Chapter 7: Asian And Global Environment

Very Short Answer Question

1. Define globalization.

Globalization can be defined as the free flow of goods and services, human resources, capital and information beyond the national borders. The driving factors for the globalization are transportation and communication infrastructure. It is the process of transformation of local phenomena into global ones.

2. What do you mean by economic globalization?

The process of integration with the global economic system through economic liberalization and privatization is called economic globalization. It refers to the shift toward a more integrated and interdependent world economy. Business organizations get freedom from business obstacles in economic globalization.

3. Write about political globalization.

Political globalization is a process of bringing the whole world under one government. It refers to the integration of the world in terms of political ideology. Political globalization is important to deal with trade and investment among countries, global warming, social inequality and terrorism.

4. What do you mean by cultural globalization?

Cultural globalization refers to the integration of the world in terms of culture which is reflected by values, beliefs and norms. It leads to the development of global culture. It has been facilitated by the information revolution, the spread of satellite communication, telecommunication networks, information technology, and the internet.

5. Write about environmental globalization.

Environmental globalization is concerned with making the world safe, healthy, and pure by eliminating environmental pollution, protecting heat and ozone-layer. It aims to protect global ecology and address the global environmental issues such as global warming, ozone layer depletion, loss of bio diversity, acid rain, and global pollution.

6. Enlist the driving forces of globalization.

There are two macro factors that have driven the process of globalization. They are:

• Declining trade and investment barriers
• Role of technological change

Microprocessors and telecommunications

Internet and world wide web

Transportation technology

7. Make short notes an SAPTA.

SAPTA (South Asian Preferential Trading Agreement) is an agreement of SAARC countries to reduce tariffs on preferential items. It was signed in 1993 and regarded as the first step towards the establishment of SAFTA (South Asian Free Trade Area). It aims at strengthening regional cooperation by expanding intra regional trade.

8. What is SAFTA?

South Asian Free Trade Area (SAFTA) was signed in January 6, 2004 in twelfth SAARC summit held in Islamabad. Its main objective is to eliminate barriers to trade in, and facilitating the cross-border movement of goods between the territories of the member states. It is on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all the member states.

9. Write any two objectives of SAFTA.

• To promote good competition in the free trade area and to provide equitable benefits to all the countries involved in the contracts.
• It also aimed to benefit the people of the country by bringing transparency and integrity among the nations.

10. Introduce BIMSTEC.

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic India, Nepal, Sri Lanka and Thailand. The seven-country forum aims to Cooperation, or BIMSTEC, groups together Bangladesh, Bhutan, Burma, achieve its own free trade area by 2017. BIMSTEC has fourteen priority sectors to cover all the areas of cooperation.

Short Answer Question

1. What is globalization? Describe the forms of globalization.

Globalization can be defined as the free flow of goods and services, human resources, capital and information beyond the national borders. The driving factors for the globalization are transportation and communication infrastructure. It is the process of transformation of local phenomena into the global ones.

Forms of Globalization

Globalization is defined as the free flow of goods and services, human resources, capital and information beyond the national borders. The driving factors for the globalization are transportation and communication infrastructure. Globalization takes different forms. They are mentioned below.

• Economic globalization: The process of integration with the global economic system through economic liberalization and privatization is called economic globalization. No national economy is isolated now. The national economies of the countries influence one another. One country which is capital-rich invests in another country which is poor. One who has better technologies sells these to others who lack such technologies.Economic globalization involves an economic process involving the transfer of economic resources from one country to another.

• Cultural globalization: Cultural globalization is the process of merging of the world culture. Culture has increasingly become a commodity. Cultural globalization has been facilitated by the information revolution, the spread of satellite communication, telecommunication networks, information technology and the Internet etc. This global flow of ideas, knowledge and values is likely to flatten out cultural differences between nations, regions and individuals. Cultural globalization is heavily criticized as destructive of local culture.
• Political globalization: Political globalization refers to the integration of the world in terms of political ideology. It brings the whole world under one government. Political globalization is expected to make the world safer and freer from conflicts. It has implications to deal with trade and investment in one another, the new challenges of global warming, social inequality and terrorism.
• Ecological or environmental globalization: It is concerned with making the world safe, healthy, and pure by eliminating environmental pollution, protecting heat and ozone-layer. It aims to protect global ecology and address the global environmental issues such as global warming, ozone layer depletion, loss of bio diversity, acid rain, and global pollution. It advocates rational use of natural resources for sustainable development of the world and deals with global environmental laws and policies.

2. Write the objectives and principles of SAPTA.

SAPTA (South Asian Preferential Trading Agreement) is an agreement of SAARC countries to reduce tariffs on preferential items. It aims at 2-strengthening regional cooperation by expanding intra regional trade.

Objectives of SAPTA

•  Promote cooperation among the countries for the benefit of the people
• Aware the people about the importance of trade for the development of national economy through investment and production
•  Employment generation and enhancement of living standard of people of this region
• Promote intra-regional economic cooperation
• Increase the volume of trade of this region out of the global trade

Principles of SAPTA

• Based and applied on the principles of overall reciprocity and mutuality of www.advantages in such a way as to benefit equitably all Contracting States, taking into account their respective levels of economic and industrial development, the pattern of their external trade, trade and tariff policies and systems;
• Negotiated step by step, improved and extended in successive stages with periodic reviews;
• Recognition of the special needs of the Least Developed Contracting States and concrete preferential measures in their favour;
• Includes all products, manufactures and commodities in their raw, semi processed and processed forms.

3.  What is globalization? Explain the effects of globalization.

Globalization can be defined as the free flow of goods and services, human resources, capital and information beyond the national borders. The driving factors for the globalization are transportation and communication infrastructure. It is the process of transformation of local phenomena into the global ones.

The effects of global developments on Nepalese Business Environment can be mentioned under the following points.

• Competition: International business brings competition everywhere. The developed countries, which are rich in resources and leaders in market, may exploit the developing countries. Some of the Nepalese industries have been already closed down from that reason. But that compelled toward the optimum utilization of resources to the domestic industries.
• Technology: Improvement in productivity, technology transfer, research and development expansion, and promotion of exports are areas of the benefits that Nepal can expect from FDI, international business and MNCs. Many examples we find in Nepalese sick industries waked up due to technology transfer.
• Social cultural effect: Globalization tends to result in increased crime, drug trafficking, international terrorism, money laundering, child sex abuse, prostitution and woman trafficking, etc. They pose threat to traditional social and cultural value systems of Nepal.
• Economic effect: MNCs provide high level of payroll and facilities to its managers and employees that compel to act similarly to local industries. But we lack the resources that they have. It is the demonstration effect.
• Impact from international agreements: International trade and MNCs are operated under the international agreements such as WTO. Strong domestic industries gain from those agreements and the weaker loose. To promote local industries of developing countries, there is a short-term provision on WTO.
• Industrialization: MNCs help in industrialization. They contribute greatly in the establishment of industries in the countries like Nepal by increasing forward linkage and backward linkage.
• Improvement in quality and productivity: In such globalizing context, it will be compulsory for our industries to improve quality and productivity to per compete with the global business environment.

4. Explain the objectives and principles of SAFTA.

South Asian Free Trade Area (SAFTA) is motivated by the commitment to strengthen intra-SAARC economic cooperation to maximize the realization of the region’s potential for trade and development for the benefits of their people, in a spirit of mutual accommodation, with full respect for the principles of sovereign equality, independence and territorial integrity of all States. It was signed in January 6, 2004 in twelfth SAARC summit held in Islamabad.

Objectives of SAFTA

• To eliminate barriers to trade in, and facilitating the cross-border movement of goods between the territories of the member states;
•  To promote conditions of fair competition in the free trade area, and ensure equitable benefits to all the member states, taking into account their respective levels and pattern of economic development;
•  To create an effective mechanism for the implementation and application of this agreement, for its joint administration and for the resolution of disputes; and
• To establish a framework for further regional cooperation to expand and enhance the mutual benefits of this agreement

Principles of SAFTA

• Governed by the provisions of the agreement and also by the rules, regulations, decisions, understandings and protocols to be agreed upon within its framework by the member states
• The member states affirm their existing rights and obligations with respect to each other under Marrakesh Agreement establishing the World Trade Organization and other treaties/agreements to which such member states are signatories.
• Based and applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all member states, taking into account their respective levels of economic and industrial development, the pattern of their external trade and tariff policies and MB systems.
• Involve the free movement of goods, between countries through, the elimination of tariffs, para-tariffs and non-tariff restrictions on the movement of goods, and any other equivalent measures;
• Entail adoption of trade facilitation and other measures, and the progressive harmonization of legislations by the member states in the relevant areas; and
• The special needs of the least developed member states shall be clearly recognized by adopting concrete preferential measures in their favour on a non-reciprocal basis.

5. Introduce BIMSTEC and write its objective

The In 6th June 1997, BIMSTEC was formed in the name of Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation. On 31st July 2004, it was renamed as Bay of Bengal Initiatives for Multi Sectoral Technical and Economic Cooperation. Nepal got the membership of BIMSTEC in 2004. BIMSTEC free area was signed in 2004 in Bangkok Summit.

Objectives of BIMSTEC

• To create an enabling environment for rapid economic development;
• Accelerate social progress in the sub-region, promote active collaboration and mutual assistance on matters of common interest;
• Provide assistance to each other in the form of training and research facilities;
• Cooperate more effectively in joint efforts that are supportive of, and complementary to national development plans of member states;
• Maintain close and beneficial cooperation with existing international and regional organizations;
• Cooperate in projects that can be dealt with most productively on a sub regional basis and which make best use of available synergies.

Long Answer Question

1.  Introduce the WTO and explain impacts on the Nepalese business.

The World Trade Organization (WTO) is an international organization dealing with the global rules of trade between nations. WTO aims at integrating the world economy by cutting down the barriers in trade and investment. Its main function is to ensure that trade flows as smoothly and freely as possible. Decisions in the WTO are typically taken by consensus among all member countries and they are approved by members’ parliaments. The WTO came into being in 1st January, 1995. The WTO has helped to create a strong and prosperous trading system contributing to unprecedented growth. The system was developed through a series of trade negotiations, or rounds, held under GATT.

The WTO accounts for over 97% of world trade. Nepal got its membership on 23rd April, 2004 as the 147th member. The head-quarter of the WTO is in Geneva, Switzerland.

Impacts on Nepalese Business

Nepal as being Least Developed Country (LDC) may have the following impacts from the membership of the WTO.

• Strengthening institutions: Present structure of public and private sector institutions do not seem to have the capability to cope with the responsibility and obligations posed by the WTO members Therefore, there is a great need for strengthening trade related instructions of the country. This, however, can not materialize without capital and human resources. Given the financial constraints of the government and lack of proper policy intervention, the task of strengthening institutions seems difficult to achieve at least in the near future.
• Private sector development: It is important to assist private sector institutions in making them capable of attracting FDI and technology transfer in order to benefit from the membership of WTO. It is also important to build capacity in areas of investment, technology and information. Particular attention should be given to the institutions like FNCCI, NCC etc. and proper networks should be developed between private and public sectors institutions.
• Poverty alleviation: Growth in trade of goods and services and increased integration of economies offers opportunities for economic growth, job creation and development. The integration of Nepal with the multilateral trading system would provide the opportunity for Nepal to accelerate investment and inspire the government to pursue a sound macroeconomic policy, which will be supportive for poverty alleviation from the membership of WTO.
• Access to rule based trading system: The WTO rules apply to all the member countries whether they are poor or rich, big or small, developed or underdeveloped. The rich countries can also be challenged before the Dispute Settlement Body (DSB) if they violate the WTO rules. As a member of the WTO, Nepal would be entitled to use this right in addition to other facilities and concessions granted by the WTO agreements.
• Settlement of trade disputes: The WTO rules provide common provisions for br 211 settlement of trade related disputes through Dispute Settlement Body (DSB). The WTO provides a possibility even for a small or poor country to invoke the WTO rules if the country is discriminated against by another member country. Nepal should not get discriminated against as being a poor and less developed country.
• Trade diversification: One of the most important opportunities opened to Nepal is the possibility of significant trade diversification both in country wise and commodity wise. Trade diversification can engender three major benefits: earning, stabilization, export-revenue expansion and rising value added. Over dependence on India, US and Germany will be reduced on exports.
• Integration with the world trading system: The process of globalization promoted by WTO has become a reality, which is almost impossible for a state to stay away or remain aloof. Globalization is driven by the power of technology, by faster and cheaper transportation, by new communication, by the increasing financial services, telecommunication, entertainment and e-commerce that make up a growing share of global trade. The WTO integrates the country’s trade sector with the globalization process by making it fully competitive and market oriented.
• Transit rights: Nepal is a land-locked country. Secure transit rights are essential for its development. WTO rules provide freedom of transit to member countries without unnecessary delays or restrictions. WTO membership provides legal and secure transit rights to Nepal through India and China.
• International market and foreign investment: From the membership of WTO, the country can enjoy permanent access to the markets of the world. There would be great prospects for us to export goods and services in the international market if we succeed in building an industrial base and becoming competitive in trade. The WTO membership gives an incentive to attract foreign direct investment by offering industrial predictability and stability regarding the economic framework. More foreign investment would lead to export growth of Nepalese products and services.
• Making industries cost effective and productivity, increased: The membership of WTO provides better access to the international market. Nepal will be able to gain benefits from the expanded markets only if she succeeds in building an industrial base and becomes competitive. In the highly competitive markets, it is not possible to produce goods of high quality without specialization. Therefore, we must focus on those products and services in which we can be specialized and become efficient to compete with others.
• End of bilateralism: Nepal has bilateral trade agreements with many countries. It has a treaty of trade and transit with India. The membership of WTO does away with the need for bilateral trade agreements. It provides the automatic advantage of trade links with all the members of WTO.
• Special treatment and privileges: As a least developed country, Nepal gets special treatment and privileges from the WTO agreements. It can get privileges of longer period for the enforcement of most of the agreements and also be entitled to use subsidies in certain cases. There is also the possibility for technical cooperation and other support by special provisions for LDCs and International Trade Centre (ITC).