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This article provides information about the relationship between globalisation and free trade:
Globalisation brought about internationalisation of economic activities, especially with US and UK taking to greater interest in market coordination during 1980s. There was greater emphasis on private enterprise during Ronald Reagan and Margaret Thatcher’s regime in US and UK respectively. During this period, there were more export-oriented economies, due to the recommended path by the international funding bodies such as International Monetary Fund (IMF) and World Bank.
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Since then there has been a substantial growth in world trade, consequently international bodies such as World Bank, IMF and WTO have become very powerful who constantly recommended lesser government and state- involvement and more free flow of goods and finances.
With increasing pressure from world monetary and trade organisations many states succumbed to the pressure to liberalise their economies. With the collapse of Soviet Russia an alternative model for free enterprise was found to be unviable and so more and more nations became integrated into a global network of free trade. Many governments took to shrinking public expenditure on capital and social sector such as on health, education, housing, public distribution system rural infrastructure development, etc.
In that sense, there has been globalisation of national policies and policy-making mechanisms of national governments. India too took steps to liberalise its economy following a crisis in 1990’s. The two central components of the neoliberal policies adopted by Indian government have been the liberalisation of India’s private sector and a reform of the public sector.
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Thus, India took to liberalisation, which essentially meant that many of the activities, which the state performed, were reduced whether it is centralised price control, monopoly over infrastructure and public services, to name some. The IMF and World Bank started insisting on the deregulation of national economies and liberalisation in trade and investment sectors as conditions for the grant of financial assistance or loans to countries world over.
They advocated free trade, which in modern usage means trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas, or import licences. Not only did India adopt Structural Adjustment Programmes (SAP) on the behest of the IMF World Bank but also privatisation. Privatisation essentially involved the state selling out its assets to private ownership.
Another aspect of globalisation has been the involvement of Foreign Direct Investment (FDI), which is money invested by foreign party that is rewarded with part ownership of production. This is done through different forms of collaborations. In 1990 there has been phenomenal growth in collaborations between companies across countries and FDIs grew substantially all over the world.
There is a general view that FDI flows help the economy in several ways one of them being transfer of technology. Though there were effective rules and regulations at individual countries, there was not an international policy accepted by all the countries. With the increased interaction and technology transfer during the heightened pace of globalisation made it important to have an international policy agreed by most of the nations around the globe on the issue of patent protection.
This is what WTO tried to impose through the implementation of Trade Related Intellectual Property Rights (TRIPs). TRIPS came into effect in 1995. It imposes minimum standards in seven areas of intellectual property i.e. patents, copyright, trademarks, geographical indication, industrial design, and undisclosed information (trade secrets) and covers diverse areas as computer programming and circuit design, pharmaceuticals and transgenic crops. TRIPs was devised based on standards of the North and conflicts with the national interests and needs of the developing countries.
For instance most Third World countries previously exempted medicines, agriculture and other products from national patent laws but with TRIPs almost all knowledge-based production is subject to tight intellectual property protection. Developing nations have to adjust their laws to conform to TRIPS by 2000 while the least developed countries by 2016. The latter will be confronted with severe financial and administrative constraints.
Although the positive effects of TRIPS on the South have been touted by the North, in terms of technology transfer, foreign direct investment (FDI) and research and development (R&D) innovation, there is scant evidence of this taking place.
In fact the strengthening and expansion of Intellectual Property Rights (EPRs) will affect the access to and use of technologies and the developing world’s prospect for industrial and technological development; stronger IPRs means higher costs in terms of royalties and other payments and reduce resources available for local R&D; scientific and technological protectionism is a growing problem as the increasing economic relevance of scientific research limits the free dissemination of research results and constrains the traditional openness of university laboratories where most basic research is conducted in the North — this will reduce the developing world’s prospects of improving their social and economic conditions.