Regional Co-operation in the context of globalization

By Abul Ahsan

(The article is based on the writer’s earlier presentation at Business Development Institute Dhaka)

Introduction

Regional co-operation and globalization arc not mutually exclusive concepts. They reinforce each other in way a resurgence in regional co­operation in 1990s particularly in Europe, North & South America has been the result of frustration with the pace and coverage of global economic liberalization, and Unsatisfactory nature; of ‘dispute resolution mechanism under GATT. Organizations like EU, NAFTA or MERCOSUR to name a few have gone deep in terms of removing barriers to trade and investment and in including issues like agriculture, services, intellectual property rights etc. than has been the case with WTO. The on-going frustration with the progress in talks -Under WTO particularly in matters of special interest to developing countries lack of follow up action on commitments already made by the developed }countries and their double standard in egard to subsidies high light the issue. Regional organization can also be seen as a preparing ground for countries to adjust to competitive environment before facing the wider challenge of globalization.

What is Globalization?

• Globalization is the buzz-word of to-day. Whether you are among businessmen, politicians or in a social gathering you keep on hearing the express the Globalization is manifest in the articles made in far way land that you buy at the department store next door the music you hear in the house food and drink (Coke Kentucky Fried Chicken etc.)that you take at local restaurants and perhaps the bank you have your account With’.
• European Union (EU) defines globalization as a process by which markets and production in different countries are becoming increasingly integrated and interdependent as a result of dynamics of’ trade in goods and services and flows of capital and technology.
• The operational base of activities are increasingly moving from local and national levels to global level. Cheap and efficient communication
• networks have allowed firms to locate different parts of the production process in different countries while remaining in close contact.
• Modern information technology has reduced the need for physical contact between producers and consumers. Any activity that can be conducted on screen or over telephone, from writing software to selling airline tickets can be carried out any where in the world linked to headquarters by satellite and computer. Because of this previously untradable goods are now being traded.

Globalization has been facilitated by a number of factors including:

• Reduction in costs and vast improvement in effectiveness of communication and computation which has drastically shortened the time and space that have long separated national markets.
• Cost of three-minute telephone across the Atlantic has fallen from $300 in today’s prices in 1930s to less than a dollar today. The cost of computing Has been falling 30% a year on average in real terms over the past couple of decades.
• Since 1955 innovation introduced in road rail and shipping transportations by US road hauling magnet Mlalcom Maclean degulation in transportation industry and containerization of cargos have produced huge productivity gains and gave a big boost to trade.
• During the past two decade global network Of’ computers, telephones and televisions has increased its information caring capacity one million times.
• The cost of computer has fallen to the extent that today a $ 2000 laptop Computer is many times more powerful than $10 million mainframe computer of mid 70s.

The industrial age of steel and cars of the past years has been replaced by the information age communication networks and ideas. The combined effect of liberalization of trade and capital and reduction of cost of communication have, led to the integration of the process of production, marketing arid distribution with the result that:

• World merchandise trade in 1998 was estimated at $ 4.8 trillion about 16 times more than what it was in the 1950’s.
• Over the past decade trade has increased twice as fast as output, foreign direct investment three times and cross border trade in shares ten times.
• Commercial service trade (banking, insurance, Construction, data processing etc), recorded the highest increase and reached $1.2 trillion in 1996, accounting for 25% of the value of trade in goods.
• A decade ago about S190 billion passed through currency traders at New ­York, London and Tokyo everyday in 1995 it reached S 1.25 trillion.
• Cross border transaction of bond and security by US investors rose from the equivalent of 9% of GDP in 1980 to 160% in 1996.
• At the end of 1998 total stock of FDI-plants -equipments and property owned by multinationals outside their home countries amounted to $ 4 trillion.
• Most of the above activities hove been sparked by the process of economic liberalization initiated by bilateral decision of governments organization like GATT, WTO, World Bank, IMI= etc. which have reduced or eliminated barriers facilitating. flow of goods, services, money and investment.

Globalization is not a new phenomena

It should however be pointed out that globalization is not a new phenomena. In a sense pre-world war globalization went further than what is today particularly is some areas. For example

• During the second half of the 19th century 60 million people left Europe for the New World much greater a number than to –days immigration.
• Net out flow of capital from Britain averaged 5% going up to 10% of its GDP before the World War I as against less than 3% of Japan’s GDP investment abroad when the country achieved the highest current account surplus a few years ago.
• To-day net foreign direct investment is only 6% of total investment in rich countries. Before 1914 FDI accounted for about half of the total domestic investment in the same group of countries:

But the present globalization is qualitatively different.

• Unlike before when it was confined to a very few countries a large number of countries participate in to-days globalization.
• Second earlier globalization was brought about by a reduction in trasport cost. To-day it is driven by communication revolution which has made it possible to organize firms at global level and for closer international integration.
• Previous globalization was the result of bilateral agreements. To-day it is firmly institutionalized through organizations like WTO as well as international protocols and agreements and therefore less likely to be reversed.

Coverage and reach of Globalization

Even though globalization is a powerful and a real force it is (a) mostly concentrated in rich regions of the world particularly Triad ( European Union, Japan & the USA) and (b)even then its coverage and -each are rather limited Thus:

• Triad economics accounted for 70% world trade flows (93) and 65% of world stock of FDL If ten most’ t~3vp’u~•cd nations are added to the list it would be 90% of FDI.
• As mentioned before in 1995 FDI accounted for only G% of’ total domestic investment in rich countries
• Only two-fifth of the FDI goes the developing countries and that also to a few favoured destinations.
• China a favoured country is a special case: most of the FDI there comes from overseas Chinese.
• About 80% of Triad out-put is still consumed domestically only 10% exported.

In ’95 FDI accounted for 5.27 of world’s fixed capital formation.
Regional Co-operation is still popular and a strong force:

In spite of the contribution of globalization in promoting competition productivity cams and innovation regional economic co-operation is still popular- as a strong vehicle for economic development. This is demonstrated by the fact that:

• US by far Canada’s. biggest trade partner is connected with each other by ­the most efficient network of modern communication. Even than trade between tile different provinces of Canada is 20 times more than that with the USA demonstrating that even in the best of situation markets still remain highly fragmented. Cultural differences cost of transportation consumer preference etc. account for this.
• More and more regions in the world are forging re11ional Mid sub-regional groupings
• Well-known organizations like European Union, NAFTA, APEC and MERCOSUR are expanding their membership and deepening co­operation as is evident in their recent decisions.
• Trade within regional groups has increased many folds as compared to increase in global trade over the years, Intra-regional trade in EU, NAFTA, ASEAN & MESCOSUR today, stand at 6 1.5, 47.5, 25 and 22.8 percent of the respective member countries global trade.

( In case of 5.-~A:’~C the figure stands at 4.3 percent)

• Similarly flow of capital and foreign currency also has been many times greater than global flow
• In a situation in which markets still remain fragmented regional economic co-operation a vital attraction because of the vital opportunity it provides for
• A Better division of labour
• B economies of scale
• C wider command of resources
• D harnessing common resources of a region: forest, minerals, rivers, and oceans.
• E efficient and effective development of physical infrastructure: road and railway, network, port, generation of electricity environment at protection irrigation.
• F attracting private sector investment.

Role of Private Sector

• Globalization is almost entirely market driven. The process has gained momentum and is based upon liberalization of trade, capital and currency markets. Private sector responded in full measure to opportunity thus opened up. The role and function of the private sector in globalization is obvious.
• Integration of national economies into a global market has been the work of multination stock market operators, currency traders and speculators motivated by profit.
• Business and industry has been the vital force behind innovations in prodction, distribution and marketing.
• Reform measures undertaken by organizations like GATT, WTO, IMF, World Bank and individual companies and firms looked for better markets for goods as well as for investment of capital.
• Among 200 biggest economic entities 160 are not states reflecting the command of private sector in to-day’s global economic activities.

Globalization is irreversible process

By all indications globalization is irreversible process. The on going innovations and improvement in the existing technology are most likely to further widen and deepen integration of economies reduce cost of communication provide for better division of labour and gains in productivity raising income and standard of living further.
But meanwhile concern are being voiced that

• The gains of globalization are unevenly distributed. It benefits those countries who enter the market with the ‘most assts’. This include capital highly trained manpower and latest technology which few developing countries have.
• Disparity of income within and between nations have widened. For example 45% of global wealth today is owned by 200 billionaires when number of people with less than a dollar a day income has increased to 1.3 billion.
• Employment of unskilled labour and their wages have fallen as contribution of labour in the end product has come down from 25% to 5 to 10% in rich countries.
• 8 out 10 new jobs created in OECD countries are for ‘knowledge workers’
• Globalization has eroded the authority and freedom of governments in some key areas including macro economic and fiscal policies.
• Governments are at the mercy of currency speculators who can destabilize markets as happened in Europe (1992-93), Mexico (1994-95), and South East Asia (1997).
• Ability of governments to establish measures for social security environmental controls etc. is becoming difficult because of the compulsion to remain competitive with the countries.
• With market in control of economic activities domestic policy makers must be aware of the international implications of their policy. Policies which appear sustainable at national level may not be sustainable internationally.
• In the circumstances there is need for a neutral umpire and rules and guidelines for establishing discipline in the operation of global market and to provide level playing and to provide level playing field for the small and the weak players whether it is a government or a business entity.
• Only an intergovernmental body can be entrusted with the responsibility.

About the Author

Abul Ahsan secured first class in M.A in Economics from the Dhaka University (1959) and M.A in International Relations from the Fletcher School of Law and Diplomacy Boston (1962).He stood first in the Civil and Foreign Services examination of Pakistan and joined the Foreign Service in 1961 and held several diplomatic positions.

After Bangladesh’s independence he served as the country’s Ambassador and Deputy Permanent Representative to the UN Ambassador to Poland Italy Pakistan and the United States (1991-93). He was the first Secretary General of the South Asian Association for Regional Co-operation (SAARC) (1987-89) as well as Foreign Secretary of Bangladesh (1989-91).

He was one of the 15 members of the Council of Eminent Persons established by the Summit meeting of the Organisation of Islamic Countries (OIC) in 1994 to report on the working of the specialized bodies of the organization. From 1996-1999 he served as a member of the Executive Board of the United Nations Educational Scientific and Cultural Organization (UNESCO).

Abul Ahsan served as Vice-President at the Independent University Bangladesh . He was Chairperson of the Fair Election Monitoring Alliance (FEMA) and was involved in governance and election related activities for several years He is currently President of Center for Democracy a citizen’s organisaion devoted to promotion of good governance and democracy.

He represented Bangladesh at a large number of meetings and conferences including UN General Assembly and Security Council Sessions, Summit and Ministerial level meetings of the Commonwealth, the Non-aligned Movement and the Organization of Islamic Conference (OIC).

He is the author of the book SAARC: A Perspective and jointly edited two publications by Independent University Bangladesh entitled Education in a Rapidly Changing World: Focus on Bangladesh and Indigenous Peoples of Bangladesh. He co-chaired a study conducted by the Asia Foundation which was published in 2004 under the title America’s role in Asia. He has contributed a large number of papers and articles on political, security and public policy issues to national and regional journals and newspapers.