In recent years, the entire system of international economic relations has undergone a crucial transformation.
1. Multinational Corporations
Multinational corporations have become more active. They are engaged in systematic tasks of research and development involving huge initial investments.
For making their research activities profitable, they try to spread into new markets. They also explore the possibilities of establishing their production centres in foreign countries so as to take advantage of (i) the wall of high tariffs and quantitative restrictions on imports, (ii) cheaper labour, and (iii) other facilities. 2.
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2. Shifts in Demand
Consumer incomes, preferences and tastes are undergoing a rapid change.
3. Technological Transformation
Modern economies of the world are experiencing a rapid technological transformation in manufacturing, information, communications, and other services.
4. Flow of Capital and Technology
International flows of both short term and long term investment funds have increased together with freer flows of technology and human skills.
Currently, for example, “foreign direct investment” runs into hundreds of billions of dollars per annum and may cross the mark of a trillion dollars per annum in the near future.
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At present, most of it is between developed countries themselves, but the flow into some developing countries like China has also assumed significant proportions.
India opted for foreign direct investment in preference to external loans very late and even now some serious bureaucratic hurdles continue to discourage FDI inflow. Consequently, we are still getting a very small amount of this category of capital inflow.
5. Restructuring the Economies
In response to all these developments, several governments are engaged in restructuring their international economic relations.
However, there is a continuous conflict between moving towards a regime of “free” international trade with free capital flows on the one hand and that of following a policy of protectionism on the other.
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Over time, apart from genuine economic concerns, modem governments (including those of the developed countries) are facing opposition from entrenched vested interests.
A case in point is that of agricultural subsidies. Helped by technological advances and government subsidies for a very long period, output of primary agricultural products like food and dairy items has increased so much that their world prices have slumped.
However, governments continue giving these subsidies. And it is ironical that developed countries, while themselves heavily subsidising agriculture in several different ways, keep insisting that countries like India should not do so.
6. Economic Floes
A growing number of economies are coming together in different tons of integration, such as monetary unions, customs unions, and the like. This is creating a fresh set of issues and problems.
7. Conflicting Developments
The net result is that in this process of restructuring of international economic relations, there is a simultaneous strengthening of the opposite trends of free trade on the one hand, and of economic blocs, more stringent regulations and protectionism on the other.
It is noteworthy that international negotiations are taking place in this conflicting set of objectives, and resulting in certain institutions and agreements.
While several governments are agreeing to remove quantitative restrictions on imports in a phased manner, there are others who refuse to give up some specific policies like those of giving subsidies to agriculture and promoting exports through tax concessions and concessional credit, etc.
8. International Institutions
International institutions like World Trade Organisation have come into being for monitoring and regulating international trade transactions.
WTO is supposed to identify and prevent unfair trade practices (such as ‘dumping’), and protect patents and other property rights, but some developing countries complain of discriminatory treatment meted out to them.