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INTERNATIONAL TRADE

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Page 1: 6 International Trade

INTERNATIONAL TRADE

Page 2: 6 International Trade

INTER TRADE - definition

The process where countries buy and sell products and services from and to each other

All countries engage in this trade They have to….. Because they cannot

produce everything they need e.g. the UK imports 50% of its food,

Japan imports all of its oil

Page 3: 6 International Trade

WHY DO COUNTRIES TRADE?

CLIMATE PROBLEMS LACK OF RESOURCES POOR QUALITY RESOURCES INABILITY TO SWITCH RESOURCES POOR TECHNOLOGY HIGH PRODUCTION COSTS TOO HIGH A DEMAND POLITICAL FACTORS & HISTORY

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BENEFITS OF INTER TRADE

Page 5: 6 International Trade

TRADE IS ESSENTIAL AND IT PROVIDES MANY BENEFITS

THE MAJOR BENEFIT IS SPECIALISATION this is where a country concentrates on PRODUCING the products and services it is best at producing i.e. it specialises

COUNTRIES WILL SPECIALISE IN THOSE PRODUCTS & SERVICES WHERE THEY ARE EFFICIENT

Page 6: 6 International Trade

COMPARATIVE COSTS

THIS IS THE THEORY THAT SHOWS WHY SPECIALISATION RESULTS IN BENEFITS FOR A COUNTRY

TECHNOLOGY (1/2) TEXTILES (1/2)

UK 500 100 CHINA 100 500 TWP = 600 600

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COMPARATIVE COSTS

THE UK IS 5x MORE EFFICIENT THAN CHINA IN MAKING TECHNOLOGY

BUT CHINA IS 5x MORE EFFICIENT THAN UK IN MAKING TEXTILES

UK SHOULD THEREFORE SPECIALISE IN MAKING TECHNOLGY

CHINA SHOULD SPECIALISE IN MAKING TEXTILES

Page 8: 6 International Trade

COMPARATIVE COSTS

AFTER SPECIALISATION TECHNOLGY (1) TEXTILES(1) UK 1,000 0CHINA 0 1,000 TWP = 1,000 1,000NET GAIN OF IN PRODUCTION OF 400

TECH AND 400 TEXT

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COMPARATIVE COSTS

THIS SURPLUS CAN THEN BE SWOPPED (EXCHANGED) BETWEEN THE 2 COUNTRIES

AS A RESULT BOTH OF THEM WILL THEN BE BETTER OFF THAN THEY WERE BEFORE THEY SPECIALISED i.e. THEIR LIVING STANDARDS WILL HAVE IMPROVED

BUT THE SURPLUS MUST BE EXCHANGED FOR THEM BOTH TO BENEFIT

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COMPARATIVE COSTS LET US LOOK AT THE SITUATION AFTER

TRADE HAS TAKEN PLACE i.e. after exchange WE HAVE TO ASSUME A RATE OF

EXCHANGE e.g. 1 technology = 2 textiles LETS ASSUME UK SELLS 200 tech TO CHINA UK WILL THEN BE LEFT WITH 800 tech CHINA GETS 2OO tech, BUT MUST GIVE 400

text TO UK UK WILL BE LEFT WITH 400 text

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COMPARATIVE COSTS

AFTER TRADE AND EXCHANGE TECHNOLOGY TEXTILES UK 800 (300+) 400 (300+)CHINA 200 (100+) 600 (100+) TWP = 1,000 1,000

THE EXCHANGE RATE FAVOURS THE UK, SO THEY GAIN MORE

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COMPARATIVE COSTS - more benefits

Page 13: 6 International Trade

COMPARATIVE COSTS - more benefits

THE KEY BENEFITS OF THE LAW OF CC MORE EFFICIENT PRODUCTION - it is

cheaper to produce the products and services e.g China can produce textiles more cheaply than the UK

HIGHER TOTAL PRODUCTION - more goods and services can be produced by each country and in the world as a whole i.e TWP increases

Page 14: 6 International Trade

COMPARATIVE COSTS

CONSUMERS HAVE MORE CHOICE & A WIDER VARIETY OF GOODS & SERVICES TO CHOOSE FROM e.g. the UK can buy rice

THE KEY POINT IS THAT THE GAINS ARISE BECAUSE THERE ARE DIFFERENCES IN THE RELATIVE COSTS OF PRODUCTION e.g. the UK can produce technology cheaper than China - on a ratio of 5-1

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COMPARATIVE COSTS

THERE ARE GAINS TO BE MADE EVEN IF THE UK WAS BETTER AT BOTH PRODUCTS!!!

TECHNOLOGY(1/2) TEXTILES(1/2)

UK 600 300 CHINA 300 250 TWP: 900 550

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COMPARATIVE COSTS

THE UK IS MORE EFFICIENT IN Tech (2:1) AND IN Text ( 1.2 :1) BUT CHINA HAS LESS OF A

DISADVANTAGE IN Textiles i.e. the UK has a relative advantage in Tech

SO, UK SHOULD SPECIALISE IN IN Tech and China should specialise in Text

Page 17: 6 International Trade

COMPARATIVE COSTS

AFTER SPECIALISATION TECHNOLOGY TEXTILES UK 1,200 0 CHINA 0 500 TWP: 1,200 (300+) 500 (-

50)

EVEN HERE THERE IS A GAIN, ALTHOUGH SOME LOSS OF TEXTILE PRODUCTION

IF TECHOLOGY IS VALUED MORE HIGHLY IN THE WORLD (e.g. oil, computers, aircraft) THEN THERE HAS BEEN AN OVERALL GAIN

Page 18: 6 International Trade

COMPARATIVE COSTS

THERE ARE PROBLEMS WITH THE THEORY OF CC

1. IT IGNORES TRANSPORT COSTS e.g. cost of delivery of products

2. COUNTRIES USE IMPORT CONTROLS e.g. the EU imposes a ban on China textiles

3. IT ASSUMES PERFECT COMPETITION e.g. no one business is powerful and can dictate too the others – a monopoly like Microsoft

Page 19: 6 International Trade

COMPARATIVE COSTS - more benefits

THE KEY BENEFITS OF THE LAW OF CC MORE EFFICIENT PRODUCTION - it is

cheaper to produce the products and services e.g China can produce textiles more cheaply than the UK

HIGHER TOTAL PRODUCTION - more goods and services can be produced by each country and in the world as a whole i.e TWP increases

Page 20: 6 International Trade

IT - MORE BENEFITS

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IT - more benefits

COUNTRIES BENEFIT FROM LARGE-SCALE PRODUCTION - if countries specialise they can produce larger quantities - this results in economies of scale e.g. discounts from bulk buying - as a result costs per unit are lower

COMPETITION INCREASES – more trade means more competition, this encourages businesses to be efficient and encourages businesses to use technology

Page 22: 6 International Trade

IT - more benefits

TRADE ENCOURAGES POLITICAL LINKS e.g. the EU and ASEAN

INCREASED TRADE MEANS MORE CONNECTIONS BETWEEN COUNTRIES e.g. people, culture, opinions, attitudes – this encourages formal links between countries

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IT - more benefits IT GENERATES VALUABLE FOREIGN

EXCHANGE e.g. dollars and yen COUNTRIES CAN THEN USE THESE

CURRENCIES TO PURCHASE THE IMPORTS THEY NEED

OR USE THE MONEY FOR OVERSEAS INVESTMENT e.g. the US investing in China

Page 24: 6 International Trade

IT - more benefits

AS CAN BE SEEN THERE ARE MANY BENEFITS OF IT

BUT FOR THE BENFITS TO BE GAINED THERE MUST BE FREE TRADE

HERE COUNTRIES WILL NOT USE TRADE CONTROLS TO PROTECT THEIR ECONOMIES FROM CHEAPER IMPORTS

HOWEVER, THE PRESSURE TO PROTECT IS INTENSE

Page 25: 6 International Trade

WHY & HOW DO COUNTRIES PROTECT THEIR ECONOMIES?

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PROTECTION

PREVENT UNEMPLOYMENT - North of UK PROTECT INFANT IDUSTRIES - software ENCOURAGE STRATEGIC GOODS

PRODUCTION - nuclear weapons PROMOTE POLITICAL TIES - EU PROTECT RURAL AREAS -farming areas ALLOW INDUSTRIES TO DECLINE SLOWLY

e.g. shipbuilding

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PROTECTION

PREVENT DUMPING - textiles RETALIATE AGAINST OTHER COUNTRIES

WHO USE CONTROLS WHEN UNEMPLOYMENT IS HIGH

GOVERNMENTS ARE UNDER MUCH PRESSURE TO PROTECT e.g. from the media, unions, consumers, the opposition

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PROTECTION

REMEMBER: ANY PROTECTION CARRIES A COST :

LOST MARKETS LOST SALES LOWER PROFITS LOWER INCOMES LOWER LIVING STANDARDS RETALIATION

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PROTECTION

DESPITE THE BENEFITS OF FREE TRADE COUNTRIES DO PROTECT THEMSELVES e.g. the EU via the common external tariff (cet) - this is a tax imposed on imports into the EU from non EU countries

THE KEY REASON FOR THIS IS POLITICAL - by joining together they are stronger politically and economically e.g. the 27 members of the EU are very powerful

Page 30: 6 International Trade

TYPES OF TRADE CONTROLS

CUSTOMS DUTIES (or tariffs) - these are taxes imposed on imports e.g. 5% added to the normal imported price or £200 per tonne

SUBSIDIES - sums of money given to an exporter which enables them to keep their prices lower

QUOTAS - physical limits on the number of goods allowed into the country e.g. 250,000 cars

4. EMBARGOS - a complete ban on exporting or importing goods from certain countries e.g. IRAQ

Page 31: 6 International Trade

PROTECTION

BECAUSE OF THE BENEFITS OF IT AND FREE TRADE MANY COUNTRIES ARE IN FAVOUR OF SUCH TRADE

BUT, THESE ARE OFTEN THE RICH AND POWERFUL ONES

Page 32: 6 International Trade

THE GATT & THE WTO

“Free trade, one of the greatest blessings which a government can

confer on a people, is in almost every country unpopular”

British historian- Thomas Macaulay (1824)

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GATT

ESTABLISHED IN 1948 – The General Agreement on Tariffs and Trade

AIMS – to encourage free trade, to remove trade controls set up in 1930’s, to prevent new trade barriers being set up, to prevent discrimination in IT

OPERATED VIA NEGOTIATING ROUNDS - 8 rounds e.g. Kennedy round 1964-67, Tokyo round 1973-79, Uruguay round 1986- 94

Page 34: 6 International Trade

WTO – World Trade Organisation

SET UP 1/1/95 – based in Geneva, Switzerland

REPLACED GATT 148 COUNTRIES – China joined 2001 MEMBERS AGREE TO NON DISCRIMINIATION

IN TRADE – they must sign, to guarantee that they will treat imports fairly and consistently

MEMBERS CAN BRING DISPUTES TO WTO TO BE SOLVED – WTO CAN THEN USE ITS TEETH e.g. allows retaliation

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WTO – functions/purpose

Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for

developing countries Cooperation with other international

organizations e.g. World Bank, IMF

Page 36: 6 International Trade

WTO – recent agreements

1997 - Telecommunications services (69 countries)

1997 – Tariff free trade in information technology products (40 countries)

1997 – Financial services – banking, insurance (70 countries)

2000 – new talks on agriculture – in 2001 Doha, Qatar – 2014: still talking/negotiating!!

Page 37: 6 International Trade

WTO

Doha – e.g. discussed agriculture, anti dumping, subsidies, investment, competition, government procurement, intellectual property

BUT STILL GOING ON!!!

Page 38: 6 International Trade

WTO- evaluation SOME KEY BENEFITS Large organisation – 148 members, 191

countries in the world! The rest are observer governments e.g.

Afghanistan, Syria, Iran Has a democratic structure Beneficial aims e.g. to promote free

trade, to remove trade barriers, to prevent trade discrimination

Page 39: 6 International Trade

WTO - benefits Focus on developing countries – 2/3 of

members are developing countries – they see trade as a method of growth and economic development – WTO provides training and legal assistance to less developed members

WTO has teeth – if complainant country doesn’t confirm to WTO decision retaliation is allowed

What would happen to free trade principles if there was no WTO?

Page 40: 6 International Trade

WTO – problems? Rich countries dominate the WTO -

power of USA, UK etc - can influence smaller members

Power of the large rich nations e.g. they can afford to have large teams of negotiators based in Geneva full time, they can also draft in specialists/experts when needed

Agriculture is HEAVILY SLANTED TOWARDS RICH MEMBERS

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WTO – problems?

e.g. OECD countries spend £billions subsidising agriculture e.g. EU and Japan heavily subside their farmers

Large governments have full time teams at WTO and fly in experts on particular issues e.g. the least developed members have few or no representatives in Geneva

Page 42: 6 International Trade

WTO – problems?

Bureaucracy - too many meetings often at same time, not enough representatives for poor countries

Objectives often diluted as time goes by

Page 43: 6 International Trade

METHODS OF ENTERING INTERNATIONAL MARKETS

Looks at the main methods by which a biz can enter another

country’s market

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ENTERING INTERNATIONAL MARKETS

In order to expand and grow businesses will have to find, develop and exploit new markets

Especially if the domestic market has reached or ism nearing saturation (maturity) e.g. MacDonald's in USA

As a result businesses will move into international markets

Page 45: 6 International Trade

ENTERING INTERNATIONAL MARKETS

Most companies at some point in their life cycle will have to enter new markets

WHY? This is because their existing markets may be saturated, the products or services may be old, out of fashion or technologically inferior, there may be more sales and profit potential in the new markets….. There are in fact many reasons

Page 46: 6 International Trade

ENTERING INTERNATIONAL MARKETS

THE KEY REASONS: if future sales and profit potential is high, where there is limited competition, where the costs of entry are low, where the entry barriers are low

Limited Competition – if there is little competition it will be easier to enter the new market

Entry Costs – if entry costs are low it will be easier to enter e.g. the financial costs of entry

Page 47: 6 International Trade

ENTERING INTERNATIONAL MARKETS

Entry Barriers – there may be a number of barriers e.g. market share of the leader, market share of the key market leaders, economies of scale, planning permission, brand or image power, patents, copyright, trademarks, technical knowledge, contrived (collusion), geographical, political, legal (public sector)

Page 48: 6 International Trade

ENTERING INTERNATIONAL MARKETS - Aims

Diversification - geographical Sales Profit Market share Resource availability and cost Exploit stage of industrial development Exploit political, economic, cultural, social

and demographic factors

Page 49: 6 International Trade

ENTERING INTERNATIONAL MARKETS – Direct Methods

Direct Exporting Biz exports goods directly to the new

market e.g. UK exporting goods to China Biz has complete control……… but…… Key issues – finding the customer,

method of delivery, transport costs, may need large marketing budget to obtain customers e.g. overseas sales team

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ENTERING INTERNATIONAL MARKETS - Direct Methods

Overseas Import Agent Person/company, in overseas country, acts

as sales agent, often on an exclusive basis Promotes biz goods to buyers, gets orders,

collects market information, represents biz at trade shows, assists biz employees when they visit, advises about government regulations, commission on value of sales

Page 51: 6 International Trade

ENTERING INTERNATIONAL MARKETS - Direct Methods

Key issues – how good is the agent, are they honest/reliable, would need references, visit them, who else do they work for, use for a trial period first

Agent does not have title to the goods Exporter receives order from agent and

ships goods directly to the buyer Exporter has more control than when

selling through a distributor, has control over price

Page 52: 6 International Trade

ENTERING INTERNATIONAL MARKETS - Direct Methods

Foreign Distributor (Import Merchant) Located in overseas market, buys goods

from abroad for re-sale in home market Buys goods outright, has risk of reselling

them Given exclusive right to sell the goods Key issues - select with great caution, set

out their rights/duties in a written agreement, less control and profit than with import agent, may be little contact with customers

Page 53: 6 International Trade

ENTERING INTERNATIONAL MARKETS – Indirect Methods

Export Merchant A UK trading company, buys the firm's

goods outright and has risk of reselling them profitably abroad

Merchant usually specializes in a particular line of products and/or in a particular geographical market area

Sometime it sells the goods with the original supplier's labels or puts on its own label

Page 54: 6 International Trade

ENTERING INTERNATIONAL MARKETS - Indirect Methods

Key issues – little contact with customers, less control, less profit

Export Agent UK company, acts for UK firms,

represents a number of non-competing businesses

Receives commission, doesn’t become owner of goods

Page 55: 6 International Trade

ENTERING INTERNATIONAL MARKETS - Indirect Methods

Functions - appraise export potential for UK firms products, advertise them abroad, look for foreign buyers, obtain export orders, advise/arrange doc’s, shipping/insurance

Resident Foreign Buying Agent UK based biz, acts as buying agent for

overseas firms, gets commission on goods bought

Overseas customer asks agent for products, agent finds them, asks for quotes from different local suppliers

Page 56: 6 International Trade

ENTERING INTERNATIONAL MARKETS – Other Methods

Licensing and Joint Ventures May be can’t export due to import barriers,

low-price foreign competition, transport costs, high production costs, etc

So, license local firm to manufacture and sell in the overseas country, they pay a royalty to UK biz for each unit manufactured locally

May have a joint venture with a local firm and enter into partnership to manufacture and market the product together

Page 57: 6 International Trade

ENTERING INTERNATIONAL MARKETS – Other Methods

These agreements involve use of exporter's trademarks, patents, technical knowledge, specialized equipment, training, local partner's buildings, staff

Key issues - exporter earns some money rather than none, may be difficult to find a suitable local firm, lose control of technical knowledge, local partner may not fulfil their part of the agreement, licensee may become an eventual competitor

Page 58: 6 International Trade

ENTERING INTERNATIONAL MARKETS – Other Methods

Direct overseas production Exporter produces in overseas country,

sets up factory, hires staff, gets materials Complete control over production and

sales, but very costly, may be language/culture barriers, currency conversion needed

Page 59: 6 International Trade

COUNTRY ANALYSIS

Looks at the key characteristics needed and used by an economy wishing to

engage in international trade

Page 60: 6 International Trade

FACTORS OF PRODUCTION

This looks at the key factors (resources) that are needed by businesses in the country in order to produce and supply their products/services

The factors are: land, raw materials, capital (finance), labour (employees), enterprise (management)

Page 61: 6 International Trade

FACTORS OF PRODUCTION These factors must be used

effectively/efficiently in order for biz to succeed, be profitable and grow, they are crucial for biz success and biz competitiveness

LAND: what is its quality, must be pollution free, does it need developing/draining, is there enough of it, is it close to customer, is it close to raw materials, is it costly, does it have to be purchased, can it be rented

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FACTORS OF PRODUCTION

RAW MATERIALS: are there any, what type, how many, are they bulky to transport, what is their price, what is their quality, are they cheaper elsewhere, what storage space is needed, can they be delivered quickly

CAPITAL: is there any, what type (loans, trade credit, shares, overdraft, retained profits), what does it cost, are banks good, does government help, can profits be removed

Page 63: 6 International Trade

FACTORS OF PRODUCTION

LABOUR: is there any, are there enough, what type, when are they needed, what are there skills (admin, technical, practical, scientific), do they need training, what will they cost (depends on their skills), can they be hired quickly

ENTERPRISE (management): are there any, what type, how many, what will they cost, what skills are needed, experience is crucial, promote from within or hire from outside

Page 64: 6 International Trade

FACTORS OF PRODUCTION

Factors must be managed effectively/efficiently e.g. buy right land, borrow money when interest rates low, buy raw materials in bulk, buy best quality materials, hire best managers/staff, use them effectively e.g. skilled staff in skilled positions

Factors must be motivated, highly skilled, give good training, reward well, offer promotion, develop as individuals, good team players, committed to biz and its goals

Page 65: 6 International Trade

COUNTRY ANALYSIS – Other Characteristics

Climate/Geography/Contiguity Levels of wealth/ Income per head Political situation/Stability/ Human Rights The economy: growth, inflation,

unemployment Willingness to accept trade and inward

investment Infrastructure Culture is crucial and Biz culture Education/Training

Page 66: 6 International Trade

COUNTRY ANALYSIS

Government encouragement: host and parent

Impact of neighbouring countries e.g. political

Levels of bureaucracy Levels of corruption Willingness to be “open” and accept change Wage costs per unit Costs per unit in general Laws and regulations

Page 67: 6 International Trade

COUNTRY ANALYSIS

Theoretical perspective: Dunning (categories/motives for FDI,

OLI model) Hofstede (culture) Porter (e.g. diamond, clusters)

Page 68: 6 International Trade

THE EUROPEAN UNION

Looks at the EU and its impact on businesses

operating inside and outside the EU

Page 69: 6 International Trade

THE EUROPEAN UNION

FORMED IN 1957 6 ORIGINAL MEMBERS: BELGIUM, HOLLAND, LUXEMBOURG,

ITALY FRANCE, WEST GERMANY SET UP AS CUSTOMS UNION - free trade

between members, but controls on non-members via common external tariff (cet)

Page 70: 6 International Trade

THE EUROPEAN UNION

RAPID ECONOMIC GROWTH IN THE 1960’s

LED TO NEW MEMBERS: UK, DENMARK, IRELAND (1973) GREECE (1991) SPAIN, PORTUGAL (1986) SWEDEN, AUSTRIA, FINLAND (1995)

Page 71: 6 International Trade

THE EUROPEAN UNION

2004 – Latvia, Lithuania, Cyprus, Chez Republic, Estonia, Hungary, Malta, Poland, Slovakia, Slovenia (25 members)

Bulgaria, Romania – 2007 (27 members) Croatia (28 members) Future new members? Turkey, Iceland,

Kosovo, Albania, Bosnia/Herzegovina, Serbia, Macedonia

Page 72: 6 International Trade

INSTITUTIONS OF THE EU

1. EUROPEAN COMMISSION (KEY BODY) Commissioners from each country

propose new policy and legislation2. COUNCIL OF MINISTERS (27) Take commissions proposals and decide

whether to implement them and turn them into legislation

Page 73: 6 International Trade

INSTITUTIONS OF THE EU

3. EUROPEAN PARLIAMENT – 5 years 626 members

UK 77 Latvia 7 Greece 24 vote on commissions proposals

4. THE EUROPEAN COURT OF JUSTICE – Settles issues/disputes between members/individuals

Page 74: 6 International Trade

THE SINGLE MARKET

Formation in 1957 assumed there would be free trade between the members

But barriers still existed - As a result the Single European Act was passed in 1987

Objective - Removal of 300 barriers to trade and open and fair competition

Aim: All trade barriers to end

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THE SINGLE MARKET Benefits:1. More trade 2. Lower costs of trade 3. More competition 4. Economies of scale………. Problems: Unemployment in some countries. Some

regions suffered. Location impact e.g. centre of gravity theory. Growth of monopoly/oligopoly power. Trade diversion to cheaper production cost areas

Page 76: 6 International Trade

THE MAASTRICHT TREATY

Signed December 1991 - took effect: 1/11/93

Aim: to create greater unity between member countries

1. Economic & Monetary Union - common currency, taxes, monetary policy e.g. one interest rate, ECB set up 1998

Page 77: 6 International Trade

THE MAASTRICHT TREATY

Euro began: 1/1/99. Current members (18) Austria, Belgium, Cyprus, Estonia,

Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain

Key non-members: UK, Denmark, Sweden Euro began to circulate 1/1/02 Member notes/coins withdrawn 1/7/02

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THE MAASTRICHT TREATY

2. THE SOCIAL CHAPTER Aim: To harmonise working conditions in

the EU e.g. right to join a trade union, minimum wage, maximum working week of 48 hours, equal treatment for men and women

UK refused to join in 1993 (Conservative) Finally joined: 1997 (Labour)

Page 79: 6 International Trade

EU FUTURE

1. MORE MEMBERS Potentially 30 members by 2020?2. GREATER HARMONISATION e.g.

common taxes, more members join the Euro

3. GREATER POLITICAL UNION e.g. more power to the commission and parliament

Page 80: 6 International Trade

BENEFITS OF EU MEMBERSHIP FOR UK

Larger market for businesses – 500m More trade between members Scope for greater economies of scale Lower unit costs – of production Higher levels of competition between

members More job creation, lower unemployment Greater product and service choice Lower prices

Page 81: 6 International Trade

BENEFITS OF EU MEMBERSHIP FOR UK

More innovation, entrepreneurship and creativity

More investment within the EU EU support and subsidies to member

countries and member businesses e.g. poorer members and areas, UK Aerospace industry benefits from research & technology grants

Joint cooperation benefits e.g. research

Page 82: 6 International Trade

BENEFITS OF EU MEMBERSHIP FOR UK

Economic power - against Japan/USA e.g. competing for contracts with the US

Border controls abolished, cutting costs to business and speeding up physical movement of goods and people across the EU

Standards have been harmonised for products, producing a level playing field for manufacturers across the EU - effect has been to turn the EU into a “domestic” market for all citizens 

Page 83: 6 International Trade

BENEFITS OF EU MEMBERSHIP FOR UK

Benefits of mergers between member businesses

Consumers better informed about the products they buy and those products are safer - CE marking guarantees that products meet certain minimum standards

Degradable products (food and medicines) are labelled with “best before” dates and carry a list of ingredients, colourings and additives

Page 84: 6 International Trade

BENEFITS OF EU MEMBERSHIP FOR UK

More employee rights e.g. workers can’t be asked to work more than 48 hours per week, entitled to a rest break of 11 hours a day, entitled to one day off a week and paid holiday of four weeks per year

Part-time workers entitled to same benefits as those on full time contracts e.g. rates of pay, sickness benefit, company pension schemes

Employees with parental responsibilities have right to statutory leave

Page 85: 6 International Trade

PROBLEMS OF EU MEMBERSHIP FOR UK

Costs of being a member - UK pays a major contribution to EU budget due to size of its economy, but receives payouts e.g. to UK farmers

The CAP - system of subsidies represent large % of EU spending – guarantee prices to farmers and direct payments for crops planted

Poorer regions may suffer e.g. competition causes unemployment

Page 86: 6 International Trade

PROBLEMS OF EU MEMBERSHIP FOR UK

Power of rich members – Germany & France

Power of large companies e.g. monopoly producers

Import prices higher due to CET – production costs and final prices therefore higher

Keeps out cheaper goods from rest of world e.g. farm goods, raw materials

Page 87: 6 International Trade

PROBLEMS OF EU MEMBERSHIP FOR UK

Too many rules/regulations - makes EU inefficient and too bureaucratic

Unaccountable to its Citizens - decisions are taken a long way from the people, making it a poor example of democracy, people have little chance to make their voices heard

Concentration of Power - EU institutions have too much power, taken away right of countries to make their own decisions about economic and political matters

Page 88: 6 International Trade

PROBLEMS OF EU MEMBERSHIP FOR UK

Speed of Integration - EU is moving towards more and more integration – even more bureaucracy and loss of individual country control

Loss of UK Sovereignty – UK not free to develop its own policies, make its own laws or control its own economy in response to its own needs

Page 89: 6 International Trade

THE EURO – and the UK

UK not yet entered – will be a referendum when time is right

Possibly never join? The Euro is a single currency, members

no longer have their own currency Members no longer have separate

monetary policies e.g. can’t control their own interest rates

Page 90: 6 International Trade

THE EURO – and the UK

ECB controls interest rates and the exchange rate

So if UK wanted to cut interest rates to create employment it would not be able to

Page 91: 6 International Trade

THE EURO – good if UK was in

Interest rates in EU may be lower than in UK – so borrowing costs would be cheaper

No exchange rate conversion costs No exchange rate uncertainty Pricing transparency No exchange risk on speculation against

the £ Euro will be a strong currency against the

$ and Yen

Page 92: 6 International Trade

THE EURO – good if UK was in

ECB will be concerned about EU prosperity and growth as a whole, not individual countries, so all will benefit

More intra EU investment will flow into UK e.g. from France and Germany

Individual country will not be able to devalue its currency against its competitors

UK will have powerful voice in economic decision making

Page 93: 6 International Trade

THE EURO – against UK joining

Currency unions in the past have collapsed

No control over domestic monetary policy e.g. can’t control its interest rates – so can’t control its economy

ECB very powerful Lower interest rate policy may not be

suitable if UK has inflation No control over its exchange rate –

control by ECB not by Bank of England

Page 94: 6 International Trade

THE EURO – against UK joining

May eventually lead to further harmonisation e.g. taxes

The Euro economies have not fully converged and if interest rates were high it may result in economic change in one part of the EU which is unsuited to another part

Adopting a new currency will involve substantial costs for businesses and banks

Page 95: 6 International Trade

THE EURO – against UK joining

Large fiscal (tax) transfers will be needed to aid poorer countries within the EU to reduce structural economic inequalities e.g. a country with high unemployment will need help to come into line with the rest of the members

As a result there will need to be more European Regional Policy, this will cost the UK a lot in taxes as it is a richer member

Page 96: 6 International Trade

THE EURO – against UK joining

Key negative concerns the problems ensuing from the Banking crash of 2007-08

Major economic collapse in Euro countries: Spain, Portugal, Greece, Ireland

Eurozone members forced to bale them out If UK had been a member it would have cost

the UK a major transfer of funds to those countries. May have made our recession even worse.