or a breakdown in communications that may result in international conflicts.

Analysis (Let’s Think About it!)

Now think about the questions below:

 How can we explore the interconnectedness of global systems through a closer look
at some of the world’s most pressing global issues and their impact on children?
 What is the role of the United Nations (UN), and what it has achieved so far in
addressing global conflict?

Abstraction (Let’s Explore!)

Global governance brings together diverse actors to coordinate collective action at the
level of the planet. The goal of global governance, roughly defined, is to provide global
public goods, particularly peace and security, justice and mediation systems for conflict,
functioning markets and unified standards for trade and industry. One crucial global public
good is catastrophic risk management – putting appropriate mechanisms in place to
maximally reduce the likelihood and impact of any event that could cause the death of 1
billion people across the planet, or damage of equivalent magnitude.

The leading institution in charge of global governance today is the United Nations. It was
founded in 1945, in the wake of the Second World War, as a way to prevent future conflicts
on that scale. The United Nations does not directly bring together the people of the world,
but sovereign nation states, and currently c ounts 193 members who make
recommendations through the UN General Assembly. The UN’s main mandate is to
preserve global security, which it does particularly through the Security Council. In addition
the UN can settle international legal issues through the International Court of Justice, and
implements its key decisions through the Secretariat, led by the Secretary General.

The United Nations has added a range

of areas to its core mandate since
1945. It works through a range of
agencies and associated institutions
particularly to ensure greater shared
prosperity, as a desirable goal in itself,
and as an indirect way to increase
global stability. As a key initiative in
that regard, in 2015, the UN articulated
the Sustainable Development Goals,
creating common goals for the
collective future of the planet. Beyond
the UN, other institutions with a global
mandate play an important role in
global governance. Of primary
importance are the so-called Bretton
Woods institutions: the World Bank
and the IMF, whose function is to
regulate the global economy and credit
markets. Those institutions are not without their critics for this very reason, being often
blamed for maintaining economic inequality.

68 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Global governance is more generally effected through a range of organizations acting as

intermediary bodies. Those include bodies in charge of regional coordination, such as the
EU or ASEAN, which coordinate the policies of their members in a certain geographical
zone. Those also include strategic or economic initiatives under the leadership of one
country – NATO for the US or China’s Belt and Road Initiative for instance – or more
generally coordinating defense or economic integration, such as APEC or ANZUS. Finally,
global governance relies on looser norm-setting forums, such as the G20, the G7, and the
World Economic Forum: those do not set up treaties, but offer spaces for gathering,
discussing ideas, aligning policy and setting norms. This last category could be extended
to multi-stakeholder institutions that aim to align global standards, for instance the Internet
Engineering Taskforce (IETF) and the World Wide Web Consortium (W3C).

In summary, global governance is essential but fragmented, complex and little understood.
In this context, the key questions raised by the Global Challenges Foundation are, how to
reform institutions, how to develop alternative institutions, and how to use the new
possibilities of technology to improve governance.

The United Nations

The United Nations (UN) serves as the primary organization for international cooperation,
peace, and security. It is the only international organization that can authorize the use of
force against an aggressor. Its primary concern is collective military security (Chapter VII
of the UN Charter) through the facilitation of peaceful settlement of disputes among
member states (Chapter VI) or by [commanding allegiance of the entire UN membership;
sanctions). While its primary objective is to ensure peace and order, the UN as an
organization can be a conflict actor in itself or an instrument for action driven by the
interests of particular states. With that, it must be emphasized that "UN is a membership-
directed organization and the members are all states. This strongly affects what it can do"
(Wallensteen, 2012: 241).

The United Nations Charter established six principal organs in 1945. These organs are
Economic and Social Council, Trusteeship Council, and the International Court of Justice,
General Assembly, Security Council, and the Secretariat (Article 7, Chapter III)

The Economic and Social Council's (ECOSOC) primary objective is to advance the
economic, social and environmental dimensions of sustainable development. It serves as
a gateway of the UN's partnership with the rest of the world for the coordination, policy
review, dialogue, recommendations, and implementation of international development
goals. The organ is composed of 54 elected members by the General Assembly for
overlapping three-year terms (Chapter X).

The IMF and WB are specialized agencies and independent organizations that are
affiliated with the UN. These two institutions issue yearly reports to the ECOSOC but the
WTO, since it is a related agency and not a specialized one, is not required to do the same.
UN has little authority over these institutions, and a significant reason to this is that they
do not seek for UN funds (Cohn, 2011). Developed countries channel funding to these
institutions because of the weighted voting system of the IMF and WB, contrary to the one-
nation, one-vote system found in the UN (Cohn, 2011).

The Trusteeship Council was established as a main organ of the UN (Chapter XIII) to
provide international supervision of Trust Territories that are under the administration of
seven member states, to ensure that adequate steps are being made to prepare the
peoples of Trust Territories for self-governance. All 11 Trust Territories achieved
independence in 1994. The council's operation was suspended and will meet whenever
an occasion necessitates it.

69 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

The International Court of Justice is the United Nation's principal judicial organ (Chapter
XIV). Its role is to settle legal disputes between states (contentious cases) and to provide
advisory opinions on legal questions referred by the UN organs and specialized agencies,
in accordance to international law (adviso proceedings) (International Court of Justice,
2018).

The Security Council (SC) is the most potent organ with the power to make legally
binding resolutions. It is comprised of the strongest military states and is a concrete
manifestation of the reality of power dynamics. The council is composed of 15 members,
among them would be the five states which are granted permanent seats by the UN
Charter (Chapter V). The five permanent members (PM), also known as the Permanent
Five or P-5, are China, France, Great Britain, Russia, and the United States - all of which
are allies in the Second World War and are nuclear states. The remaining seats are for
the ten elected non-permanent members (NPM) elected by the General Assembly (GA)
for overlapping two-year terms. The ten non-permanent seats are divided among regions:
five states from African and Asian states, one seat from the Eastern European States, two
states from Latin American states and last two from Western European and other States
(UNGA Resolution 1991 (XVIII) of 17 December 1963).

Article 24 of the UN Charter states that the SC is mandated to act on behalf of the entire
UN body to fulfill its primary responsibility for maintaining international or threat; impose
economic sanctions and other measures; determine the existence of a peace and security.
Functions may include investigating any situation that has the breach of peace and actions
to be pursued.

The council has the authority to determine breach in international as stipulated in Article
39 under Chapter VII. Crisis situations can be categorized as a threat to the peace,' a
'breach of the peace' or an act of aggression. The UN agenda expanded during the World
Summit of 2005 in crises urging international responsibility to protect exposed populations
against mass violation of human rights, ethnic cleansing or genocide. State sovereignty is
viewed as conditional based on the state's fulfillment of its responsibility to protect its
people. If the state is incapable of unwilling to fulfill such responsibility, the intervention of
the international community is called upon to address the violations of human rights. The
doctrine of Responsibility
to Protect (R2P) principle
was first was first executed
in 2011 in Libya under
Muammar Gaddafi with the
implementation of a no-fly
zone and authorization of
air strikes. The military
intervention's legal status
remains contested and is
considered to be "a failed
case of international law
and R2P since the
international community
saved Benghazi but lost
Libya" (Teimouri & Subedi,
2018: 31)

Such measures, however, can challenge the independence of sovereign states. The
structural feature of the SC - the power to veto of the PMs to vote against a substantive
resolution - serves as a measure to protect states from possible threats to independence

70 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

and to ensure that the UN will not be used to serve the interest of particular states. Apart
from this, there is also a 'sixth veto' or 'hidden veto' of at least seven non-permanent
members of the council to prevent the nine needed votes from reaching a decision
(Wallensteen, 2012).The voting system ideally aims to foster and emphasize the
importance of unity, consensus, and compromise, which were not present in the League
of Nations where it was used as an instrument by major powers to target Germany, Italy
and Japan, and why countries such as the United States opted out from the membership.
However, the UN Charter was never intended to espouse sovereign equality; the structural
feature of the UN Charter-veto-is a result of an international compromise allied powers of
Second World War (Carswell, 2013).

These safeguards to sovereignty - the veto - also serve as a severe problem. When major
powers are directly or indirectly involved in a conflict, it renders the body unable to take
action in addressing conflict as seen in the inaction of the UN in the Syrian armed conflict.
Frequent vetoes would often come from the United States and Russia on issues
concerning the Middle East; for China issues related to countries expressing recognition
of Taiwan. The P-5 also act outside the UN charter and undermine the interest of the larger
UN body as in the case of the US-led military intervention in Iraq in 2003 or the intervention
of Russia in Georgia in 2008. The bypassing of the UN renders it as a mere rubberstamp
on interventions led by the major powers. This overrepresentation and power
concentration has resulted in demands to reform the structures of the SC, which
dramatically serves and benefits the interests of the P-5 (Permanent Five).

To maintain peace and order, the SC adopts a set of instruments such as sanctions,
peacekeeping, and peace enforcement. Sanctions can take in forms of non-military
measures of economic, trade or diplomatic sanctions, and targeted measures on groups
or particular individuals such as travel bans, financial and diplomatic restrictions. These
are enforcement tools applied when diplomatic relations have been fruitless, and the threat
to international security persists, and if deemed inadequate, military sanctions may be
taken (Articles 41 and 42).

Aside from sanctions, peacekeeping is also a useful tool employed by the UN to assist
host countries struggling from armed conflict. UN peacekeepers are deployed to provide
security to populations and political and peace building support to countries transition from
conflict to peace. Ramsbotham et al. (2016) outline the transformation of peacekeeping
operations across three phases. The first generation of classical peacekeeping from the
1950s to 1980s and the multidimensional and multilateral second generation were guided
by the principles of consent, impartiality, and the non-use of force except for self-defense.
However, due to the incapacity of the UN peacekeeping forces in preventing mass killings
in cases of the civil war in Yugoslavia and the genocides in Somalia and Rwanda, the UN
was forced to rethink its principles. These failures would lead to the development of the
third generation of peacekeeping, which departed from the traditional principles of the
traditional practice. It viewed the use of force as necessary to fulfill the mandate, the
consent of exposed populations as enough consent needed to intervene, and the digress
from neutrality when a party refuses to the adhere to the UN mandate.

The more robust and more encompassing mandate of the third generation peacekeeping
has often been interchanged with the peace enforcement (Ibidem), which involves for
direct military intervention as seen in the military intervention Iraq's invasion of Kuwait in
the 1990s and Libya in 2011. The blurring of lines between peacekeeping and peace
enforcement and the boundary between UN and non-UN peacekeeping has amalgamated
UN intervention with war-fighting (Ramsbotham et al., 2016). The current state of UN
peacekeeping is marred with concerns over the legitimacy of the military interventions.

71 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

The General Assembly (GA) is the only UN organ with universal representation, with all
193 member states represented in the body. The GA decides on essential questions with
a simple majority, while concerns related to peace and security, budgetary matters, and
new membership admissions require a two-thirds majority Yearly, the GA meets for the
annual General Assembly Session and general debate participated by several heads of
state. Moreover, the body also elects a GA President and 21 Vice-President (elected
according to equitable geographical representation) every session for a one-year term.
While the assembly may discuss questions relating to international peace and security, it
can only make recommendations when a dispute is already being discussed by the SC. In
reality, the SC remains to be the primary decision-maker of the UN in all matters of
international peace and security However, the "Uniting for Peace Resolution of 1950
ensures that divisive issues in the SC are blocking the members to take action may be
assumed by the assembly, to bypass the vetoes of the council and recommend measures
including the use of force. This resolution, however, has been criticized for being
unconstitutional, as it allowed the assembly to usurp the SC's primary role in maintaining
international peace and security (Carswell, 2013).

Collective action in times of crises may be coursed through the Security Council and the
General Assembly, as well as the Office of the Secretary-General. The Secretary-General
is the chief administrative officer of the United Nations Secretariat. As stipulated in Article
97, the SC sends a recommendation to the GA which will appoint the Secretary-General
for two five-year terms at most. Article 99 mandates the Secretary-General to call for the
attention of the members of the SC on threats to international peace and security, or when
the inability of SC members to be responsive or to take responsibility is present.
Wallensteen (2012) states that "the three organs of the UN are interrelated in ways which
support the viability of the United Nations” (p. 247). The shifting responsibilities of the three
organs ensure that the organization will not collapse. However, since the Cold War, the
SC has been paramount when it comes to decision making, leaving the other organs with
little involvement and influence in international issues (Ramsbotham et al., 2016;
Wallensteen, 2012).

Reforming the United Nations

Reform has only been met once in 1963 when the UNGA voted for the expansion of the
UNSC from 11 to 15 member-states (UNGA Resolution of 1963). In 1994, the Open-ended
Working Group on the Question of Equitable Representation and Increase in the
Membership of the Security Council was created where members were invited to submit
comments on the reformation and review of the Security Council. Since then, the
negotiations have been fruitless, and it has been dubbed as a "Never-ending Working
Group” for the endless years of consecutive deliberations (Gould and Rablen, 2017).

Gould and Rablen (2017) state two distinct sets of criticisms relating to the efficiency of
the council and the degree of equity regarding power allocation. For the inequity in the
country level, the problem lies in overrepresentation of the PM countries, in the regional
level, there is lack of representation for Asia and Africa while Eastern and Western Europe
are overrepresented - an overt manifestation of the North and South divide (Gould and
Rablen, 2016). Several demands have been presented by established of India, Brazil,
Germany, and Japan in the G-4 proposal calling for permanent seats in the council, while
smaller states demand equitable representation for the South (Hosli & Dorfler, 2017).

Contrary to these recurring demands, however, Gould and Rablen (2017) call for caution
in pursuing structural reforms related to expand the UNSC membership. Their quantitative
appraisal shows that UNSC membership enlargement is no panacea; it permits
enhancement of equity in diminishing returns, at the expense of efficiency at increasing
returns. They find that reform of requiring two PM votes to constitute a veto would be more
promising, in improving both equity and efficiency and break the status quo (Gould &

72 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Rablen, 2017). Furthermore, they also see the difficulty in finding a reform that would break
the 20-year impasse in the negotiations.

The difficulty for the UNSC to include rising powers into the power-sharing arrangement
in the UNSC is due to the absence of the prospect for change. According to Hosli and
Dorfler (2017), this is brought by not only the diverging preferences of the permanent
members but also of structural hurdles in the UN Charter locking in the current institutional
arrangement and preventing any reforms from seeping in. These institutional hurdles are
the P-5 inclusion requirement and the two-thirds majority requirement in UNGA
substantive decisions. The likelihood of reform to succeed depends on the feasibility of
acquiring the necessary support and votes.

If reforms are unforeseeable in the near future, what can be done? The awakening of the
latent potential of the General Assembly to counteract the powers of the Security Council
through the "Uniting for Peace" resolution serves as a potential solution. This is imperative
especially with two permanent members ensuring that no international intervention would
occur in the Syrian armed conflict. As argued by Carswell (2013), "the General Assembly,
representing the entire international community, has a moral authority that should not be
downplayed, particularly where the issues at hand have a direct impact on state
sovereignty" (p. 478). The resolution ought to be fully realized and maximized for it has
bestowed the assembly the capacity to check the Security Council in its proper and rightful
exercise of veto, in accordance to what is mandated by the UN Charter.

NOTE: Please read the attached file in the UVE.

re: The Globalization of Economic Relations.pdf

Formation of an Asian Interstate System

We can obtain matrices of interstate relationship in Asia by accumulating all of the bilateral
diplomatic relationship, six cases of which were observed. The matrices render us some
findings on the formation and deformation of an interstate system in East Asia. In the mid-
1960s the framework of the Cold War was dominant in the region, where the Communist
and the ‘Liberal’ blocs were clearly demarcated. In the mid-1970s, especially after the
unification of Vietnam (1976), some kind of an interstate system should have been formed
on the initiative of ASEAN member states. However, it was the invasion of Cambodia by
Vietnam (at the end of 1978) that destroyed the new dynamism. As a result, in the 1980s,
Vietnam and Cambodia under Hen Samrin’s and Hun Sen’s premiership respectively
came to be isolated from the rest of the Asian countries. The emergent system in Asia
became chaotic. However, since the end of the 1980s, Japan, China, Thailand and other
ASEAN members practiced a kind of concerted diplomacy, persuading that Vietnam
should withdraw its military forces from Cambodia and political factions in Cambodia
should cooperate with each other to restore order in an appropriate way. Eventually, the
Vietnamese forces withdrew back home in September 1989, and in Cambodia the United
Nations Transitional Authority in Cambodia (UNTAC) was set up in March 1992 as an
intermediary for the nation rebuilding. In September 1993 Kingdom of Cambodia started
anew.

In the 1990s, locally the détente in the Indo-Chinese Peninsula, and globally the end of
the Cold War and the domestic as well as international collapse of the former Soviet bloc
brought about the conditions that enabled East Asia to construct an interstate system
based on equality. In the late-1990 the system appeared on the surface, provided that
Taiwan enjoyed not formal (political) but informal (economic and cultural) relations with all
nations in the region and that North Korea had diplomatic relations with Asian nations
except South Korea, Japan and Myanmar. Thus in principle a network of diplomatic
relations is well established, connecting almost all nations in East Asia.

73 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

The basis of the Asian system is a modified version of the Western State System, deprived
of the function of Western dominance. The Western State System was quintessentially
Western-centric, where legitimate actors were limited to the sovereign states in the West.
While it brought development, wealth, and state-building to Western nations, it destroyed
non-Western nations in terms of politics, economics, society, and culture. The system
embraced a practical code of inter-state behavior, comprising a double standard of
behavioral code, one applied to Western nations, and the other to non-Western nations.
While Western nations acted as equals to each other in principle, they treated polities
outside the West in such discriminatory ways as they considered appropriate. The core of
the inward code was threefold: national sovereignty, the balance of power, and
international law. The ideal type of states was nation-states. Dependent on the outward
code, the Westerner would never easily admit that the non-Western nations also have
sovereignty. The West regarded non-Western nations as a target of Western mercantilism,
colonialism, and imperialism. Moreover, they tried to destroy any indigenous
industrialization in the rest of the world, particularly that in Asia which had been far more
ahead of the West in this respect until the mid-eighteenth century. Globally speaking, the
1960s was epoch-making in the international system, as was expressed in such significant
incidents as the emergence of ‘African years,’ the finding of ‘the North-South problem,’ the
impasse of ‘the nuclear stalemate,’ or the assertion of ‘international interdependence.’ In
the current international system, the outward code in the Western State System has
ceased to function, and the equality principle applies to all the states. (Hatsuse 1993: 279-
288)

Association of Southeast Asian Nations (ASEAN)

ASEAN was established on 8 August 1967 in Bangkok by the five original member
countries: Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Darussalam
joined on 8 January 1984, Vietnam on 28 July 1995, Laos and Myanmar on 23 July 1997,
and Cambodia on 30 April 1999.

The ASEAN Declaration states

that the aims and purposes of
the Association are:
1. to accelerate the economic
growth, social progress
and cultural development
in the region through joint
endeavors in the spirit of
equality and partnership in
order to strengthen the
foundation for a
prosperous and peaceful
community of Southeast
Asian nations, and;
2. to promote regional peace
and stability through
abiding respect for justice
and the rule of law in the
relationship among
countries in the region and
adherence to the
principles of the United
Nations Charter. In 1995, the ASEAN Heads of State and Government re-affirmed
that “Cooperative peace and shared prosperity shall be the fundamental goals of
ASEAN.”

74 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Fundamental Principles
The Treaty of Amity and Cooperation (TAC) in Southeast Asia, signed at the First ASEAN
Summit on 24 February 1976, declared that in their relations with one another, the High
Contracting Parties should be guided by the following fundamental principles:

 Mutual respect for the independence, sovereignty, equality, territorial integrity, and
national identity of all nations;
 The right of every State to lead its national existence free from external interference,
subversion, or coercion;
 Non-interference in the internal affairs of one another;
 Settlement of differences or disputes by peaceful manner;
 Renunciation of the threat or use of force; and
 Effective cooperation among themselves.

Political Cooperation
The TAC stated that ASEAN political and security dialogue and cooperation should aim to
promote regional peace and stability by enhancing regional resilience. Regional resilience
shall be achieved by cooperating in all fields based on the principles of self-confidence,
self-reliance, mutual respect, cooperation, and solidarity, which shall constitute the
foundation for a strong and viable community of nations in Southeast Asia.

Some of the major political accords of ASEAN are as follows:

 ASEAN Declaration, Bangkok, 8 August 1967
 Zone of Peace, Freedom and Neutrality Declaration, Kuala Lumpur, 27 November
1971
 Declaration of ASEAN Concord, Bali, 24 February 1976
 Treaty of Amity and Cooperation in Southeast Asia, Bali, 24 February 1976
 ASEAN Declaration on the South China Sea, Manila, 22 July 1992
 Treaty on the Southeast Asia Nuclear-Weapon-Free Zone, Bangkok, 15 December
1997
 ASEAN Vision 2020, Kuala Lumpur, 15 December 1997
 Declaration on Joint Action to Counter Terrorism, 5 November 2001
 Declaration of ASEAN Concord II, Bali, 7 October 2003
 ASEAN Convention on Counter Terrorism (ACCT), 11 January 2007
 Cebu Declaration on the Acceleration of the Establishment of an ASEAN Community
by 2015, 11 January 2007

ASEAN Declaration on Joint Action to Counter Terrorism, 5 November 2001; and Joint
Declaration of the ASEAN Defense Ministers on Promoting Defense Cooperation for a
Dynamic ASEAN Community, 25 May 2016. Although ASEAN States cooperate mainly on
economic and social issues, the organization has a security function, with a long-discussed
program for confidence-building measures and for establishing a nuclear-weapon-free
zone in Southeast Asia, with the objective of implementing ASEAN’s 1971 Declaration on
a Zone of Peace, Freedom and Neutrality (ZOPFAN), and a Southeast Asia Nuclear
Weapon-Free Zone (SEANWFZ), which would be a component of ZOPFAN.

75 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Application (Let’s Do It!)

Learner Worksheet 5
Student Name: ______________________________ Score: ____________

Course/ Year/ Section: _______________________________

Case In Point: A tale of a Filipino Fisherman in the Scarborough Shoal

It was a clear sunny August midday of 2016. In the past years, Dodong recalls how this time of the
year spells bountiful catch for him and other groups of fishermen in Bajo De Masinloc or Panatag
shoal. He also narrated how rich the fishing grounds of the Kalburo is (kalburo is their native name
for the Scalborough Shoal). When asked about the fishes that abound the shore of the shoal
situated just 124 nautical miles off Zambales. Madaming isda doon, maganda and mga black and
orange lapu-lapu, bakalaw, tanigue, and damas o bisugong bato, tsaka galunggong. Dati, kaya
naming makakuha ng dalawang tonelada ng galunggong doon dalawang araw lang, dito ngayon
sa amin kase nga di na kami makapalaot doon, mga isang jeep lang isang lingo, di pa kayang
punuin. Mahirap talaga.

This came several months after the July, 2016 rendering of the decision of the Permanent
Arbitration Tribunal regarding the UNCLOS based claim of the Philippines. The landmark ruling of
the Permanent Court of Arbitration (PCA) in favor of the Philippines over its maritime entitlements
in the South China Sea. The ruling is considered landmark because it sets a historic precedent in
international law with a pronouncement that historical right does not exist under the Constitution of
the Oceans, or the United Nations Convention on the Law of the Sea (Unclos). In simple terms, it
means that China cannot claim the entire breadth of the South China Sea part of its maritime
territory based on historical right under the so- called "nine-dash-line," which basically makes the
South China Sea a Chinese lake (inquirer.net).

Dodong recalls how this decision made them very happy thinking that they can already fish again
without harassment from the Chinese coast guards patrolling their area. Nothing has changed
according to him, Wala, ganun pa din, andun pa rin sila sa lagoon, nagpapatrol, araw gabi yun, pag
lumapit ka, Ilabas nila yung dilaw na bandera sabay sabi na alis daw kami dun. This has been the
plight of our poor Filipino brothers in Panatag shoal. In fact, it was only in October of 2016 that
Filipino fishermen were allowed again to fish in the area. This came after the bilateral meeting and
talks between Pres. Rodrigo Duterte and Pres. Xi Jinping of the People's Republic of China.
However, recently reports of Chinese coast guard harassment have resurfaced again as some
Chinese coast guards are again accused of harassing our Filipino fishermen.

Inquiry Based Learning Guide Questions:

1. Did the Philippines really "win" this dispute in the West Philippine Sea?
2. Explain why the UN cannot enforce the decision, what impression does it give about the
UN brand of Global Governance.
3. Research on other conflicts around the world. Highlight the role played by the UN in these
conflicts. On a scale of 1-10 with 10 being the highest, come up with your rating for the UN
in each of these conflicts and state your reason for such.
4. Reflect on the following: Has the UN successfully fulfilled its mandate in the realm of Global
governance?

76 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Submitting Your Work. If you do not have Internet Connectivity, neatly detach this page
from your module and submit via University Drop Box or by courier/ mail together with your
other Learner Activity Worksheets once you reach the prescribed Learning Checkpoint. If
you have Internet connectivity, you may answer directly on the online version of this
worksheet through the University Virtual Environment.

Closure
Well done! You have just finished Lesson 3 of this module.

If you have questions or need to make clarifications take note of them in the space
provided below to ask your Course Professor through direct messaging or through the
University Virtual Environment (UVE).

Notes from this Lesson

Now that you have completed Lesson 3, let us move on to the next lesson in this
module.

77 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Just a Quick Recap!

o Countries trade with each other because they gain from trading. Countries specialize
in the production of commodities where they have comparative advantage. With
specialization and trading, production and consumption possibilities are expanded.
o We say that a country has comparative advantage in producing a commodity over
another country if it can produce that commodity at relatively lower cost than the other
country can. This means that in terms of commodities that have to be given up, a
country with comparative advantage on the commodity will give up less of the other
commodity than the other country will.
o International trade policy can be looked upon as a spectrum of policies with the policy
of free trade at one extreme and the policy of protectionism on the other. Simply
defined, free trade means that there is no government interference with the flow of
international trade. Any departure from free trade designed to give some protection to
local or domestic industries from foreign competition is called protectionism.
o Some countries adopt protectionist trade policy because they want to achieve social
goals other than increasing national income. Others adhere to the infant industry
argument.
o Economic globalization can be understood as a process of absorbing national
economies into an interlinked and interdependent global market economy.
o The Bretton Woods institutions created by the victors of the World War II in 1944 are
the International Monetary Fund, World Bank and the General Agreement on Tariffs
and Trade. These institutions were created to aid the recovery of war-torn countries
and to foster economic cooperation among states.
o The international economic system has been anchored in the neoliberal paradigm
since the 1980s. It involves reducing the government regulation in order to extend the
role of the private sector in the market and the society. Global justice movements have
sought to expose the inadequacies of the system in addressing the needs of the
developing world and its frailties and vulnerability to financial crises.
o The United Nations (UN) was created in 1945 by the Allied Powers, the victors of the
Second World War. The mandate of the organization is to maintain international peace
and security and to foster international cooperation in addressing humanitarian, social,
economic, and cultural issues,
o The United Nations Charter is comprised of six principal organs. These are the
Economic and Social Council, Trusteeship Council, and the International Court of
Justice, General Assembly, Security Council, and the Secretariat.
o The Security Council is the most potent organ with the power to make legally binding
resolutions. However, it becomes easily incapacitated whenever security interests
involving the permanent members are at stake.
o Reforms have long been raised to change the structure of the Security Council to
distribute the concentration of power and to foster inclusive decision making for
marginalized and excluded member-states.

NOTE: Now that you have completed all the lessons in this module, it is time to assess
your learning and move on to the next module.

Check your work and prepare for submission and assessment. The succeeding page will
give you instructions on completing your requirements for this module.

78 | P a g e
 GE 319 – THE CONTEMPORARY WORLD

Learning Checkpoint
Module Assessment

Now that you have completed the first module, it is time to submit your
learning output and take the module assessment. A checklist is provided for you
below.

☐ Learning Worksheets 3-5

o For students with no Internet Connectivity use the University

Drop Box/ Courier/ Mail for submission. Neatly detach only the
Learner Worksheets from this module.

o Answer the Learning Activities through the University Virtual

Environment (UVE) platform.

☐ Module Assessment

o For students with no Internet Connectivity, contact your Course

Professor to make arrangements on taking the Module
Assessment (Quiz).

o Take the quiz on the University Virtual Environment (UVE)

platform.

END OF MODULE 2
If you have completed all the items on the checklist,
you may move on to the next module.

79 | P a g e