international organization

 

International organizations engaged in economic cooperation are increasing along with economic liberalization which is increasingly being accepted by countries in the world. In addition to global organizations, there are also regional organizations that aim to regulate the implementation of free trade in a region. In this chapter, we will discuss the characteristics of the global economy which have implications for international economic cooperation. After that, it will also discuss the role and activities of international organizations in issues of economic cooperation.

World economic growth raises interdependence between countries. The effect of this dependence is not uniform and has changed the size and carrying capacity of natural resources of a country. A small number of countries have sufficient natural resources so that they do not have dependence on other countries' resources and have an area and population that can be developed into economic power. These countries, for example, the US, China, Russia and India. However, there are also many countries that do not have sufficient natural resources, population and small territory. For most countries, economic growth means increased interaction with other countries. Most developed countries now have to import raw materials from other countries so they cannot let go of their dependence. The industrialization process has made trade relations with other countries important for achieving profits. Small countries can experience significant economic growth simply by depending on trade with other countries. Many countries, including large countries, must rely on external capital to improve their economic development as well as their mastery of science and technology. Interdependence also carries with it the damaging effects of technology use, such as ozone depletion and environmental pollution. Interdependence in all its forms, has made the state more sensitive to events outside its territory. Sometimes this sensitivity is beneficial and symmetrical, but not infrequently it is asymmetrical and detrimental to several countries due to differences in the ownership of natural resources. Several countries depend on imports of an important raw material, petroleum. Some other countries have a greater dependence on exports of several commodities that contribute to GNP than their partner countries. As a consequence, exporting countries are relatively fragile compared to partner countries. Economic growth in a country today is strongly influenced by the mastery of science and technology. Countries that master these two things, such as Europe, the US, Australia and Japan, will have better economic growth than countries that do not. This is what makes the gap between developed countries and underdeveloped countries. This gap also creates a pattern of interdependence, even though it is asymmetrical

IGO activities are formed from the fact that the state must provide a framework for creating economic growth. Thus, it becomes important for us to understand what countries should do and how they interact economically. State action is in the form of policies that support economic growth, such as policies on finance, investment policies, as well as infrastructure development that supports the economy. Based on the opinion of Hariold Jacobson, 1979, we can see the role of the state in economic interaction with other countries from the following concepts:

• The Balance of Payments

Trade interaction is measured by this concept, which is the amount of economic transactions carried out in a certain period of time, usually one year. In accordance with the concept, there must be a balance between income (through exports of goods and services) and expenses (through imports of goods and services) which is commonly referred to as the current account. Also included in this concept is the flow of money in the form of loans and investments which are called capital accounts. If there is an imbalance caused by spending that is greater than income, the state will cover the deficit from services, investment income, and foreign aid. The problem of trade balance imbalances faced by countries has triggered the emergence of international donor agencies such as the International Bank for Reconstruction and Development, better known as the World Bank, Asian Development Bank, Islamic Development Bank, and others. Through these donor agencies, a country can obtain long-term loans for infrastructure development which will drive national economic improvement. • Exchange Rates

Since countries issue their own currencies, trade between two countries that use payment instruments in the form of money must have a mechanism to convert one currency into another. Currency exchange rates are usually determined by market forces and therefore tend to change daily because trends and events in the international political economy change the supply and demand for one currency relative to another. In relation to this currency exchange rate, the government can influence it through policies that affect the value of its own currency relative to other currencies. For example tax policies, domestic inflation rates, changes in interest rates and others. In an era of deepening interdependence, currency exchange rates are very influential not only for one country but for the world economy. As an example, the high exchange rate of the dollar against the rupiah that occurred in 1997 not only caused Indonesia to experience an economic crisis, but also had an impact on the US economy where most of US products were purchased by Indonesia. Because the purchasing power of the Indonesian people is weakening and the price of imported goods from the US is getting more expensive, the US industry will also experience a shock. As another example, the issue of stable currency exchange rates between major countries such as Japan, Britain, the US and China has always been important to stabilize the world economy. In order to stabilize monetary conditions in a country, the International Monetary Fund is often present to provide assistance. Indonesia, when experiencing a monetary crisis due to the value of the rupiah falling very deeply against the US dollar, finally asked for help from the IMF.

• Tariffs and Other Barriers to Trade

Apart from setting exchange rates, another way to manage international transactions is through tariff policies and other trade barriers such as quotas and protection. Tariffs will affect the level of imports by increasing the cost of an item so as to increase the selling value of goods from traders. With this tariff, the government can get revenue and also in order to protect domestic producers. The government can also set quotas, which are restrictions on the amount of goods that can be imported. Quotas can also be a tool for the purpose of protecting domestic industries. In addition, the government can provide subsidies or facilities to spur exports. Along with the strengthening of liberal economic ideology, the role of the state in trade is increasingly minimized. The country then worked together to build free trade cooperation, in which policies that were originally aimed at protecting national economic interests were abolished. We can see issues related to economic interaction between a group of countries from the global level or through certain groups of countries which are usually regional groups. Conceptually, we can see how countries work together

In relation to global economic interaction, there have been many disagreements between mercantilists, liberalists and marxists. Broadly speaking, mercantilists believe in the state as an economic actor, whereas according to the views of liberals, the economy is completely left to the market mechanism and the state is only a facilitator. The two opinions above still give the role to the state to participate in the economy. In the economies of liberal countries such as the US and UK, government has a more limited role than in socialist countries. Governments in liberal countries only function as facilitators and carry out programs aimed at managing public sectors such as health. Meanwhile, the role of the government in a socialist country like China is very central as a regulator and market player. In general, the debate about what role IGO can play in the global economy revolves around the issue of how much government intervention is allowed in economic relations. International organizations should have an orientation towards minimizing government intervention and submitting to market mechanisms regarding production and allocation. The aim of the programs being carried out is to facilitate the creation of specialization, or international distribution of production so as to achieve global production maximization. These IGO programs will involve minimizing trade barriers between countries, either by eliminating tariffs, which is a country's domestic policy. The role of IGOs in this context is to create other avenues that serve the same purpose as trade barriers. Historically, IGO was initially aimed at promoting economic growth. This was evident in the establishment of the first modern IGO, the Central Commission for the Navigation of the Rhine, in 1815 which aimed to guarantee free navigation on the Rhine. This commission is tasked with eliminating taxes and other obstacles, standardizing infrastructure and operational rules to facilitate movement from one jurisdiction of the country to another, and guaranteeing that goods and people will receive the same treatment regardless of which country they come from. Organizations similar to the Central Com mission for the Navigation of the Rhine in the 19th century were the Universal Postal Union 1874, International Bureau of Weights and Measures 1875. International organizations of this kind continued into the 20th century, for example the LBB which in Article 23 stated: LBB will guarantee and facilitate freedom of communication and transit as well as fair treatment for trade of all members of the league. The development of IGO which has a similar goal is experiencing rapid progress in line with the increasing acceptance of liberal capitalist ideology, one of the teachings of which is the free market. Countries are then busy to prepare themselves for the "single world market" by establishing regional cooperation. This cooperation is believed to be able to become a temporary tool to strengthen itself and also a tool of protection from global free market policies. At the global level, we know that there are main pillars, namely the International Monetary Fund, the International Bank for Reconstruction and Development, and the World Trade Organization. These three bodies have contributed greatly to the ongoing process of trade liberalization. In addition, the three are seen as transferring the UN's power to deal with economic issues to a more specific agency dominated by powerful countries.

Since the founding of the modern IGO, namely the Central Commission for the Navigation of the Rhine in the 19th century, IGOs have worked more in the economic field than in other fields. This phenomenon continues to this day along with the issue of globalization and trade liberalization. The following are some of the activities carried out by IGOs in relation to their function in the global economy.

a. Information Activity

Activities related to this information are considered important because of the complexity of economic relations and production processes that require data and information exchange. These activities include:

• Collection and Dissemination of Data, for example data on the intensity of intra-ASEAN trade and data on trade between ASEAN countries and countries outside ASEAN.

• Forecasting, meaning that the collected data will be analyzed and made into estimates in the short and long term. World Bank data on the prosperity of a country with the GNP indicator will serve as material for GNP forecasts for the next year. Likewise with the global inflation rate. 106 International Organizations: Actors and Instruments in International Relations

• Analysis of Economic Issues, for example the IMF assesses the causes of the economic crisis in Indonesia as well as provides input for crisis solutions.

• Exchange of information and views, such as the dialogue between poor countries (G-77) and developed countries (G-8) that took place in the UN General Assembly and other specialized agencies

• Organization of General Conferences, such as workshops and seminars.

b. Normative Activities

Conferences held by IGOs usually produce warning or warning statements covering a wide range of issues. These statements have an indirect and possibly long-term impact on policy makers in a country.

• The Earth Conference in Rio de Janeiro, Brazil, 1992 which tried to link development with environmental preservation so that it became known as the concept of Sustainable Development. The results of this conference slowly build a broad understanding of the world community about the importance of environmental preservation and also influence policy makers at the country level.

• The role of WTO and IMF in supporting trade liberalization. The two institutions have influenced countries in the world to enter open international trade.

• Normative activities are also carried out through the standardization of various products by the International Organization for Standardization (ISO)

c. Rule-Making Activities

This activity has legally binding consequences for the countries that ratify it. In an atmosphere of free trade, the WTO and the IMF have a significant role in creating a free trade regime. WTO and IMF issue regulations and also impose sanctions for those who violate them. These regulations, for example, concern Copyright and the principle of Most Favored Nation.

d. Regulatory Oversight Activities

This activity gives the right to IGO to apply sanctions to anyone who violates the regulations that have been ratified. The WTO has a Trade Policy Review Body whose job is to supervise and review the national economic policies of its members and ensure that member countries comply with WTO rules.

e. Operational Activities

Operational activities include: trading transaction services among its members, providing program assistance and assistance, and providing commodity reserve stocks to stabilize supply and prices

Trade and Economic Liberalization Regionalism

Today's world economy leads to regionalism economy. This was marked by the formation of regional economic blocs, such as AFTA, NAFTA, EU and APEC. The formation of these economic blocs was intended to anticipate trade liberalization as a result of the agreement on the provisions of the Uruguay Round at the Marrakesh meeting in 1994. Some of the provisions adopted were not allowing countries to use various trade barriers (tariff or non-tariff) and the establishment of the WTO as a regime maker as well as a supervisor of the ongoing world trade liberalization. The formation of regional economic blocs was also motivated by the desire to strengthen the resilience of the country's/region's economy against challenges from other economic blocs. It is feared that the economic blocs of developed countries such as NAFTA and the EU will form protection areas to the detriment of the interests of countries that are not members of the bloc. Apart from that, it is also feared that the existence of these blocks will reduce the flow of investment to other countries outside the block concerned, especially to developing countries. Economic integration can be positive and can be negative. Negative integration refers to attempts by member countries to hinder the process of trade liberalization. Meanwhile, positive integration is related to the modification of tools and institutions that support economic integration so that its development becomes more effective. The benefits of economic integration include (Wiranta, 1996:409):

• Increasingly efficient products that allow for specialization, so that the product in question has a comparative advantage;

• Increased production due to increased economies of scale so as to enable market share to increase;

• Bargaining position in international forums is getting better so as to allow for an increase in trade volume;

• Product efficiency increases competition;

• Product quality and production factors are increasing due to technological developments;

• Free mobility of capital and labor in and out of fellow member countries;

• There is coordination among member countries in monetary and fiscal policies.

Regarding the benefits of economic integration above, the second best theory1 shows that forms of economic cooperation will increase welfare, although not optimal. This fact is stated in article 24, the GATT regulations in which united union and free trade is one of the special non-discriminatory codes. Another advantage of regional economic cooperation is economies of scale. A protected market not only separates production globally, but can also reduce competition and profits for companies entering the protected industry. By increasing the number of entrepreneurs in a narrow domestic market, the production scale in each company becomes inefficient. With a free market, protection is abolished so that the economy of scale increases because entrepreneurs can enter freely (free entry) into the market that was previously protected. On the other hand, there are also disadvantages suffered from free trade. First, the costs of deviation from free trade are considerable. Second, the government's income has decreased due to the abolition of tariffs/protectionist trade policies. Third, free trade due to the actions of its trading partner countries which are more politically motivated than economic. However, in almost all countries in the world agree to the existence of free trade. Likewise with countries that are members of regional economic blocs.