TAYLORS COLLEGE

SOUTH AUSTRALIAN MATRICULATION

ECONOMICS
TOPIC 7 : THE GLOBAL ECONOMY GROUP ASSIGNMENT
GROUP : E2

Question 1 Over recent decades, most of the countries have involved in several multilateral trading system. Multilateral trading system is one of the trade agreements which refer to government agreements with other countries and are designed to promote and facilitate trade between the member countries. Free trade agreements are signed between countries
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when there is an absence of protective barriers such as subsidies, tariff and quotas. Examples of multilateral trade agreements are The European Union (EU), Asia-Pacific Economic Cooperation (APEC), The North America Free Trade Agreement (NAFTA) and World Trade Organization (WTO). Trade agreements had brought some economic impacts to the member countries. After involving in the trade agreements, the member country is able to increase its trade because the trade agreements will open up the international markets of the country which widens the market access of the countrys exports. When the member countrys exports increased, it gains higher export revenues. Hence, trade balance improves and the size of current account deficit is reduced. China joined WTO membership in 2001 and this had brought a rapid improvement in its export revenues which are from US$249.2 billion in 2000 to US$1.2 trillion in 2009. Trade balance of China had also improved from US$24.1 billion in 2000 to US$195.7 billion in 2009. Besides that, trade agreements allow a greater inflow of foreign direct investment (FDI). This will enable the member country to access to new technologies and skills from foreign countries as well as increase the economic growth of the country. The example for inflow of FDI is the setting up of multinational corporations (MNCs) in the host country. In 2001, Kimberly-Clark Corporation from United States had invested US$39 million to purchase an additional 5% stake in its Australian joint venture, Kimberly-Clark Australia, from its partner, Amcor Limited, in Australia. Kimberly-Clark Australia is now a leading manufacturer of tissues, health care and personal care products and it currently holds the first position for most of its products in Australia.

However, multilateral trading system can bring negative impacts to the member countries too. MNCs often set up their factories in developing countries due to lower cost of production and this has enabled them to maximize profits. MNCs tend to exploit the cheap labours which are children below 16 years old as the main factor of productions. Nike, a major sport apparels producer, had set up a factory in Pakistan which they forced children to produce soccer balls with wages of $5 a day under bad working conditions like heated environment. Furthermore, foreign investment from trade agreements will increase the foreign ownership of domestic resources and sales of local firms to foreign owners. The member country will lose sovereignty over their resources. As the member countries wanted to encourage more foreign investment in order to improve the local economy, they are pressured to provide concessions for the foreign ownership corporations. Asahi Breweries Ltd., Japans second-largest beermaker, had bought the P&N Beverages Australia, a large fruit juice maker in Australia, for 100% shares with US$323 million. Australia also provided 150% of tax concession for MNCs to encourage research and development. In conclusion, involving in multilateral trading system will bring benefits to the member countries such as open up a wide range of markets for the member countries which enable the member countries to access to new technologies as well as increase export revenues and boost economic growth. However, the member countries will have to take some precautions as there are some negative impacts on the trade agreements and try to resolve it by implementing some policies in the local economy. (593 words)

Question 2 Multinational corporations (MNCs) are large firms that conduct business in more than one country through branches or subsidiary companies. Countries with low labour costs and secure supplies of raw materials have attracted MNCs to expand their business in that particular country. Examples of MNCs are ExxonMobil, McDonalds and Toyota. Some of the MNCs sales have exceeded the developing countries gross domestic product (GDP) value. Thus, MNCs can bring both benefits and costs to a country.
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MNCs provide foreign direct investment (FDI) for a country. Many countries like Australia are highly relied on FDI to boost the economy of the country. Two thirds of Australias GDP is contributed from FDI. Rio Tinto, a mining company with headquarters in London and Melbourne, had invested approximately US$30 billion in Australia since 1998 and had added approximately 1% to the Australias GDP. Besides that, MNCs can provide employment to the locals in the host country. Unilever South Africa (ULSA), which owns many of the world's consumer product brands in foods, beverages, cleaning agents and personal care products, supports approximately 100,000 jobs throughout the South African economy. For every job directly based at ULSA, there is another 22 workers depended upon the company for their livelihood. In total, ULSA is supporting approximately 0.8% of total South African employment. However, MNCs might bring negative impacts to the host country. Some

irresponsible MNCs can cause environmental problems to the host country. In 2010, BP, a global oil and gas company with headquarter in London, caused an oil spill of the Gulf of Mexico in United States and brought substantial damage to marine and wildlife habitats. More than 8,000 birds and marine life were found injured or dead in the 6 months after the spill. Furthermore, some MNCs tend to exploit the cheap labours such as child labours that are below 16 years old in developing countries like India. A report in 2002 shows that an estimated 53,000 children in Andhra Pradesh, India are working in cottonseed farms under hazardous conditions for MNCs, such as Advanta (Dutch-British), Proagro (a

division of Bayer, Germany), Emergent Genetics (US) and Monsanto (US). A lot of children have died or become seriously ill due to exposure to pesticides. In conclusion, MNCs play an important role in globalization and international relations. However, sometimes MNCs could misuse their power. Governments should implement policies and tighten rules and regulations to prevent MNCs from exerting influence on governments. (402 words)