Is it time to review China’s ‘developing country’ status at the WTO, considering its economic might?
US president Donald Trump criticised China for engaging in unfair trade practices by taking advantage of its ‘developing country’ status in World Trade Organisation. President Trump also criticised World Trade Organisation for allowing countries like India, China, South Africa to engage in such practices that effect American economic interests. (Mason and Lawder 2019)
Trump argues that China is not a developing economy as it claims to be. He considers China to be developed economy that does not deserve preferential treatment from the WTO and developed countries such as the USA.(Mason and Lawder 2019)
China is the second largest economy in the world with $13.37 billion GDP. China is a major source of foreign direct investment in all corners of the world and provides billions of dollars in overseas development assistance. Twelve of the 100 largest companies in the world by capitalisation are Chinese, as are roughly one in eight of the world’s billionaires. (Cutler and Doyle 2019)
The question of Chinese exploitation of WTO arises due to the economic explosion China has achieved over 30 years. It is the world’s second largest economy and yet unlike any other country enjoys the economic benefits arising out of being categorised as a developing country. This article will further go ahead to trace China’s journey to WTO and the result of being a developing country in WTO.
Tracing China’s journey to WTO
After the heavy destruction caused by World War 2, countries including United states, United Kingdom and allied forces came together to discuss the economic reconstruction of the world. This meeting was called the Bretton Woods Conference. As a result of the conference, countries came together to establish the International Bank for Reconstruction and Development (IBRD) and International Monetary Fund (IMF).
International Trade Organisation (ITO)was also proposed to establish rules and regulations for international trade. But this was not supported by USA and hence, ITO could not come into existence. GATT or General Agreement on Trade and Tariffs was adopted in its place.
On July 10, 1986 China signed the General Agreement on Trade and Tariffs. Later, in the 1995 Uruguay rounds, GATT was replaced by World Trade Organisation (WTO). GATT only focussed on goods trade and did not cover trade in services and Intellectual Property Right.(Lardy 2001)
While GATT is set of multiple agreements signed and abided by nations, WTO is an intergovernmental organisation which focussed on trade of goods, services and intellectual property rights. (Lardy 2001)
After the opening up of its economy, China witnessed rapid growth in 1980’s. China had massive trade and ability to attract foreign direct investment. Chinese leadership came to understand that their liberal foreign investment regime and low-cost labour markets give them a wonderful opportunity to participate and compete in international markets and that this participation could provide a sustainable base for the continued growth and development of their domestic economy. (Lardy 2001)China requested to join WTO in November 1995, and on December 11, 2001, it officially became a member of WTO.
World Trade Organisation (WTO)
The WTO has 164 members and 23 observer governments including Iran, Iraq, Bhutan, Libya etc. (“WTO | Development)
WTO functions(“WTO | Development)
- Administering WTO Trade Agreement
- Act as forum for trade negotiation
- Handling trade disputes
- Monitoring trade policies
- Cooperation with other international organization
WTO Agreements(“WTO | Development)
- For Goods – Marrakesh Agreement (1995) and Trade Facilitation Agreement (2017)
- For Services – General Agreement on Trade in Services
- For Intellectual Property – The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Benefits to Developing Countries in WTO:
Special and Preferential Treatment
The WTO Agreements contain special provisions which give developing countries some levy and benefits in their conduction of trade. The WTO also makes developed countries treat developing countries more favourably than other WTO Members. These provisions are referred to as “special and differential treatment” (S&D) provisions.(“WTO | Development)
The special provisions include:
- longer time periods for implementing Agreements and commitments
- measures to increase trading opportunities for developing countries
- provisions requiring all WTO members to safeguard the trade interests of developing countries
- support to help developing countries build the capacity to carry out WTO work, handle disputes, and implement technical standards, and
- provisions related to least-developed country Members.
It is important to note here that the WTO does not define countries as developed or developing. Countries declare their status themselves. According to the WTO, two-thirds of its 164 members, including China, currently consider themselves developing countries.
Non-Reciprocal Preferential Treatment
Non reciprocal preferential treatment for developing countries states that the grants and trade concessions given by developed countries to developing countries are not on reciprocal basis. It means the developing countries are not expected to make matching offers or concessions in return to the developed countries. (“WTO | Development)
GATT and WTO give developing countries the right to restrict imports in order to promote or protect their local industries or assist in cases of Balance of Payment difficulties. (“WTO | Development)
The World Trade Organisation explicitly states that international trade should benefit the economic development of developing and least developed countries. (“WTO | Development) The above-mentioned provisions also facilitate the same. This is to ensure that developing countries protect their agriculture sector and other industries which might be affected due to competition from goods of developed countries.
How did the developing country status facilitate Chinese economic growth?
China with its industrial strength, facilitated voluminous trade and enjoyed the benefits of free trade with other countries while protecting its local industries at the same time. The developing country status allowed China to subsidise its industries, support state-owned firms and discriminate against foreign investors. It had the opportunity to expand its domestic industries exponentially and further improve trade. This can be understood by the given data.
In 1995, Chinese imports and exports of goods totalled to $280.9 billion or 3 percent of the global trade. As of 2018, its total trade of goods jumped to $4.6 trillion or 12.4 percent of global trade. China is the world’s largest trader currently. USA comes only after China as the world’s second largest trader at 11.5 percent of total trade.(“Is China the World’s Top Trader?” 2018)
Taking advantage of the non reciprocal preferential treatment, China does not have to give concessions to developed countries like USA while they are obligated to give preferential treatment to China. China exported $480 billion worth of goods to the US in 2018 (19 percent of all its exports), but only imported $156 billion. In the case of Hong Kong, China exported $303 billion in 2017 (12.2 percent of total exports) and imported just $9 billion (0.4 percent of total imports).(“Is China the World’s Top Trader?” 2018)
Thus, in 2018, China exported $2.49 trillion in goods while it imported $2.13 trillion. China’s exports usually surpass their imports. Developed countries on the other hand, like USA, import more than they export. In 2019, USA trade deficit was $617 billion.
Chinese products and services overseas are levied lower rates of duty due to its developing country status. While China imposed high tariffs on its imports and offered more subsides to local producers, in order to protect domestic industries.
Also, the terms of WTO helped in forced transfer of technology and theft of intellectual property from the developed countries, benefitting China. (Lee 2019) Developed countries and other observers of international community claim this to be unfair asit puts developed countries at a relative disadvantage.
China’s Economic Might
China has always claimed to be a communist and socialist country. Historically, it has been dead against market reforms, opening up its economy and opposed anything that held western values. However, rapid industrialisation followed by opening up its economy, market reforms, trade with other countries, joining WTO, all facilitated rise in its economy. China has scored remarkable achievements in economic and social terms being a part of WTO. (“China in the WTO: Past, Present And Future” 2012) (Hu and Khan 1997)
- 2nd largest economy in terms of GDP
- 1st largest merchandise exporter
- 2nd largest merchandise importer
- 1st destination for inward FDI among developing countries
- 1st investor for outward FDI among developing countries
Developing country status
In spite of its economic development, China claims that it is a developing country because of its huge population and low per capita income. China’s Gross national income per capita is $9460 as per 2018 and it is classified as upper middle-income country by world bank. (Hu and Khan 1997) As per world bank indicators, countries with Gross National Income of $12,056 and above qualify as developed country. Hence, as per criteria China claims itself to be developing country and refuses to revoke its status.
Chinese Vice Commerce Minister Wang Shouwen said that Beijing will not allow other members to deprive China of the special and differential treatment that developing members deserve. His statements suggested that China is adamant on its developing country status and would reject future commitments if China’s status was questioned. (McDONALD 2018)
Martin Khor, Director of south centre said the following about China’s developing country status, “If China is forced to take on the duties of a developed country and forego the benefits of a developing country, the west could soon ask other developing countries that are ahead of China (at least in per capita terms) to do the same. China’s fight to retain its developing country status is of interest not only to the Chinese people, but also to their counterparts in other developing countries.”
If the developing countries or parts of the world feel that the economic criteria to categorise a country as a developed or developing nation is partial or not right, countries need to fight for a revision of such criteria. The excuse that some countries do not want to comply with the established standards, citing which China refuses to revoke its status, is unacceptable.
China also claims that many WTO rules have actually favoured the US and other developed countries, in the areas of agricultural support, textile quotas and intellectual property rights protection. (Lee 2019)
China defends its developing country status with the above arguments.
Development is a multidimensional concept that includes GDP or GNI per capita, but it includes other dimensions as well. A particular country can be more developed in some of these dimensions, and less so in others. This multi-dimensionality complicates the classification of countries as “developed” versus “developing.”
And hence, what really calls for a question is that, should the standards of measuring or categorising a country as developing and developed nation change? The world’s second largest economy (or actually the first largest economy as per purchasing power parity) is still categorised as a developing country. This is because the standard for such measurement is Gross Domestic Product per capita and Gross National Income per capita.
Should the feature for measurement change to nominal GDP or GDP as per PPP or any other economic indicator? A change in this criterion will bring about a lot of changes in the international economy. Is that a good change for the world? Will that change economically benefit the world countries? These questions are a subject of a whole new research.
In the current scenario, China can be rightly considered as a developing nation in WTO. When a certain standard is set it should be unbiasedly applied to all countries what so ever. However, With the approaching global recession, recent trade war between USA and China and with President Trump threatening to pull out of WTO, now is a good time to re-evaluate the economic status of countries.
The Persian Gulf-Black Sea Corridor: Why should India consider an alternative getaway?
Recently Armenian has suggested the creation of a corridor linking the Persian Gulf and the Black Sea to facilitate trade between India, Russia, and Europe. On March 3rd, 2023, a delegation of high-ranking officials and experts from Armenia proposed the idea of creating a corridor linking the Persian Gulf and the Black Sea while visiting India. This suggestion came from the visit of Armenia’s foreign minister Mr. Ararat Mizoyan to India; he has suggested the creation of an alternative trade Corridor that will operate alongside the International North-South Transport Corridor(INSTC) to establish a trade link between Mumbai and Bandarabas Seaport in Iran and then proceed to Armenia and further on to Europe or Russia. This alternative route’s main objective is to bypass Azerbaijan because Azerbaijan has closer ties with Turkey and Pakistan, so Armenia is asking for India’s support and financial assistance. India and Armenia both have a very cold relationship with Turkey and Pakistan. Historically, Turkey has been the closest ally of Azerbaijan and supports Azerbaijan in the Nagarno-Karabakh dispute. Azerbaijan also has close diplomatic relations with Pakistan, and Pakistan also supports Azerbaijan in the Karabakh dispute, and in return, Azerbaijan backed Pakistan’s narrative on the Kashmir Issue. Azerbaijan has entered into defense cooperation and shown interest in incorporating JF-17 Thunder fighter aircraft jointly developed by China and Pakistan. Periodically participated in joint military exercises bilaterally and multilaterally. Azerbaijan has repeatedly supported the Kashmir issue on Pakistan’s position and criticized the India-Armenia defense deal on PINAKA multi-barrel rocket launchers, anti-tank munitions, and a wide range of ammunitions and warlike stores worth US $250 million to the Armenian Forse. India has overtly positioned itself on Armenia’s side in the Nagorno-Karabakh conflict and has consequently opted to resist Azerbaijan and its supporter, including Pakistan and Turkey, over the Kashmir issue and Turkey’s imperial aim of establishing a pan-Turkic empire, governed from Ankara. These factors created a lack of warmth in India-Azerbaijan’s political relations. Thus, India and Armenia both the country have some sets of issues with Azerbaijan as well as Turkey. Armenia’s relationship with India has been growing steadily due to defense exports in recent times.
Historically Armenia shares strong political and business ties with Iran. Both countries share a 35-kilometer-long border that runs along the northern edge of Iran. Iran’s foreign policy towards South Caucasus is very pragmatist in the case of Armenia and Azerbaijan. The conflict between Muslim-majority Azerbaijan and Christian-majority Armenia is viewed differently by Iran, which supports Armenia rather than Shia-majority Azerbaijan. India also maintains a strong relationship with Iran. For India, Iran plays an important role in its connectivity projects to link Central Asia and Europe. India also invested in Iran’s Chabahar Port to develop a transit hub that will benefit Indian trade reaching Europe, bypassing Suez Canal. Chabahar Port holds strategic importance for India, mainly because it is the direct competition with Chinese operated Gwadar Port in Pakistan, situated in the Arabian Sea, which is an important part of China Pakistan Economic Corridor(CPEC).
Armenia is seeking Indian Investments for the corridor within Armenian territory in light of the ongoing Russia-Ukraine conflict. The Indian investment could also facilitate the development of other regional projects like the International North-South Transport Corridor (INSTC) and put India on the map of Central Asian transport with links to Europe and Russia. India’s trade with Russia has substantially increased through the INSTC, which provides a trade link between Mumbai and Russia via Iran and the Caspian Sea. Azerbaijan plays a vital role in the INSTC mainly because of its geographical location and connectivity links with Iran. However, Azerbaijan has been slow in developing infrastructure projects under INSTC.
With the ongoing cold war between Russia and the West, any large-scale cargo transit passing through the Russia Europe border looks too risky for international Logistics and Insurance companies. Armenia intends to initiate a discussion with India to explore the possibility of Indian companies’ involvement and funding of the Persian Gulf Black Sea Corridor project. Armenia doesn’t have direct access to the Black Sea, which means Goods have to be further transported to Georgia. Only then can reach Europe and Russia. Armenia recognizes the need for Indian traders to do business with Europe, so they have proposed this idea to the Indian government.
The proposed Persian Gulf Black Sea Corridor aligns with India’s objective of seeking new trade routes to Europe that avoid the Suez canal, significantly reducing transportation costs and time. This corridor which will link Iran and Georgia via Armenia also reduces the risk of sanctions for India moving to Europe from the West because of ongoing West and Russian hostility. It will boost the confidence of the Indian Treadres and will be beneficial for the Indian economy.
In this sense, the Persian Gulf-Black Sea project has a reasonable cause. However, the question is, why would Iran agree to launch a multimodal corridor through territories with proven issues when it can reach the Black Sea via Turkey? Iran and Turkey have a conflict of interest in this case. Their relations have been tense lately since Turkey informally blocks Iran from using its rail routes to reach Europe. The root of this problem is situated within between Armenia-Azerbaijan conflict. The cold relations between Iran and Turkey are one of the main reasons behind the stagnation of the INSTC. Iran is closer to cooperating with Armenia, while Turkey backs Azerbaijan. The conflict in Nagorno-Karabakh has the greatest impact on the issue. Turkey is a key stakeholder in the conflicts and empowers Azerbaijan to overcome Armenia and block the Iran-Armenia border. If Iran eliminates Turkey, then Iran only has two options to reach the Black Sea: pass through Armenia or Azerbaijan via Georgia. Georgia has existing railway and highway connections with both Armenian and Azerbaijan, and Azerbaijan has a railroad reaching the Iran-Azerbaijan border, but the problem is there is no direct Railway connection that connects Iran to the Black Sea via Armenia.
On the other hand, Iran and Azerbaijan also working on a 165-kilometer Railway section of the Rashtra-Astra line, which is missing a link to connect the Azerbaijani and Iranian Railways. The railway line will connect the city of Rasht, the capital of Gilan province, with the city of Astra, located on the border with Azerbaijan. This Railway link is part of the International North-South Transport Corridor, which aims to provide a more efficient trade route between India, Iran, the Caucasus, and Russia. Recently in January 2023, Russia and Iran agreed to fund the construction of this Missing Link. But the project completion is in question because of the ongoing cold war between Russia and the west.
For India, INSTC is more than enough to trade only with Russia, Iran, and the caucus region, but India also wants to trade with Europe to throw an alternative route and not via Suez Canal. Thus, the Armenian government is proposing to the Indian government. If India uses the Russian route to reach Europe via Iran through the Caspian Sea, then it has more chances of getting sanctioned from this Black Sea Corridor will reduce the chances of getting sanctioned by West. However, this alternative trade route involves two countries, Armenia and Georgia, which is calling for heavy infrastructure Investments. However, there can be several potential negative sites to investing in infrastructure projects in other countries, such as political and economic risks, cultural and Social Challenges, legal and Regulatory issues, Financial risks, and geopolitical risks, so it is going to be a tough call for India nevertheless opportunities are there, but nothing is risk-free. Currently, it is a proposal by the Armenian government, we have to see how the Indian government will respond.
The Role of Asian Infrastructure Investment Bank For Developing Countries
The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank that was established in 2016 with the aim of financing infrastructure projects in Asia and promoting regional economic integration.
The idea for the AIIB was first proposed by China in 2013, as a response to what it saw as a lack of representation in existing international financial institutions such as the World Bank and the International Monetary Fund (IMF). China believed that these institutions were dominated by developed countries and did not adequately address the needs of developing countries, particularly in Asia.
To address this perceived imbalance, China initiated the creation of the AIIB, which would be open to all countries in the region and would prioritize funding for infrastructure projects. The bank was formally launched in January 2016 with 57 founding members, including many Asian countries, as well as Australia, Germany, and the United Kingdom.
One of the main advantages of the AIIB’s creation is the increased availability of funding for infrastructure projects in Asia. The bank has a capital base of $100 billion, with over 90 percent of this contributed by Asian countries. This funding can be used for a variety of projects, including transport, energy, telecommunications, and water supply.
Another advantage of the AIIB is that it offers an alternative source of financing for developing countries in the region. In the past, many of these countries have relied on loans from Western-dominated institutions like the World Bank and IMF, which have been criticized for imposing strict conditions on borrowers and for promoting policies that prioritize the interests of developed countries. The AIIB, by contrast, has promised to be more flexible and to work closely with borrowers to ensure that projects are aligned with their development priorities.
AIIB creation is considered as a major power move. Its implications should be viewed through the prism of relationship between global finance and sovereign states. Moreover, power as a goal is prevalent and traditional in the strategic thinking in the policy of communities throughout East Asia.
China became powerful and this means it has the capacity to direct the decisions and actions of others and implement its policy [Freeman 1997]. Chinese government showed its ability to marshal necessary resources to establish China-led international organization, which was its goal because Beijing doesn’t have enough influence in the World Bank, ADB and IMF.
According to the Comprehensive National Power (综合国力) indicator, used by the Chinese government, now China is the second strongest state in the world. The creation of international financial organization has always been the hegemon’s prerogative. Thus, such China’s move reflects the tendency that global balance of power is changing not in favor of the USA.
Australian scientist and representative of the English School of International Relations Hedley Bull defined international order as ‘a pattern of activity that sustains the elementary of primary goals of the society of states, or international society’ [Bull 1987]. Institutions change the global balance of power and, in turn, influence the international order. AIIB’s appearance increases China’s impact in Asia. Therefore, growing Chinese financial power is accepted as a challenge by current status quo powers as the USA and Japan – both don’t want to change the rules of the game in Asia at the moment.
Even if, from the Chinese point of view, it is supposed to be natural. Asian international order existed long time ago and was led by China. It’s obvious that Beijing has a strong sense of entitlement to be a regional leader again. It considers the contemporary Chinese presence in the international order, established after World War Two, as not adequate to current China’s elevated position in the global economy. [门洪华 2016].
The main consequences of the AIIB’s establishment for China are its increased international influence and progress in its efforts to manage domestic economic challenges. The USA and its Asian allies are disinclined to accept AIIB as one more additional puzzle to the global financial system alongside with other MDBs, that’s why they perceive it as a threat to their current geopolitical position. However, if there had been some attempts from the Obama administration to stop or slow down the establishment of the AIIB, they didn’t succeed and this was precisely articulated by Evan Feigenbaum, a former State Department official in the George W. Bush Administration: “The U.S. attempt to halt or marginalize the AIIB failed miserably”.
Additionally, it should be noted that AIIB’s creation led to one more economic implication – preparing grounds for possible future internationalization of Yuan.
China still is in the “dollar trap”: on the one hand, it has to continue buying the US Treasury securities because USD huge reserves accumulated by China are devaluating due to the quantitative easing monetary policy conducted by the Fed (The Federal Reserve System). A violent despeciation of the USD can lead to huge losses to China. On the other hand, at the moment China can’t borrow in its own currency, therefore, it is vulnerable to the balance of payment crises [Lai 2015]. Chinese currency internationalization may be a way to deal with those hurdles.
Firstly, internationalized Yuan should improve the globalization process and this intention was stated in the 14th Five-Year Plan (2021-2025). It will hasten the trade between China and the world, reduce transactions costs and risks of cross-border exchanges, settle payments, denominate financial assets and become the reserve currency for foreign central banks. Secondly, it will give China a seigniorage – the ability to issue Yuan to other countries in exchange for real goods and to lend Chinese currency abroad at low rates. The increased international demand for Yuan for trade invoicing and settlement will keep the interest rates low. Thirdly, once Yuan is internationalized, Chinese companies will be able to borrow internationally in their own currency – this will reduce the risk of businesses’ bankruptcy amid the possible sharp depreciation of Yuan [Huang and Lynch 2013].
The economic troubles and widespread bankruptcies in Asian countries during 1997-1998 Financial Crisis were mainly caused by the currency mismatch, when the companies were unable to cover their debts issued in foreign, not domestic, currency.
China has been already giving loans in Yuan and using its currency for the international trade settlements, for example, partly with Russia. Beijing would like other countries to peg their currencies to Yuan. However, China sees the Yuan internationalization as a long process according to Hu Xiaolian (胡晓炼) – the Chairman of Export-Import Bank of China. She stressed that Chinese currency internationalization wouldn’t be a confrontation weapon.
Nowadays AIIB provides loans in the USD, but in the near future it may lend in Yuan as well – and this will come in accordance with the national economic development blueprint.
The creation of the AIIB reflects China’s growing economic and financial power, as well as its desire to increase its influence in Asia and on the global stage. This move challenges the current status quo powers, such as the USA and Japan, who are reluctant to accept the AIIB as a new addition to the global financial system. However, the establishment of the AIIB also has economic implications, as it may pave the way for the future internationalization of the Yuan. This could help China deal with its domestic economic challenges, such as the need to borrow in its own currency and reduce its vulnerability to balance of payment crises. The internationalization of the Yuan could also improve the globalization process, give China a seigniorage, and reduce the risk of businesses’ bankruptcy. Nevertheless, Chinese officials have emphasized that the Yuan internationalization is a long process and not intended as a confrontation weapon.
The AIIB represents an important development in the international financial landscape, providing much-needed funding for infrastructure projects in Asia and offering an alternative source of financing for developing countries in the region. While concerns about the bank’s governance and China’s influence remain, the AIIB has taken steps to address these issues and has the potential to play a positive role in promoting economic development and integration in Asia.
 Evelyn Goh, “Great Powers and Hierarchical Order in Southeast Asia: Analyzing Regional Security Strategies”, International Security, Vol. 32, No. 3, 2008, pp. 113-157
 大国兴衰与中国机遇：国家综合国力评估， 海外生活，available at: https://m.juwai.com/news/225747
 Evan Feigenbaum, “China and the World,” Foreign Affairs, January/February 2017
 Wang Da, “Chinese consideration and global significance of the AIIB”, Northeast Asia Forum, No. 03, 48–64, 2015
 Paul Krugman, “China’s Dollar Trap”, The New York Times, 2009, available at: https://www.nytimes.com/2009/04/03/opinion/03krugman.html
 Peterson Institute for International Economics, available at: https://www.piie.com/publications/chapters_preview/373/2iie3608.pdf
 进出口银行胡晓炼：不能把人民币国际化当成国际对抗的武器, available at: https://finance.sina.com.cn/roll/2021-06-11/doc-ikqcfnca0417359.shtml
Impact of technological advancements on International Trade and Finance
Technological advancements have had a significant impact on international trade and finance in recent years. These advancements have facilitated cross-border transactions, reduced transaction costs, and improved the speed and efficiency of financial transactions.
One major impact of technology on international trade is the emergence of e-commerce, which has revolutionized the way businesses conduct their operations. E-commerce has made it easier for companies to reach customers in foreign markets, allowing them to expand their customer base and increase sales. Additionally, advances in logistics and transportation technology have made it easier and faster to ship goods across borders, reducing shipping times and costs.
In terms of finance, technology has enabled the development of innovative financial instruments and platforms that facilitate cross-border transactions. For example, blockchain technology has the potential to transform international finance by enabling faster and more secure transactions, reducing the need for intermediaries, and lowering transaction costs. Additionally, fintech companies have emerged, providing new financial services and products to consumers and businesses around the world.
However, technological advancements have also raised concerns about the impact on jobs and income inequality. Automation and artificial intelligence (AI) have the potential to replace human labor in certain industries, leading to job losses and potential social unrest. Furthermore, the benefits of technological advancements may not be evenly distributed, leading to greater income inequality between countries and individuals.
Technological advancements and international trade:
The development of technology has had a significant impact on international trade in recent decades. Advances in communication technologies, such as the internet and mobile phones, have made it easier for businesses to connect with each other across borders. This has led to an increase in trade by reducing the costs and time associated with communication and travel.
Similarly, advances in transportation technologies, such as cargo ships and airplanes, have made it easier to move goods around the world. This has allowed businesses to source inputs and sell products in global markets, increasing their opportunities for growth and profitability. Additionally, advances in logistics and supply chain management technologies have enabled businesses to streamline their operations, reduce costs, and improve efficiency, further driving international trade.
However, technology has also had some negative impacts on international trade. For example, automation and robotics have led to the displacement of workers in certain industries, particularly in manufacturing. This has resulted in job losses and reduced demand for certain types of goods.
Furthermore, technology has also facilitated the growth of online marketplaces and digital platforms, which have disrupted traditional business models and created new challenges for regulators and policymakers. These platforms often operate across multiple jurisdictions, making it difficult to enforce rules and regulations.
Overall, the impact of technology on international trade has been largely positive, enabling businesses to expand their reach and tap into new markets. However, it has also presented new challenges and risks, requiring policymakers and businesses to adapt to a rapidly changing environment.
Technology has played a crucial role in promoting international trade by facilitating communication, reducing transaction costs, and increasing the speed of transactions. With the advent of the internet, businesses can now connect with potential customers and suppliers from all over the world, regardless of their physical location. E-commerce platforms and online marketplaces have made it easier for small and medium-sized enterprises to reach a global audience and tap into new markets. Additionally, technology has made it easier to track shipments and manage supply chains, improving efficiency and reducing costs. The use of electronic payment systems and digital currencies has also made it easier to conduct cross-border transactions, reducing the need for intermediaries and further lowering costs. Overall, technology has made it easier for businesses to engage in international trade, and its role is only expected to grow in the future.
Technological advancements and international finance:
Technology has had a significant impact on international finance by transforming the way financial transactions are conducted and information is disseminated. The emergence of new technologies such as blockchain, artificial intelligence, and big data analytics has enabled financial institutions to operate more efficiently, reduce costs, and enhance their ability to manage risks. Here are some of the ways technology has impacted international finance:
- Improved efficiency: Technology has made financial transactions faster, cheaper, and more secure. The use of online banking, mobile payments, and electronic transfers has made it possible to transfer money across borders in real-time, reducing the time and cost associated with traditional methods.
- Increased transparency: Technology has made it easier for investors to access information about financial markets and companies. With the advent of big data analytics, investors can now analyze large volumes of financial data and identify trends and patterns that were previously difficult to detect.
- Enhanced risk management: The use of technology has enabled financial institutions to better manage risk by improving their ability to assess creditworthiness, monitor transactions, and detect fraudulent activities.
- Facilitated cross-border transactions: Technology has made it easier for businesses to conduct cross-border transactions by providing secure and efficient payment systems. For example, the use of blockchain technology has enabled businesses to conduct transactions without the need for intermediaries, reducing costs and increasing speed.
- Improved financial inclusion: Technology has played a significant role in promoting financial inclusion by making it possible for people who were previously excluded from the formal financial system to access banking services. For example, mobile banking has enabled people in remote areas to access banking services and conduct financial transactions.
Challenges of regulating and supervising the use of technology in international finance:
Regulating and supervising the use of technology in international finance presents several challenges. Firstly, technology moves at a rapid pace, making it difficult for regulatory bodies to keep up with new developments and their potential impact on the financial sector. This can lead to regulatory frameworks becoming outdated or insufficient, creating loopholes that can be exploited by financial institutions and cybercriminals alike.
Secondly, the global nature of international finance means that regulatory bodies must coordinate their efforts across borders and jurisdictions. This can be difficult due to differences in legal systems, cultural norms, and technological infrastructure. Some countries may have more advanced regulatory frameworks and capabilities than others, making it challenging to establish a level playing field for all market participants.
Thirdly, financial institutions and other market participants may resist regulation and attempt to circumvent it through the use of offshore entities or other tactics. This can create a regulatory “race to the bottom” as countries compete to attract business by offering lax regulatory environments.
Case study 1: Impact of technology on the global supply chain
The impact of technology on the global supply chain has been profound and far-reaching, transforming the way businesses operate and the way goods are produced, distributed, and consumed.
One major impact of technology on the global supply chain is the increased efficiency and speed of communication and data sharing. Technologies such as the Internet, cloud computing, and real-time tracking systems have made it possible for businesses to communicate and collaborate more effectively with their suppliers, manufacturers, and customers, enabling them to respond quickly to changing market conditions and customer demands.
Another important impact of technology on the global supply chain is the rise of automation and robotics in manufacturing and distribution. Advanced robotics and artificial intelligence (AI) technologies are increasingly being used to streamline and optimize manufacturing processes, reduce labor costs, and improve the quality and consistency of finished products. This has also led to the creation of “smart” factories, which are highly automated and connected to the Internet of Things (IoT) to optimize production and supply chain processes.
Technology has also enabled the development of new supply chain models, such as “just-in-time” and “lean” manufacturing, which are designed to minimize waste, reduce costs, and improve efficiency. These models rely on real-time data and advanced analytics to optimize inventory levels, improve logistics planning, and reduce the time and cost of delivery.
Finally, technology has enabled businesses to track and monitor every aspect of the supply chain, from raw materials to finished products, enabling them to identify and address issues such as delays, quality problems, and bottlenecks in real-time. This has helped businesses to improve the transparency and traceability of their supply chains, which is becoming increasingly important to consumers and regulators concerned about issues such as sustainability, ethical sourcing, and product safety.
Case study 2: The impact of fintech on international finance
Fintech has revolutionized the world of international finance, offering innovative solutions to longstanding problems in the industry. One of the most significant impacts of fintech on international finance is its ability to facilitate cross-border transactions. With the use of block chain technology and digital currencies, fintech has made it possible for individuals and businesses to conduct international transactions quickly, securely, and at a lower cost than traditional methods. Fintech has also led to the development of new financial products and services, such as peer-to-peer lending and mobile payment solutions, which have increased access to financial services for people around the world. However, fintech also presents new challenges in terms of regulation and cyber security, and it remains to be seen how these issues will be addressed as the industry continues to grow and evolve.
Case study 3: The impact of block chain technology on international trade and finance
Block chain technology has the potential to significantly impact international trade and finance. By enabling secure, transparent and tamper-proof transactions, block chain can improve trust and efficiency in global trade. Smart contracts on a block chain network can automate many aspects of trade finance, such as verifying documents and tracking shipments, reducing processing time and costs. Additionally, block chain can enable new forms of financing, such as peer-to-peer lending and crowd funding, which can benefit smaller businesses that may struggle to obtain traditional financing. The use of block chain can also reduce the risk of fraud and errors in international trade, which can result in substantial savings for businesses. As block chain technology continues to mature and gain widespread adoption, it has the potential to revolutionize the way international trade and finance are conducted, providing greater security, transparency, and efficiency.
Future prospects and challenges:
The future of technology in international trade and finance appears bright, with numerous opportunities to improve efficiency, reduce costs, and increase transparency. Emerging technologies such as block chain, artificial intelligence, and the Internet of Things are already being used to enhance supply chain management, streamline payment systems, and improve risk management.
However, with these opportunities come challenges and risks. One challenge is the need to ensure interoperability between different technologies and systems used in different countries, which requires international standards and cooperation. Another challenge is the potential for disruption to existing industries and business models, which could lead to job losses and economic inequality.
In addition, technological advancements also bring risks such as cyber security threats, fraud, and the potential for manipulation and abuse of data. There is a need to develop robust regulatory frameworks that balance innovation with protection of consumers and investors.
Furthermore, there are concerns over the digital divide between developed and developing countries, with the latter potentially being left behind in the race to adopt new technologies. Therefore, it is crucial to promote technology transfer and capacity-building initiatives to bridge this gap.
Technological advancements have had a significant impact on international trade and finance, facilitating faster and more efficient cross-border transactions, enabling the emergence of new business models and trade patterns, and expanding access to global markets. However, these advancements have also brought challenges and risks that policymakers must address to ensure a fair, transparent, and stable international trade and finance system.
One of the main challenges posed by technological advancements is the potential for increased inequality and exclusion, as some countries and firms may be better equipped to take advantage of these advancements than others. This could lead to a concentration of power and wealth, creating a more uneven playing field in international trade and finance.
Another challenge is the risk of cyber threats and security breaches, which could undermine the integrity and stability of the international financial system. This risk is particularly acute given the growing reliance on digital technologies and platforms for conducting financial transactions.
In addition, there is the need to address issues related to data privacy, intellectual property rights, and regulatory harmonization, which could affect the competitiveness of firms in different countries and regions.
To address these challenges and risks, policymakers must take a proactive approach that balances the benefits of technological advancements with the need to mitigate their potential negative effects. This could involve developing international standards and regulations to ensure the fair and secure use of digital technologies in international trade and finance, investing in digital infrastructure and skills development in less advanced countries, and promoting greater collaboration and information-sharing among stakeholders in the global financial system.
Overall, technological advancements have the potential to drive greater prosperity and inclusion in international trade and finance, but policymakers must remain vigilant to ensure that these advancements are harnessed for the benefit of all.
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