Third Pillar of Globalization: The Free Trade Liberalization and Labor Mobility
The final pillar of Globalization is the fast expansion of
the free trade liberalization and free labor mobility. Basically, the free
trade liberalization is divided into two mechanisms of negotiation such as
custom union and free trade areas schemes. For this reason, many academics
present strong claims in favor of free trade areas breaks down economic
nationalism and increases awareness of economic interdependence; that it makes
negotiation easier by reducing the number of international trade players; and that
it encourages the codification and formalization of rules and regulations
affecting international trade, making them more transparent and less capricious
and discretionary, if not always more liberal. Further, this paper argues in
favor of the idea of free trade brings more benefits to international trade
than regionalism. We asserts that if the number of trade blocs increases, then
trade welfare in the world trade will decrease. Moreover, two categories of
trade blocs are applied in this research (Ruiz Estrada, 2016). These two
categories of trade blocs, there are closed trade blocs and open trade blocs.
Closed trade blocs is based on the import-substitution
industrialization strategy under the infant industry argument. The
import-substitution industrialization strategy uses a common import tariff that
is a form of government intervention to protect the domestic industries and to
create a large market (Balassa, 1985). Closed trade blocs has observed a series
of phases in the process towards the creation of a single trading bloc. These
six phases are first phase is the preferential trade arrangements. Second
phase, the free trade area will eliminate internal tariff and non-tariff
barriers but not harmonize external barriers. Third phase is the Customs union,
which is trying to remove internal barriers and establish a common external
tariff. Fourth phase is common markets, which is formed by a customs unions and
where free mobility of labor and capital are eliminated. The fifth phase is to
establish a common currency and common economic policies based on an economic
and monetary union. Finally, nations can form a single state in a confederation
according to Lawrence (1996).
Open trade blocs were developed and promoted at the end of
the 1990’s. Based on trade liberalization or open market, it uses the
export-led oriented or outward oriented model. Contrary to closed trade blocs,
open trade blocs seek to eliminate all trade barriers and non-trade barriers in
the same region based on a minimal government intervention which is applied to
protect domestic industries from foreign competition. The open trade blocs as a
negotiating framework consistent with and complementary to GATT/WTO. But, as
they point out, ‘openness’ carries at least two different meanings: openness in
terms of non-exclusivity of membership; openness in terms of contributing
economically to the process of global liberalization than detracting from it
through discrimination. It is difficult to implement open trade blocs between
developing countries and least developed countries. This is because these
countries lack the same kind of economic, political,
social and technological conditions respectively. However,
it is inappropriate to argue that open trade blocs is the ideal scheme to
integrate middle income countries with low income countries in order to compete
in world trade (Ruiz Estrada, 2016).
In trade liberalization there is not only free mobility of
goods and services, but also the fast mobility of labor domestically and
internationally. In fact, the domestic and international labor mobility plays
an important role in the globalization process around the world. The demand and
supply of low and high qualified labor becomes more significant and volatile
through globalization process.
In the analysis of labor mobility in the
globalization process, we like to introduce a new concept is entitled “the post-modern-labor
mobility”. The post-modern-labor mobility is based on the opportunities of
better jobs, better knowledge and skills, high wages, social security, low
taxation, diversify public services under new migration and immigration schemes
for any worker. According to this research the immigration among different
regions has expanded exponentially in the past 30 years, especially in the
period 2000-2020. The growth rate of immigrats during this period was from 25%
to 35% worldwide. According to our indicator the immigration growth rate (ΔÐ)
results. During this period, the highest ΔÐ at the intra-regional level took
place in European Union –EU-, where the rate increased from 11% in the 2000 to
35% in the 2020. North America Free Trade Area –NAFTA- is second after EU with
its ΔÐ growing from 10% in the 2000 to 30% in the 2020. In this case, the bulk
of the ΔÐ originated from immigration from Mexico and Canada to U.S. In the
2020 Latin America witnessed a high ΔÐ of 45% where the ilegal and legal
immigration flows were into U.S. Asia had an ΔÐ of 25% in the same period. In
this case the immigration flows work oriented to Australia, China, U.S. and
Europe in order of (immensity) of immigration. For Africa (Sahara north part)
to Europe (Spain and France) the ΔÐ for the same period was 15%, where the
destination of immigration was Europe. Unlike EU and NAFTA, the orientation of
immigration in Latin America (LA), Asia and Africa is not regional but
worldwide (OECD, 2020).
From the above, it is clear that the trend of immigration in
LA, Africa and Asia is different from that of E.U. and NAFTA. Also the region
with the highest ΔÐ around the world is Latin America (ΔÐ of 35%), follow by
Asia (ΔÐ of 20%) Relating these observations to Globalization, could be seen that
in no limitation to mobility of goods and services, foreign direct investment
(FDI), and labor mobility around the world. The high ΔÐ in Latin America (LA),
Asia and Africa is due to high levels of unemployment, constant growth of
inflation rate, constant depreciation of exchange rate and slow per-capita
growth (resulting from imbalance distribution of wealth). All these negative
factors can be considered the basic reasons these regions (LA, Asia and Africa)
are unable to retain their full domestic labor in these regions. In other
words, the above mentioned factors were the underlying reasons for limited
domestic
labor demand in LA, Asia and Africa. These factors jointly
result in small output production (GDP) in these three regions. Moreover, the
small output production (GDP) in these three regions have been based on limited
basket of agriculture products (coffee, fruits, vegetables and raw materials)
and manufacturing products (clutches and electro-domestics) with low added
value that fetch low prices in the international market that constitutes the
push factors for immigrations out of the regions. Additionally, LA, Asia and
Africa a phase with several common problems in their domestic labor supply
structures: basically, only a small percentage of the population has the
opportunity to obtain a tertiary education, and even this small percentage of
population cannot be absorbed completely by the domestic productive structure
for employment. This surplus in labor supply pushes down the wages for all. In
the short term this factor generates low productivity and non-efficient
allocation of resources (financial resources, human resources, and natural
resources) and production factors (labor –L-, capital –K-) in the domestic
productive structure. The overall scenario is that Developing countries and
LDC’s in LA, Asia and Africa cannot absorb their own surplus domestic labor. In
the long run this surplus domestic labor start to search for new opportunities
in large countries or regions with high output of production (GDP) and where
they are offered high income, social security, working environment, jobs
prospects, and jobs security.
Finally, we try to figurate the impact of Wuhan-COVID-19 in
the international trading and labor mobility in the case of China and the rest
of the world. We assume that any massive contagious epidemic diseases such as
Wuhan-COVID-19 can affect the exports of China worldwide severaly and
unemployment (jobs diversion). Subsenquently, the drops of China exports can
generate a large imported inflation to the rest of the world respectively. At
the same time, we assume also that exist a high possibility that any imported
product from China can carry the Wuhan-COVID-19 and generate a considerable
increment in the number of Wuhan-COVID-19 infected cases and deaths.
Additionally, we can perceive also that the Wuhan-COVID-19 can generate symptom
of psychosis from a large number of worldwide buyers to getting infected by the
Wuhan-COVID-19. Hence, the free trade liberalization is going to experience a deep
transformation after Wuhan-COVID-19 with new challenges under new trade
regulations and non-tariff barriers such as heavy sanitrary standards and large
physiosanitary controls to avoid possible increment of Wuhan-COVID-19 infected
cases globally. On the other hand, we can assume that the Wuhan-COVID-19 can
stop the domestic, regional, and global labor mobility in China for the long
run. This is possible to observed in the case of Wuhan, China until now. The
quarantine from Wuhan-COVID-19 is blocking a massive number of workers to
return its jobs in another provinces of China. The negative impact of
Wuhan-COVID-19 can stop easily the intra-regional-workers mobility under
unfixed period of time. At the same time, the same labor inmobility can
generate a massive
unemployment under different prefectures, cities, and
regions of China dramatically. We can confirm that the level of unemployment in
China is directly connected to the period of time that the Wuhan-COVID-19
continues active. In the case of Wuhan-COVID-19 can generate a possible
unemployment rate (2020-2021) between 6% and 8% in the short run according to
our preliminary results and calculations in research papers done before.
