CHAPTER 4:

ECONOMIC
GLOBALIZATIO
N
OBJECTIVES ■ Define economic globalization;
■ Identify the actors that facilitate economic globalization;
■ Determine the structure, functions and rules of the
United Nations;
■ Discuss the challenges of global governance in the
twenty-first century;
■ Understand the functions of World Trade Organization;
■ Analyze the importance of regional trade organizations
and its implication the member countries.
■ Economic globalization- refers to the increasing
integration of economies around the world,
particularly through the movements of goods,
services, and capital across borders.
 The Globalization of Trade of Goods and
INTERCONNECT Services
ED DIMENSIONS ■ Trade surplus- country’s export is higher
than imports
OF ECONOMIC
GLOBALIZATIO ■ Trade deficit- country’s import is higher
than export
N
Theory of Comparative Advantage

 advantage in the production of goods enjoyed by one country over

another when a good/product can be produced at a lower cost

Country A and Country B both produces strawberry

Country A’s weather helps to produce more strawberry
Country B’s weather hinders maximum production
Country A have comparative advantage
 Absolute Advantage
■ is the belief that a nation will gain the most from producing products that
take advantage of its most readily available resources

Country A produces wine in its best quality and its affordable than it producing a silk
fabric

Country A produces silk fabric in its best quality and affordability than wine

Country A have absolute advantage in producing wine

Country B have absolute advantage in producing silk fabric
 THE GLOBALIZATION OF
FINANCIAL & CAPITAL MARKETS

■ Trade barriers- tariffs, export subsidies & quotas

■ Tariffs- tax on imports
■ Export subsidies- gov’t payments made to
domestic firms to encourage exports (e.g. tax
relief on exports)
■ Quota- limit on the quantity of imports
 Technology and Communication:
■ Capital and labor as equally important element
of globalization
■ Human resources as the ultimate determinant
of economic advance

GLOBALIZATI
The Globalization of Production
ON OF: ■ Production- the process which inputs are
combined and transformed into output
■ Companies chooses a technology which
maximizes the cost of production
■ Labor intensive production- plentiful supply,
inexpensive labor, less capital
GLOBALIZATION INTERNATIONALIZATION

- Functional integration bet. -extension of economic activities of nation

internationally dispersed activities states across borders
- A strategy -Basic unit: nation
- End goal -a task to be completed to achieve
  globalization
e.g. free trade  
e.g. int’l treaties
 ■ Silk road- during the Han Dynasty, China used
its military power to maintain the Silk Road for
its value for trade
■ GATT- The General Agreement on Tariffs and
HISTORY Trade promote trade among its members. From
1948 to 1994, the GATT provided the rules for
OF TRADE much of world trade
■ WTO- successor of GATT. its agreements also
cover trade in services and intellectual property.
The birth of the WTO also created new
procedures for the settlement of disputes.
ASEAN (association of Southeast Asian Nations) EU (European Union)
-regional -regional
-founded to promote peace -founded to promote peace
-seek to integrate the economies of their member -seek to integrate the economies of their member
states into a single market and production platform states into a single market and production platform
-too diverse -there is freedom of movement of goods, services,
-weak in sustainable development capital and labor
-not centralized -presence of court of justice
-different currencies -centralized
-decision making: consensus -common currency :eurozone: 19 states out of 28
-decision making: voting
 BUSINESS HERE IS OIL REVENUES HAVE
DRIVEN BY THE PRICE
OF OIL
WIDENED THE GAP
BET. RICH AND POOR THE
MIDDLE
EAST

IT ENABLES
DISPARITIES THAT
CONTRIBUTE TO
SOCIAL INSTABILITY
 Most of the developing countries did
not manage to integrate into the post-
WW2 trading system successfully

DEVELOPING Focused more inward

COUNTRIES &
INTERNATION
AL TRADE
Import substitution industrialization
strategy than trade
 -developed by sociologist George Ritzer in his book,
The Mcdonalization of Society (1993)
The principles used to manage a fast-food restaurant
dominates our way of life
BASIC ORGANIZATIONAL PRINCIPLE OF
MCDO
■ Efficiency- one goal: to serve a hamburger,
THE French fries and milkshake to a customer in 50
seconds or less.
CDONALIZATIO ■ Calculability- first mcdo manual declared the
N OF SOCIETY weight of a regular raw hamburger to be 1.6
ounces, size to be 3.875 inches and fat content to
be 19 %. (mass production)
■ Uniformity & predictability- sameness and
accurate probability
■ Control through automation- human beings as
unreliable, mcdo uses automated equipment from
cashiering tools to cooking.
What is a trade agreement?
■ is a contract/agreement/pact between two or
more nations that outlines how they will
work together to ensure mutual benefit in the
field of trade and investment.
■ often regional, involving only a relatively
small number of countries.
■ either bilateral, involving only two countries,
or multilateral, involving more than two
countries.

What is a trade bloc?

■ A trade bloc is a type of intergovernmental
agreement, where regional barriers to trade,
(tariffs and non-tariff barriers) are reduced or
eliminated among the participating states.
 PREFERENTIAL VS FREE TRADE
AGREEMENT
Preferential Trade Agreement PTA-  are formal arrangements of trade between countries that see benefits
from trade amongst themselves
■ Done by reducing tariffs and established through a trade pact
■ these benefits are the product of proximity; countries close to one another are better able to conduct
trade both because of lower transportation costs and greater possibilities for transparency.
■ Most PTA’s goal is to become an FTA
■ E.g. NAFTA & ASEAN TRADE BLOC
Free Trade Agreement FTA- a trade bloc whose member countries have signed an agreement to eliminate
barriers to trade but to maintain existing barriers against non-member countries.
■ EU, ASEAN
STEPS TO
REGIONAL
INTEGRATIO
N/REGIONAL
ISM
FTA
Examples of free trade areas include:
■ EFTA: European Free Trade Association consists of
Norway, Iceland, Switzerland and Liechtenstein
■ NAFTA: The North American Free Trade Agreement 
United States, Mexico and Canada (being renegotiated)
■ SAFTA: South Asian Free Trade Area comprising
Afghanistan, Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan and Sri Lanka
■ Pacific Alliance: Chile, Colombia, Mexico and Peru
■ There are many bi-lateral free trade agreements signed
between two countries or between two regional trading
blocs e.g. the recently-signed Australia - China Free
Trade Agreement
 CUSTOMS UNION

AN AGREEMENT AMONG
COUNTRIES TO HAVE FREE
TRADE AMONG THEMSELVES
AND TO ADOPT COMMON
EXTERNAL BARRIERS
AGAINST ANY OTHER
COUNTRY INTERESTED IN
EXPORTING TO THESE
COUNTRIES

EUROPEAN UNION
EAST AFRICAN COMMUNITY
(KENYA, UGANDA,
TANZANIA]
CU= FTA + Common external tariff MERCOSUR [ BRAZIL,
ARGENTINA, URUGUAY,
PARAGUAY AND VENEZUELA]
 COMMON MARKET

■ A type of custom union where there are common policies on

product regulation, and free movement of goods and services,
capital and labour.
■ Best known example is EU
■ All common markets and economic and monetary unions are
also customs unions

CM= CU + free mobility of factors of production ( labor and capital) among members
 ECONOMIC AND
MONETRAY
UNIONS
■ A common market with
common currency
■ Where more than two
countries use the same
currency.
EXAMPLE: EURO

MU= CM+ common currency + harmonizes members’ industrial & regional policies
RICE
TARRIFFICATI
ON LAW
Republic Act No. 11203
 The Philippines became self-sufficient in rice in the
1970s and was a rice exporter to neighboring
countries such as Indonesia, China, and Myanmar.
The Philippines is the second largest rice importer in
the world next to China (Simeon, 2019).

In 2017, the country imports rice mainly from

OVERVIEW Vietnam (52%) and Thailand (29%).

Rice is a highly political commodity because it is the

country’s main staple.

It has always been the center of government

agricultural policies.
PH being a member of the WTO since 1995, has
to comply with its rules that entail the elimination
of trade barriers

the Philippines was granted an exemption from

the removal of its quotas on rice importation.
THE
PHILIPPINE
This exemption was originally meant to expire in
2004, but was extended until 2014, and further S IN WTO
stretched till the passage of the Rice Tariffication
Law in early 2019.

for the country to benefit from global trade

liberalization “it needs to comply with WTO laws
 ■  refer to explicit limits, or quotas, on the
physical amounts of particular
QUANTITATI commodities that can be imported or
VE exported during a specified time period.

RESTRICTIO Extending QR resulted to:

■ massive corruption
NS
■ created an ineffective and incompetent
import monopoly
■ The government became lax and felt no
pressing need to enhance our farmers’
productivity since it relied on the import
quota to shield farmers from competition.
RICE TARRIFICATION LAW
■ Why was it signed? Since October 2018, Duterte declared the issue as
“urgent” due to price hikes that caused rice to hit P70 per kilo last year.

■ What will the law do? The law allows for the liberalization of rice
imports. It will remove the previously placed quota on rice imports,
permitting traders to import a near-unlimited quantity of rice.

■ How will it work? In the basic rules of economy, the law of supply and
demand will dictate market prices. By allowing more competitors to enter
the rice market, the law will lower the price of rice by increasing supply.

■ How much are the tariffs? 35 % (ASEAN); 40% from non-ASEAN

countries if imports are below 350,000 metric tons; and 180 percent if
imports are from non-ASEAN countries and above 350,000 metric tons.
■ Where will the tariffs go? The taxes will go to a Rice Competitiveness
Enhancement Fund (RCEF), which will allocate the revenue to programs
for mass irrigation, rice storage, and research initiatives.

■ Who will be affected? Local farmers, The National Food Authority (NFA)

will also be directly affected as the law will remove various functions

■ How will local farmers be compensated? The RCEF is expected to

allocate P10 billion annually to the support of Filipino rice farmers over a
six-year period. This will be done through the following fund allocations:
 50 % on rice farm machinery and equipment, rice cooperatives, and local
government units;
 30 % on rice seed development, propagation, and promotion;
 10 %on rice credit assistance;
 and 10 % to rice extension services.
 ■ The cash transfer with the sole condition
being that the beneficiary is a rice farmer,
this should give the farmers income relief
while the Rice Competitiveness
Enhancement Program is still being rolled
Suggested out.
solutions to ■  P15,000 no interest loan for every farmer
and payable in eight years by Department
immediate of Agriculture

problems: ■ A cash transfer of P5,000 per farmer per

year would cost about P3 billion to P3.5
billion to adjust with the new policy
Rice tariffication is ultimately to the benefit of
the whole people, but we must act quickly to
safeguard the welfare of Filipino rice farmers.
 REFERENCES
■ Abelos, Tajolosa, De Dios. (2018) The Contemporary
World. Mutya Publishing House
■ Heywood, Andrew. (2011). Global Politics. Palgrave
Macmillan.
■ Cohn, Thedore. (2010). Global Political Economy:
Theory and Practice. Pearson Education Inc.
On Rice Tariffication Law: Retrieved from:
■ https://www.officialgazette.gov.ph/downloads/2019/02feb
/20190214-RA-11203-RRD.pdf
■ http://ap.fftc.agnet.org/ap_db.php?id=960
■ https://www.bworldonline.com/understanding-rice-tariffic
ation/
■ http://fnbreport.ph/features/agriculture/the-rice-tarifficatio
n-law-explained-anrii-20190221/