THE INSTITUTE OF INTERNATIONAL TRADE OF IRELAND

INTERNATIONAL TRADE THROUGH SOCIAL INSTITUTIONS

AND ECONOMICS INDICATORS – A REFLECTION ON FRENCH, CHINESE

AND MOZANBIQUEAN ECONOMIES

ANTÔNIO EDUARDO BULHÕES JÚNIOR

2012

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SUMMARY

INTRODUCTION ................................................................................................................ 05

1 HISTORY OF INTERNATIONAL TRADE THEORY ................................................. 07

2 SOCIAL INSTITUTIONS: CONCEPT, TYPES AND THEIR ROLES ON INTERNATIONAL TRADE ................................................................................................ 122.1 ECONOMIC SYSTEM .................................................................................................... 122.1.1 Socialist or Command Economy ................................................................................ 142.1.2 Capitalist or Market Based Economy ....................................................................... 142.1.3 Mixed Economy .......................................................................................................... 142.1.4 Economic Systems and International Trade ............................................................ 152.2 LEGAL SYSTEMS ........................................................................................................ 162.3 RELIGION ........................................................................................................................ 182.3.1 Buddhism ..................................................................................................................... 192.3.2 Christianity .................................................................................................................. 202.3.3 Hinduism ..................................................................................................................... 202.3.4 Islam ............................................................................................................................. 212.3.5 Judaism ........................................................................................................................ 222.2.6. Confucianism .............................................................................................................. 23

3 INTERNATIONAL TRADE LAW AND WORLD TRADE ORGANIZATION ........ 24

4 FRANCE, CHINA AND MOZAMBIQUE: SOCIAL INSTITUTIONS AND ECONOMIC INDICATORS ............................................................................................... 284.1 FRANCE .......................................................................................................................... 284.2 CHINA ............................................................................................................................. 294.3 MOZAMBIQUE .............................................................................................................. 30

FINAL CONSIDERATIONS ............................................................................................... 32

REFERENCE LIST .............................................................................................................. 34

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ABSTRACT

This project aims to explain the social aspect of the International Trade. It starts from the

international trade history, since its first records passing trough mercantilists ideas and

modern trade theories, ending in the globalization environment. Then, it shows the concept of

social institutions, its main systems (Economic, Legal and Religious) and its roles for

international organizations. The project highlights the International Trade Law and its

importance, talking about the creation of the world trade organization (WTO) its goals, scope

and principles. It gives an example of a developed, developing and less developed economy;

(France, China and Mozambique respectively), showing social characteristics of its

economics, legal and religious systems, as well economics and trade indicators. Moreover, the

end makes an analysis of some collected figures, comparing the chose countries above,

driving a reflection about social problems, especially poverty and unequal wealth distribution.

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INTRODUCTION

International trade is seen as a sign of good opportunities, without doubts, it is one the

most important topics in the economic world in the last two decades. However, everyone who

is engaged with this new challenge needs to bear in mind that it is necessary a good

knowledge about the country or area that a company is getting into. International companies

need to have a strategic mind, to be able to think global and to be adaptable to each market,

because different aspects in each country can make an entry, in an international market, very

particular. But international trade does not mean new market and opportunities for everyone

around the world; people argue that international practices and globalization are good for big

multinational companies, which are responsible for an unfair competition, giving no chances

for the smallest companies, being responsible for social problems like unemployment and

poverty, making wider the gap between the poor and rich.

Meanwhile some people see international trade as an unfair trade because the smallest

cannot compete against the biggest companies in the international market; others defend the

international practices, arguing that them as well as globalization is bringing opportunities and

development throughout world.

Based on these ideas, the goal of this project is to show International Trade from a

different perspective. It starts with an explanation on the History of International Trade

Theory, giving examples of its records on Ancient World, Mediavel Age, Modern Era,

reaching the mercantilist ideas. Following its history, the explanation pass through the

concepts of modern trade, giving examples of Absolute and Comparative Advantage concepts,

becoming more complex with the Heckscher-Ohlin theory (HO), Product Life Cycle and

Competitive Advantage of Nations, ending in the current globalised environment.

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The project will not focus on numbers neither on the capitalist aspects; instead, the

focus is the social one. It will not show, in an exhaustive way, the International Trade and the

Social Institutions concepts; they will be explained briefly, in order to understand how social

institutions can influence on international companies nowadays. The Social Institutions

presented are: economic systems (how the government and the market environment drive the

economic decisions in a country); the legal system and its main basic types (Civil, Common

and religious laws); and different types of Religion. The focus is how these institutions can

affect the international trade.

After that, the project goes through International Trade Law, showing which areas it

covers, until the Creation of the World Trade Organization (WTO), which has as objectives: to

facilitate global trade flow; to liberalise trade barriers; to provide an effective dispute

settlement mechanism; to make smaller the gap between rich and poor nations through the

international trade activities. In addition, WTO has been considered the biggest step in the

history of International Trade law.

Continuing the project, the next step is to show the characteristics of Social

Institutions in countries like France (developed), China (developing) and Mozambique (less

developed). Moreover, in order to give further information about others social and economic

indicators of each country like GDP, HDI, Minimum wages, Trade, Export, Imports and ease

of doing business.

The last part is to drive a reflection of the social role of international trade in the

world, comparing the characteristics of some social institutions and economic indicators

among the chosen countries, raising the question if the WTO is reaching its social goal to

diminish the social problems in the world. In another hand, questions are raised if the lack of

management coming from people and the social institutions are responsible for the social

problems facing the world nowadays.

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1 HISTORY OF INTERNATIONAL TRADE THEORY

Trade between countries is a practice that has been happening for a long time. There

are records of strong international trade practices since the ancient world. One of the oldest

example of these practices is the domestication of camels by the Arabians nomads to control

the long distance trade of spice and silk from the Far East. Moreover, during the Roman

Empire, the goods shipped from East Africa used to have as final destination one of the three

main Roman ports (Arsinoe, Berenice or Myos Hormos).

In the Mediavel Age, the Portuguese explorer Vasco da Gama was credited for

discovering another sea route from Europe to India.

In 1602, the Dutch East India Company, the first mega corporation with the power to

influence the government, was created. In 1799, the same company, considered the largest of

the world, went bankrupted, and one of the reasons was the free trade competition.

During the seventeenth and early eighteenth centuries, the base for trade between

countries was the mercantilist philosophy, where the main goal was to increase a nation’s

wealth by imposing government regulations, limiting imports and maximizing exports.

Among Mercantilist's ideas, one supposed that there was a fixed amount of gold and silver in

the world, for this reason these metals were used as currency during that time and the nation

that had the biggest amount of these metals was the most powerful one.

However, in the 17th century, the Scottish philosopher and economist David Hume

attacked the Mercantilism and pointed out its weak points:

• The first weakness, which was obvious, is that people do not want to live in a

country where there is abundance of gold and silver but it is scarce of goods to

buy. People want things that gold, silver or any other currency can buy;

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• The second point is that, once the currency starts circulating in a country, people

would get wealthier and would have more choices to purchase goods and services.

Once this happens, the price of purchase goes up and the country that is winning

with mercantilism politics will have a short period of advantage, because

economics and social problems will emerge and the richest trade partner will not

enjoy the benefits of the mercantilism any more.

After some time, the mercantilism model did not work out anymore and the

foundations for the Modern trade arose, getting closer of the trade model that we see

nowadays.

The first early modern theory appeared in 1776, when Adam Smith showed to the

world his concept of Absolute Advantage. Smith resumed how organizations in each nation

should specialize in what they can produce at lower cost – a country A has an absolute

advantage in the production of a good, when it takes fewer units of labour to produce the

same good than in a country B. According to Smith, for the world to benefit from absolute

advantages, a country should produce goods for which it has absolute advantage and import

the goods in which it has absolute disadvantage (Parboteeah, 2010).

Based on the Absolute Advantage concept, another theory arose later on, the

Comparative Advantage. Created by David Ricardo, this concept has been connected with the

idea of Opportunity Cost. Which means when you choose to produce one good, you have to

give up the opportunity to produce another one. Thus, each country makes a loss when it

decides to produce one good in place of another. A country has comparative advantage in

good A if it has to give up producing fewer units of good B than does another country.

Ricardo said the country should specialize not only in the products for which they have

Absolute Advantage, but also in those they have Comparative Advantage (Parboteeah, 2010).

Like this, it is possible both sides win with the trade.

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Absolute and Comparative advantages observe that the international trade is based

only in the production efficiency. Even though very limited, those two theories have begun the

reaction against the mercantilist concept, where the gain of trade was kept in only one side. In

addition, the idea that trade tend to produce more goods, giving to customers more options,

blossomed.

Ideas about trade had started to become more complex and the Heckscher-Ohlin

(HO) theory became part of the trade theory evolution. This concept says that a nation's

Comparative Advantage comes from the abundance or lack of its factors endowments. Factors

endowments are the resources that a nation needs to produce its goods and services. There are

two: capital, meaning the basics things to make a product (land, machinery, energy, buildings

and others); and labour, which means the workforce. This theory agreed with Smiths when it

said that free trade would benefit all parts and used capital and labour to explain the Ricardo’s

concept of Comparative Advantage. The weakest point in the HO Theory was the fact that it

assumed all countries had the same technology base. Nowadays, we can see it was a big

mistake.

After this, the concepts of trade started to consider technologic innovation in the

issue and became even more similar to what we can see now. The pioneer of this point of

view was Raymond Vernon, when he presented his concept, known as Product Life Cycle.

This theory showed another way how to look at production based in Absolute and

Comparative Advantages. It says there are two types of countries: type 1, which, with its

technology and workforce, tends to create and develop new products; and type 2, with its

characteristics, which tends to reproduce a product already created.

In other words, one country creates a new product technology and starts its

production; after some time, the product will become known and other countries will start to

produce the same product, but cheaper. By this stage, it does not make sense to keep paying

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higher skill and well paid labour; so, due to economic reasons and in order to increase

competitive advantage, the innovative company tends to transfer the production department to

a country with less skilled and lower paid labour (known as low-cost countries, where they

can pay less for the production of certain product). At the same time, foreign competitors in

low-cost countries are developing the skills necessary to produce a product. After some point,

these countries will start to export that product to the country that developed it. According to

Vernon, any manufactured product goes through the following stages:

1. Introduction to the home market;

2. Export sales are added to domestics sales;

3. Foreign production begins in a low-cost country;

4. Domestic country loses its competitive advantage in price innovation;

5. Foreign competition serves the domestic market with imports.

Developed in the 1980s, the New Trade theory is another form of Comparative

Advantage and explains why nations with similar resources tend to do so much trade with

each other. The New Trade theory came up with the concept of economies of scales. This

means that countries and industries can gain competitive advantage when they can spread its

overheads over the production.

Professor Michael Porter, from Harvard University, created the most recent theory,

called the Competitive Advantage of Nations. He says that Comparative Advantage is not

enough to explain the world trade, as he sees four broad areas in a nation that leads

competitive companies in different industries:

1. Firm strategy structure and rivalry: how a company runs the business and how it

competes;

2. Related and Supporting industries: the existence of suppliers and talents;

3. Demand Conditions: the demand of the home country for its production;

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4. Factor endowments: capital and labour produced in the home country or

purchased from an international market.

He developed a graphic has called the national diamond and said if an industry

wants to achieve Competitive Advantage and reach the success must be competitive in the

most of the areas above, as they are interconnected as you can see at the Diamond

Exhibit 1.1 – Michael E. Porter's Diamond Model

According to the evolution on the concepts above, the idea and the elements of

international business have changed as time went by. New elements have been introduced to

justify the trade according to the needs of the moment. At the same time, the companies had to

change their point of view, in order to adapt to new environment and try to keep themselves

competitive in a market as volatile as the international business. Therefore, trade is as old as

the existence of nations, the existence of trade as we can see nowadays is a consequence of

the world’s changes, and the main reason for these changes, on my point of view, is the

development of the technology and the international mindness.

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2 SOCIAL INSTITUTIONS: CONCEPT, TYPES AND THEIR ROLES ON

INTERNATIONAL TRADE

According to the dictionary, Social Institutions are easily defined as groups of

persons banded together for common purposes, having rights, privileges, liabilities, goals or

objectives, distinct and interdependent from those of individual members (Webster's II New

Riverside University Dictionary). From its concept, a Social Institution can be any kind of

organization, institution or right within a society; some examples are Government; Legal,

Educational, Cultural and Market institutions; Political, Religious, Intellectual, Legal and

Non-Government organizations; Communities, Services, Ethnic or Cultural groups, Extended

Family and others.

However, even though all of the social institutions will anyhow affect the business

field, three of those are to be considered more important for business and, when companies

confront the challenges of International Trade, a good understanding of them is essential.

Therefore, this project will focus on the Economic Systems, the Legal Systems and Religion.

2.1 ECONOMIC SYSTEM

Any economic system involves people (producers; employees; traders; consumers;),

institutions (government; banks; legal), rules (laws; contracts) and relationships

(employer/employee; exporter/importer; seller/buyer). And, even though production and

distribution of goods and services, land and labour availability, trade regulations are part of

the economic system set, their relations to society will be correlated to the country's political

system.

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Another way of seeing an Economic System is through the Exhibit 2.1.1, where

you'll find the four main chains of the production cycle: Manufacturing, that stands for the

transformation of materials into intermediate or/and finished goods; Regulation, which is the

way the production system is controlled and regulated (in the most of cases is the role of

governments, but international multilateral agreements are increasing); Circulation, that

refers to the activities that link the elements of the production system, including transport and

communications; and, finally, Distribution, which includes the activities that make goods and

services available to the consumer, such as retailing.

Exhibit 2.1.1 – Graphic Illustrating an Economic System

The government and the market environment will be the factor responsible for the

economic decisions and the control of production of goods in a country. One of them will lead

the economic system, which will be in charge to set up the rules of production of goods

consumed by one's society and to decide the beneficiaries of this production.

There are more than 50 economic systems sorted from ideology to coordination, but

only three of these types are contemporary and operational: capitalist systems, socialist

systems and mixed economies. However, the global economic system for mode of production

will be capitalist.

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2.1.1 Socialist or Command Economy

In theory, a socialist economy is a system that would eliminate controlling

hierarchies (only in workplaces there would be hierarchy based on technical knowledge) and

establish plans to be accomplished by the community and in which every member in the firm

would be able to vote on decisions and use would overcome profit on the production of goods

and services.

However, when the government makes the economics decisions, controls the

economy and says what good and services are necessary for the state, you have a socialist

economic system in fact. Therefore, the government owns and controls all the resources, good

examples would be countries as Cuba and North Korea.

2.1.2 Capitalist or Market Based Economy

When the market is in charge of everything, it makes decisions and controls the

production of goods and services, you have a capitalist economic system. Therefore, this

system includes private ownership, creation of goods and services for profit, accumulation of

capital, competitive markets, voluntary exchange, wage labour and hierarchy. Some examples

of capitalist economies are USA, Canada and Hong Kong.

2.1.3 Mixed Economy

As it is called, this is an economic system in which the other both are mixed, where

quantity, price and quality of goods and services are in charge of the market and the state is

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responsible for the production of some goods and services. A Mixed Economy allows private

decisions on production but the state needs to control the sectors that it consider most

important for national stability and security.

Some politics defend that the mixed economy can take the advantages of capitalism

and socialism. This is very controversial because many countries that adopted the mixed

economy are not happy with the rule of the government on sectors like Education and Health.

In addition, there are examples where the government control is a waste of money and the

levels of corruption are very high. Brazil, France and Italy are examples of mixed economies.

2.1.4 Economic Systems and International Trade

Because of the importance of who makes the economic decisions and control the

production of goods, before a company decides to engage in a foreign market, it needs to be

aware of these issues and prepared to adapt to the economic system of the country. In theory,

multinational companies are more likely to engage business in a market based or capitalist

economies, because in such economies the interference of the state is minimal and they can

operate easier with the law and drive the production according to the market.

In that context, multinational companies may consider the Index of Economic

Freedom. This index reflects the ease of doing business in a specific country and includes

indicators such as trade police, taxation, level of government control in the economy,

regulation and others. The level of economic freedom has declined over the last few years and

the competition between free market and state is increasing around the world. In addition, it

has became a topic even more important in international conferences of WTO. Especially

because of the recent economic crises, making clear the lack of responsibility and

management in developed countries like USA and some countries in the European Union.

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Companies can use the Index of Economic Freedom before start activities overseas and expect

higher difficulties as the country is less free. According to the Exhibit 2.1, it is possible to see

the areas around the world where there are the highest scores of economic freedom.

Exhibit 2.1.4.1 – World Map of Economic Freedom 2012

2.2 LEGAL SYSTEMS

Legal System is a unique system of regulations, laws and rulesthat affect the choices made by individuals in any society and that governthe ways these individuals are responsible for their decisions and actions.

(Parboteeah, 2010)

The World Bank developed a project called “Doing Business”. Its main objective is

to look into business regulations, in 183 economies, measuring 11 areas of business life cycle

(Start-up, Expansion, Operations and Insolvency) in domestic companies. This project helps

multinational companies to understand the foreign country's market and to decide the viability

of investment. Among the 11 topics (Starting Business, Registering Property, Getting Credit,

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Protecting Investors, Enforcing Contracts, Dealing with Construction Permits, Getting

Electricity, Paying Taxes, Trading across Borders, Employing Workers and Resolving

Insolvency), here are four explanations: “Starting Business” states on the entry (procedures,

time and cost) into local market, including the requirements that an international company

needs to follow once they start a company with over 50 employers; “Getting Credit” talks

about the ease of multinational companies to get credit in a foreign country, it includes the

legal rights of the lenders and borrowers with respect to transactions as well as how

bankruptcy laws facilitate lending; “Enforcing Contracts” provides the length of time and

quantity of resources necessary to resolve commercial disputes in courts; and “Employing

workers” is essential to understand the labour law of a foreign country, because at some stage,

the company will come across the need to fire and to hire workers or to reduce hours of work

to fit its action plan. It is obvious to point out the relation of these topics to a country's Legal

System itself. And the knowledge of the law can make the path of action easier to cross.

Therefore, multinational companies should be aware how a legal system is conducted

in a foreign country, as this element will affect directly business at all levels. The legal

systems of the world today are generally based in one of these three basic systems: common

law, civil law and religious law. However, the legal system of each country is shaped by its

unique history and so incorporates individual variations.

Common law is based on the concept of precedent, in other words, the lawyers will

base their arguments on past cases and try to convince the jury of their positions. The judge

tends to be impartial based on this system. The Magna Carta (an English Charter originally

issued in 1215), which limited the power of the English Kings and protected the privileges of

the feudal barons, is one of the most fundamental documents that shaped common law.

The next system is the Civil law, in which the judge determine if the referee is guilty

or not, it is not based on previous cases, instead it is based on a Constitution, a legal code

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detailed on rules and regulations. Its concept dates back to the Code of Hammurabi in

Babylon (1790 BC).

The other legal system is the religious one. Used as legal source, we can name at

least three main examples: the Jewish Halakha, which has a unalterable status and no country

is fully governed by it; the Christian Canon law, which is inspired by the word of God and is

more similar to civil law; the Islamic Sharia law (and Fiqh jurisprudence), which is based on

legal precedent and reasoning by analogy (similarity to common law) and is the most widely

used (turning itself one of the three most common legal systems in the world). Therefore, the

Islamic law is based on the Qur’an and Sunnah and, in Islamic countries, people believe they

should live according to the rules written on the sacred book, which implicates on regulated

negotiations, business conduct, contract honour and behaviour.

2.3 RELIGION

Religion is not just some dry intellectual idea but rather, your basic philosophy of life: You hear a teaching that makes sense to you, find through experience that it relates positively with your physiological make up, get a real

taste of it through practice, and adopt it as your spiritual path.(Lama Yeshe)

As for a definition itself, religion is a system of belief in and worship of a

supernatural power or god. It comes with various symbols establishing a connection between

humanity and spirituality and, sometimes, moral values. However, due to religious

differences, people are able to kill each other because of their faith.

Many countries have seen nowadays a strong growth of religion popularity: Islam in

many parts of the world, Protestantism in Latin America, Buddhism in Asia and Hinduism in

India. Even countries like Russia and China, where religion once was banned, have shown

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increases of popularity on religion. Driving the way that people do business, how they dress

up, what they drink and eat and how they act in specific situations, Religion affects directly

multinational companies; an example of that would be religious holidays, such as Ramadan

for Islamic countries (for example, Pakistan) and Easter Holidays for Catholic countries,

when productivity usually slows down.

For this reason, it is very important to analyse the impact of Religion on the

international market. In order to do that, six most popular religions of the world will be

presented briefly.

2.3.1 Buddhism

Originated more than 2,500 years ago, from the Siddhartha Gautama's personal quest

for Enlightenment, Buddhism is a tradition that focuses on personal spiritual development,

which the path to achieve Enlightenment is through the practice of morality, meditation and

wisdom, where compassion is natural and important and nothing is permanent. Therefore,

Buddhists strive for a deep insight into the true nature of life and do not worship gods or

deities.

Considering that Buddhism has over 376 million followers worldwide (it is very

popular in Europe and the USA, although, most of its followers are funded in countries such

as Cambodia, China, Japan, Korea, Laos, Sri Lanka and Thailand) and around 151.816

Buddhists in Britain (according to the last census), companies that set up business in a

Buddhist society or have Buddhist employees should be aware that there is the believe that

everything in life is interconnected, that the benefit is for everyone and that laziness is

condemned. They should emphasize on teamwork, ethics and transparency (clear guidelines).

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2.3.2 Christianity

Christianity is a religion based on the birth, life, death and resurrection of Jesus

Christ (the son of God Himself), who was sent to Earth by His Father to save humanity from

its own sin. One of its most important concepts is that Jesus gave up his life on the cross

(crucifixion) and arose from the dead on the third day. There are three majors groups:

Catholic, Orthodox, and Protestant. Even though Christianity goes against the human greed

and selfishness, Christians (especially Protestants) usually emphasize on hard work and

wealth accumulation to be able to help others. However, they are stimulated to spend their

money on things they don't need.

Christianity is the most popular religion in the world (especially in Western nations)

with over 2 billion followers. Because of that, companies set up in mainly Catholic or

Protestant countries should be aware of the Christian calendar and respect specific rules in

Christianity, such as for the Seventh-day Adventists, who will observe the Sabbath on the

seventh day of the week, on which they will not work or participate of any activity outside the

church from Friday sunset to Saturday sunset.

2.3.3 Hinduism

In some ways, Hinduism is the oldest living religion in the world, or at least its

elements came from many thousands of years ago. Unlike most other religions, Hinduism has

no single founder, no single scripture, and no commonly agreed set of teachings. Throughout

its extensive history, there have been many key figures teaching different philosophies and

writing different books. For these reasons, writers often refer to Hinduism as 'a way of life' or

'a family of religions' rather than a single religion. It has divided in a caste system, which is a

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division of the Indian society in four groups according to their wealth accumulation; recently

studies say that 70% of the Hindus belong to the lowest caste and live in poverty. Hindus

generally consider cows as sacred animals and do not consume steak; most of them are

vegetarian.

Hinduism is the religion of the majority of people in India and Nepal. It also exists

among significant populations outside of the sub-continent and has over 900 million adherents

worldwide. Therefore, a multinational company in a Hindu country needs to be aware about

the caste system; for example, if someone from a higher caste is to be subordinated to a lower

caste “member”, it would be a reason for internal conflict). Food companies specially, should

pay attention to the food service to employees and catering to partners and, giving them a

vegetarian choice and avoiding any kind of embarrassment or shock of culture.

Even though very hard, few multinational companies are innovating and trying to

give a change of better life for people who were born in the lowest caste. The software

company Infosys, for example, created a trainee program focused on the lowest castes. They

work with these people for some months, giving then experience in the software and making

easier their acceptance into the Indian employment market.

2.3.4 Islam

The word Islam means 'submission to the will of God'. People who follow the Islam

are called Muslins and they believe in one god (Allah). It is possible to find Muslins in many

different countries, especially in European countries for reasons of immigration, but the main

muslin regions are in Africa, Middle East, China and the Far East. These people are strongly

influenced by the Islam norms socially and economically. Their law is in a book called Qur’an

and pillars of their religion is the declaration of faith, praying five times a day, giving money

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to charity, fasting and pilgrimage to Mecca at least once in their lives.

As the Islam is the second largest religion in the world, with over 1 billion followers

(the last UK census states that there are 1,591,000 Muslims in the UK, about 2.7% of the

population), there are implications for foreign companies in many levels; if a foreign

company wants to set up business in a Muslin country, it has to give support for their prayers

daily and be moderated during the Ramadan (the month of fast). They do not condemn

accumulation of wealth, but they are concern about justice and fairness. The biggest challenge

for foreign companies, mainly financial institutions, is how to find creative ways to deal with

its particular rules for commercial transactions, especially the one that condemn giving or

receiving interests.

2.3.5 Judaism

Judaism was originated in the Middle East over 3500 years ago and has no founder

or leader. Jewish people believe there is only one God with whom they have a pact; they

follow the God’s law written on their most important document called Torah. The Jewish

people were massacred throughout world history, especially on events like the Holocaust

(movement to eliminate the Jewish people from Europe) and the Zionism (movement to create

the state of Israel).

According to information published by The Jewish People Policy Planning Institute,

there were around 13.1 million Jewish people in the world in 2007, most residing in the USA

and Israel. The census says that 267,000 people in UK said that their religious identity was

Jewish, about 0.5% of the population. There are many people who identify themselves as

Jewish without necessarily believing in, or observing, any Jewish law.

Judaism has straight laws about business, and companies that wish to operate in

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Jewish territory must to be aware of their rules, one example of this is the Sabbath, time

where they do not work or do business trips, which goes from Friday sundown until the

sundown on Saturday. In addition, forbidden foods need to be reminded once most of them do

not eat pork. The best point for companies is the Jewish conception of work: they are

considered very hard-working people and they appreciate wealth very much.

2.3.6 Confucianism

The core of Confucianism is humanism and emphasis on moral virtues and

importance of political involvements to make changes in the world. The Asian countries are

strongly influenced by the Confucianism. It emphasis hierarchy, piety and order, its

management system is based on loyalty and relationships, giving more importance to a group

and leaving the individual as a second plan. Specialists on International Trade field argue that

its principles were crucial to the development of some Asians countries like Japan, South

Korea and Singapore.

Multinational companies must to be aware of its network and relationship between

people and companies. It is most known as Guanxi, but it can change the name according to

the country. The term expresses an obligation of one party to the other, built over time by the

reciprocity of social exchanges and favours, and it can be spent and exhausted between the

two parties.

Another aspect that is very important to International companies is the intellectual

property; while Western nations have a legal system to protect rights, under the Confucianism,

it has seen as one element to improve the society.

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3 INTERNATIONAL TRADE LAW AND WORLD TRADE ORGANIZATION

International trade as a whole involves many areas of activities: Customs, Supply

Chain, Logistics and Distribution, Marketing, Financial area and so on. The next paragraph

will talk about of International Trade Law, as it has been considered fundamental for

international organizations in important areas, and its influences to the creation of the World

Trade Organization (WTO).

International Trade Law is the body of laws that governs international sale

transactions, that includes the appropriate rules and customs to facilitate trade between

countries, but it has often been used in a wrong way in transactions between private sectors.

Its objective is to create a fair and transparent environment for companies to compete each

other in an international scenario and its source derives from two medieval laws, lex

mercatoria (which means “the law for merchants on land”) and lex maritime (meaning “the

law for merchants on sea”). It is also based on theories of economic liberalism from the 18ths

century developed first in Europe than is United States.

International Trade Law is now a very important part of the academic works and is

under study in many universities across the world, covering a wide range of international

business relation, it has recognized as an independent field of study as most countries have

done international practices and have become members of the World Trade Organization

(WTO).

On its basic concept, it covers areas such as: company law, bills of exchange,

maritime law, insurance law and so on. However, with the globalization, the concept of

International Trade Law became wider and nowadays it covers:

• International Trade Law (regulates international trading relationships);

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• International Investment Law (regulates international direct investment activities);

• International Monetary and Finance Law (regulates areas such as foreign

exchange, international credit finance, foreign exchange settlement and foreign

exchange system);

• International Tax Law (regulates taxation jurisdiction, international double

taxation, foreign tax, etc.);

• International Organization Law (regulates the relationship between the

international organizations and their members);

• International Dispute Resolution (regulates the mechanisms of international

disputes resolution);

• Domestic Law on business resolution (regulates import and export control,

intellectual property, unfair competition, monopolies, etc.).

The modern shape of the International Trade Law is not that old, it began after the

second war when was created the GATT (General Agreement on Tariffs and Trade), at this

time, industrialized countries started to work together to set up rules to reduce trade barriers,

minimize tariffs, regulate international monetary system and liberalize the international trade.

They aimed a post war economic recovery. Years later, in January 1995, in a GATT’s

conference called Uruguay Round, the World Trade Organization (WTO) was created. It is a

formal international organization to regulate trade and it is considered the biggest step in the

history of International Trade Law. Through its objectives of facilitating global trade flow,

liberalising trade barriers, providing an effective dispute settlement mechanism, aiming to

make smaller the gap between rich and poor nations through the international trade, WTO

contains three important basic principles in the context of International Trade Law:

1. Most-favoured Nation Principle (MFN):

Under the WTO agreements, the parties cannot discriminate their trading partners. 25

If one country grants another one a special favour, a lower customs duty rate for

one specific country products, for example, it has to do the same for all other

WTO members.

2. National Treatment Principle:

Imported and local products in a specific country should be treated equally. The

same should apply to foreign and domestic services, trademarks, copyrights and

patents. In other words, this principle means giving others the same treatment as

one’s own nationals.

3. Reciprocity Principle:

Negotiations are encouraged between contracting parties on a reciprocal and

mutually advantageous basis, directed towards the reduction of tariffs and other

charges on imports and exports.

The Doha Round is the latest round of trade negotiations among the WTO members.

Its aim is to achieve a greater reform of the international trading system through the

introduction of lower trade barriers and revised trade rules and it covers about 20 areas of

international trade, among then agriculture, services and intellectual property. It also has as

fundamental objective to improve the trading prospects of developing countries and how these

countries has facing to implementing WTO agreements

WTO scope is to provide a framework for administration and implementation of

agreements; to be a forum for negotiations; to be review mechanism of trade policy; and to

promote coherence among economics policies of the countries members. It allows the creation

of customs unions and free trade areas as an exception to the MFN principle; this exception is

granted if it facilitates trade practices in the free trade area, not raising barriers to trade of

others contracting parties. Examples of free trade areas are European Union, NAFTA, and

MERCOSUR.

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WTO has been up on the top of polemic topics since its creation: the poorest nations

accuse the richest nations to manipulate the rules and take advantage for themselves and

multinationals companies. Been the responsible for wider the gap between rich and poor in

developing countries. The picture below shows the WTO structure: its Councils and what

each one is responsible for.

Exhibit 3.1 – Structure of World Trade Organization

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4 FRANCE, CHINA AND MOZAMBIQUE: SOCIAL INSTITUTIONS AND

ECONOMIC INDICATORS

Every time social institutions and economic indicators are a subject in business

discussions, there is consensus that wealth is not equally distributed throughout the world and

not even nationwide individually. Even though big organisations, such as WTO, have tried to

balance the equation, it is possible to point out that is far from achieving its goal, as some

countries have shown economic development and their social indicators remained the same.

France, China and Mozambique are the three countries chosen to this comparative reflection

because they are WTO members and they present significant differences in their indicators.

The rank on Ease of Doing Business was used to put them in order.

4.1 FRANCE

France is one of the world's leading economic power and the social institutions affect

directly its economic performance. It has a Mixed Economic System and, despite reforms

over the last few years that have reduced the government control, French government still has

a strong power over the economy and it owns shares in the biggest French companies.

The French legal system is based entirely on written Civil Law. The system of

Administrative Law was imposed by Napoleon and for this reason is called “Napoleonic

code”. It governs all branches of French law and includes the civil, penal and fiscal codes.

France is a country well known for its freedom of religion and thoughts and it has a

large number of religions sharing the same territory. The most popular religions in France are

Christianity, Judaism and Islam.

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The table 4.1 presents French economic indicators:

Population 59278Wealth per Capita 94557Share of the World Wealth (%) 3.49GDP ($) $ 2.808 trillionsGDP per Capita ($) 43.820Share of The World GDP (%) 3Gini Coefficient 32.7HDI 0.884Minimum Wage ($) 1.398.37 Euros / 1.850,70 USDExports ($) $ 512.2 billionsImports ($) $ 588.4 billionsEase of Doing Business rank 29th

France has a quite diversified economy, which its GDP by sectors is: 2.1% on

agriculture, 19% on industry and 78.9% on services. There is deficit on its balance of trade,

even though they keep their economy on a high rank. The minimum wage is set on a good

level, providing families to have a good life standard.

4.2 CHINA

China used to have a Communist Economic System, but things have changed over

the past years and China’s leaders call their economic system "Market Socialism". However,

specialists in the economic field have also been called it "State Capitalism" or a "Market-

oriented Mixed Economy”.

The legal system in China is based on the Civil Law (closer to the model adopted in

some European countries like Germany and France), but it was influenced by the former

Soviet Union and it also has elements of the Chinese law. Chinese Legal System has changed

since it decided to open its economy in 1979; one example is that they still have incorporated

elements of foreign contract law on its code.

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Like the Legal and Economic system, it is difficult to define the Chinese Religious

System. Although, it is said that Chinese folk, Confucianism, Taoism and Buddhism have

influenced the religion outlook of Chinese people.

These are the economic indicators in China (table 4.2):

Population 1251788Wealth per Capita 1.1267Share of the World Wealth (%) 8.77GDP ($) $ 7.301 trillionsGDP per Capita ($) 5,184Share of The World GDP (%) 10.30Gini Coefficient 41.5HDI 0.687Minimum Wage set up according to the government.Exports ($) $ 1.581 trillionsImports ($) $ 1.327 trillionsEase of Doing Business rank 91th

China has the largest population in the world and the fastest growing economy in the

world (showing an economic growth of nearly 10% every year for the past 30 years and no

signs of slowing down).

Chinese GDP is the second biggest one in the world and its sectors are divided as

follow: 9.6% on agriculture, 46.8% on industry and 43.6% on services. There is trade surplus

on its balance of trade, and even though there is high productivity, the purchasing power is

considered very low.

4.3 MOZAMBIQUE

The Mozambique economy has developed since 1992, but the country is still one of

the poorest and underdeveloped around the world. It has an inefficient socialist economic

policies and lack of government, leaving it strongly dependent on external assistance. Its legal

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system is a mix of Portuguese Civil Law, Islamic Law, and Customary Law (traditional

common rule or practice that has become an intrinsic part of the accepted and expected

conduct in a community, profession, or trade and is treated as a legal requirement).

Mozambique religion is a mixed of Christianity, Islam and a few other indigenous

religions. However, about 25% of the total population of Mozambique do not have any

particular faith.

Economic indicators show that Mozambique is still a country that has a lot to

develop, as shown on table 4.3:

Population 17911Wealth per Capita ($) 2820Share of the World Wealth (%) 0.03GDP $ 21.81 billionGDP per Capita (%) 1,000Share of The World GDP (%) 0.04Gini Coefficient 47.3HDI 0.280Minimum Wage 5.320 Meticais / 196,48 USDExports ($) $ 2.0677 billionsImports ($) $ 2.881 billionsEase of Doing Business rank 139th

Most of the population remains below the poverty line (around 70%), as the

minimum wage is very low. The GDP for services is the largest sector (44.8%), followed by

agriculture (28.8%) and industry (26.4%). There is deficit on the balance of trade and the

Share of the World Wealth is almost insignificant.

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FINAL CONSIDERATIONS

In a global point of view, it is easy to see that the world wealth has not been

distributed equally. This problem started with the Mercantilism, it went through the years

affecting different models and concepts of International trade, ending up with the

globalization. Moreover, it seems to me that to share the world’s wealth or even the wealth in

a country is the biggest problem of the economic world. Even the social institutions, that have

worked out together for common goals, with its major aspects like Economic, Legal and

Religious systems, are not being able to change this scenario. They only give a country

characteristics, identity or even directions to work out in a consistent way.

An economic system is not a guarantee of a good wealth distribution, and China is a

good example. The country was a communist economy, it has opened its doors to the

international market and now calls themselves as Market Socialism. Currently, the Chinese

nation (the biggest population of the world) is the second biggest economy in the world with a

huge GDP, good import and export levels, but it still has serious HDI problems, low wages

and high gini coefficient (which means that the gap between rich and poor is very big).

The legal system cannot to make a nation equal. Mozambique could be a good

example of a country where there are 3 different laws working out at the same time and it is

considered one of the poorest nation of the world, taking only 0.03% of the world wealth and

one of the highest gini coefficient in the world.

One religion cannot be considered as a sign of wealth distribution, and, in a country

like France, well known for its religious freedom (mixing, in one nation, three of the most

popular religions of the world), people can live in a common land and have a high HDI, high

wages and a small gap between rich and poor people.

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All evidences show that Social Institutions influence on International Trade, but they

still cannot guarantee the minimum expected by the citizens of a nation. The richest nations

bet the International Trade could do it, especially when WTO was created, as the Marrakesh

agreement stated:

Recognizing further that there is a need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth of international trade commensurate with the needs of their economic development;

Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the eliminations of discriminatory treatment in international trade relations.

WTO has the principles of non-discrimination, national treatment and reciprocity, the

goal to reduce trade barriers, and the aim to combat the poverty in the countries members. The

principle of non-discrimination was accepted; countries members with different social

institutions and characteristics such France, Mozambique and China can be part of the same

trade organization and do business with each other. However, the Preamble I of the Marrakesh

agreement establishing the WTO and the last speech of the Doha round seem that it is not

working as well as planned. The less developed and the developing countries have waited for

the economic development, wealth distribution and the poverty alleviation granted on the

Doha Round.

Statistics of WTO have shown that the world is getting equal and developed. If it is

true, where is the problem? Is it with International Trade and its irreversible shape of

globalization? Or, alternatively, the problem is with the Nations and their Social Institutions

that benefit a small percentage of the population, making the goal to share wealth equally one

of the hardest issues around the world?

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REFERENCE LIST

Books References:

Cullen, John B, & Parboteeah, K. Praveen, 2010, International Business strategy and Multinational Company, 1st edn, Routledge, Madson Ave, New York.

MacDonnell, C. & McEvoy, B, 2003, International Trade: Policy and Practice, 2sec edn, Institute of International trade of Ireland, Merrion Square, Ireland.

Wikis References:

List of Countries by GDP per capita, Wiki 2012, 'List of Countries by GDP per capita', wiki article, 23 February, viewed 25 February 2012, <http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita >

List of Countries by Income equality, Wiki 2012, 'List of Countries by Income Equality', wiki article, 22 February, viewed 25 February 2012, < http://en.wikipedia.org/wiki/List_of_countries_by_income_equality >

Confucianism, Wiki 2012, 'Confucianism', wiki article, 15 January, viewed 20 January 2012< http://en.wikipedia.org/wiki/Confucianism >

Religion, Wiki 2012, ' History', wiki article, 06 January, viewed 20 January 2012< http://en.wikipedia.org/w/index.php?title=Religion&action=history >

Web Sites References:

World Trade Organization 2012, World Trade Organization, viewed 05 January 2012, <http://www.wto.org/english/docs_e/legal_e/marrakesh_decl_e.htm >

Business Dictionary 2012, Business Dictionary, viewed 10 January 2012< http://www.businessdictionary.com/definition/customary-law.html#ixzz1n4fLitYv >

Doing Business Dictionary 2012, Doing Business, viewed 02 January 2012< http://www.doingbusiness.org/ >

Kwintessential 2010, Kwintessential, viewed 02 January 2012< http://www.kwintessential.co.uk/etiquette/china-guanxi >

BBC religions 2012, BBC religions, viewed 05 January 2012< http://www.bbc.co.uk/religion/religions/ >

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Exhibits References:

Exhibit 1.1: The Competitive advantage of nations, Michael E. Porter, (1990)Exhibit 2.1.1: Economic Systems (1998)Exhibit 2.1.4.1: Index of Economic Freedom, Meu04167 (2012)Exhibit 3.1: WTO organization chart (2012)

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