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Globalization and E-Commerce
Topic Thirty-Five

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Trade Liberalization

Trade liberalization refers to the expansion of trade through the removal of all forms of trade barriers such as tariffs and quotas. Trade liberalization has in turn been facilitated by the formation of trading blocks.

Advantages of Trade Liberalization

Specialization – trade liberalisation allows countries to specialise in producing the goods and services where they have a comparative advantage.

Lower prices – the removal of tariff barriers can lead to lower prices for consumers; this would be particularly a benefit for countries which are importers of food.

Increased competition – trade liberalization means firms will face greater competition from abroad. This should act as a motivation to increase efficiency and cut costs or it may act as an incentive for an economy to shift resources into new industries.

Economies of scale – through specialization, trade liberalization can lead to economies of scale.


The term globalization refers to the process of global integration of the economies of nations by allowing the unrestricted flow of goods, services, investments and currencies between countries. Countries pursue globalization in the hope that this would lead to prosperity. Advances in communication and transportation technology, combined with free-market ideology, have given goods, services, and capital unprecedented mobility. Developed countries want to open world markets to their goods and take advantage of abundant, cheap labour in the less developed countries.

General Agreement on Tariffs and Trade (GATT)/WTO

The General Agreement on Tariffs and Trade (GATT), which was signed in 1947, was a multilateral agreement regulating trade among about 150 countries. According to its preamble, the purpose of the GATT was the substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis. There have been eight rounds of negotiations addressing various trade issues. The Uruguay Round, which was completed on December 15, 1993 after seven years of negotiations, resulted in an agreement among 117 countries including the USA to reduce trade barriers and to create more comprehensive and enforceable world trade rules. The GATT was followed by the World Trade Organization (WTO) in 1995 which was the successor to the GATT. The WTO’s main function is to ensure that trade flows as smoothly, predictably and freely as possible.

Principles of the Trading System

Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

  1. Non-Discrimination – the WTO’s main principle is the most favour nation (MFN) rule. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members. In other words, a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members.
  2. Reciprocity – the principles reflect both a desire to limit the scope of free-riding that may arise because of the MFN rule and a desire to obtain better access to foreign markets.
  3. Transparency – the WTO members are required to publish their trade regulations, to respond to requests for information by other members and to notify changes in trade policies to the WTO.

How is the WTO different from GATT

The WTO is not a simple extension of GATT. Among the principal differences between the WTO and GATT are the following:

  • The GATT was a set of rules, a multilateral agreement with no institutional foundation. It was only a small associated secretariat. The WTO is a permanent institution with its own secretariat.
  • The GATT was applied on a provisional basis while the WTO commitments are full and permanent.
  • The GATT rules applied to trade in merchandise goods while the WTO covers trade in services and trade-related aspects of intellectual property.


E-commerce is the buying and selling of products and services by businesses and consumers through an electronic medium without using any paper documents. E-commerce is widely considered the buying and selling of products over the internet, but any transaction that is completed solely through electronic measures can be considered e-commerce.

The following are some advantages of E-Commerce:

E-Commerce Advantages for Customers

  • Convenience: every product is at the tip of the consumer’s fingers on the internet.
  • Time saving: with e-commerce there is no shopping around in hopes of finding what you need. Stores online offer their full line as well as use warehouses instead of store fronts—products are easy to locate and can be delivered to your door in just days.
  • Options: without much effort, consumer can easily compare products, see who offers the best price and options to choose from.
  • Around the clock shopping: whatever the weather condition or whether it is a holiday or not, your online business is open for consumers 24/7 every day of the year.
  • Instant transactions: with e-commerce, there is no more waiting for the cheque to clear as transactions are cleared immediately or within days.

E-Commerce Disadvantages to Customers

Some may say that, despite the many advantages of E-Commerce, there are also some disadvantages which are as follows:

  • Privacy and security: while it may be easy and convenient to shop online, no one wants their personal information to be exposed.
  • Quality: while e-commerce makes everything easily accessible, a consumer cannot actually touch products until they are delivered to the door. It is important to view the return policy before buying.
  • Delay in receiving goods: although delivery of products is often quicker than expected, there may be delays. For example, inclement weather condition in one place may delay the shipping system across the board. There is also a chance that your product may be lost or delivered to the wrong address.

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