The International Market

Essay text:

The importance of international trade The reason countries trade ? additional income from sale of goods/services ?selling overseas bring in money to by from other countries ?quality of live of all countries involved can be improved foreign trade = buying and selling of goods /services between different counties in the world Import = bought from other country – outflow of funds Export = sold to other country – inflow of funds Visible trade = import and export of goods Invisible trade = import and export of services (tourism, transport, insurance…) principle of comparative costs: Difference between climate or natural resources ? countries have to trade in order to obtain goods which they cannot produce themselves ? specialisation and differentiation in commodities for which they have a comparative advantage (low production costs) ? import commodities from countries where production is comparative cheaper Balance of trade (trade gap) = records the value of countries’ imports and exports ?favourable – when exports exceed imports (? surplus has been created) ?adverse (unfavourable) – when imports exceed exports (? deficit has been created) Balance of payment visibles = goods invisibles = services = a statement of the difference in total value of all payments made to other countries and the total payment received from them ? includes visibles and invisibles ? shows weather the country is making a profit or a loss in its dealings with other countries ?favourable – net inflow of capital (country has earned more than it spent) ?adverse – net outflow (country has spent more than it has earned) current account = records trade in goods and services capital account = records flows for investment and saving purposes Correcting a balance of trade deficit temporary measures: • borrowing from International Monetary Fund (IMF) • obtaining loans from abroad • drawing on gold and currency reserves • selling off foreign assets !!!increase in exports!!! ? government: offering incentives to firms (tax relief, special credit facilities, subsidies) Devaluation = lowering the value of currency in relation to other currencies ? makes imported goods more expensive and exports cheaper Deflation ? if people’s income or its spending power is reduced they will buy fewer products (imports) ? wage rise controls, restricting credit and hire purchase, increasing interest rates, increasing taxes Exchange control = Central bank places a limit on the amounts of foreign currency hat can be bought ?supply of domestic currency on the market is reduced ? raising in the price of the currency Import control = use of tariffs and quotas tariff = a duty or tax on imports to increase their costs and discourage purchase quota = numerical limit on the numbers of a commodity which can be imported Methods of selling abroad selling in foreign counties but not overseas: • advertising in foreign journals or circulating catalogues • brochures and other sales literature • contact agent of foreign buyers visiting the homecountry • export house ? as merchant – export house actually buys the goods and market the goods, accepting the risk of loss ? as agent – export house market goods on behalf of the seller Selling from a overseas base • make direct contact with potential customers • employ an agent who is already based overseas • trade fairs and exhibition provide a useful meeting pace for buyers and sellers Difficulties faced by exporters • Language • Differences in measurements – weights, sizes… • Suitability – regulation, safety standards… • Import regulations • Damage – during the long journey to the customer • Packaging – need to be stronger than for hometrade • Transport – difficult to organise • Documentation and payment agreements • Agent – may be necessary to find • Payment defaults – customers are more difficult to sort out Exchange rate fluctuation Exchange rates = prices at which one country’s currency is bought and sold (exchanged) ? are changing daily, and even during the day ? a rise in value results in a fall in the cost of imports and a rise in the price of exports ? a fall in the value results in a fall in the costs of exports and a rise in the prise of imports ways of offset currency fluctuation: • forward buying = buying currency at a fixed rate for sometime ahead • single currency (euro in EU) Aids to exporters Department of trade = branch of the Department of Trade and Industry ? sub-departments publishes journals aimed on information, helping and encouraging export assessment of potential overseas markets for products provision of detail of current import regulations abroad advise on financial standing of potential overseas customers introductions to prospective customers issue export licenses when necessary organisation /assistance of international trade exhibitions of fairs ECGD (Export Credits Guarantee Department) Export Credits Guarantee Department - ECGD ? helping on non-profit basis • Insurance – against non payment of debts by foreign importers - importer being unable to pay - export restrictions by government - political restraints on payment • Grants or low interest loans Consular officials • government officials who are based overseas collect information to exporters and give local help to traders while abroad • foreign officials based in home country are also a source of advise and information Banks • short and long-term loans • financial advice • arranging documentary credit Free trade restrictions Subsidies a government may give finance towards the cost of the home-produced product Tariffs = tax or custom duty imposed on imported goods to raise the price of foreign goods Quotas = a limit on the quantity of a product allowed to enter the country during a year ? an import license must be obtained before goods can be imported Exchange controls = restrictions on the availability to foreign currency to importers Embargo = a straightforward government ban on trading between two countries Reasons for trade restrictions • to protect home producers – because they are newly formed industries or important for national securities • to resist dumping – means selling goods at a loss abroad • to safeguard jobs • to correct a balance of payments deficit – reduce imports to get rid of the deficit Free trade = when no traffis, quotas or other restrictions to trade exist The World Trade Organisation (WTO) = the only international organisation dealing with global rules of trade between nations = has more than 130 members, accounting 90% of world trade ? main functions: ensure that trade flows as smoothly and freely as possible • administrating trade agreements • acting as a forum for trade negotiations • settling trade disputes • reviewing national trade policies • assisting developing countries in trade policy issues (technical assistance, training programs) • cooperating with other international organisations ? special agreements for developing or least-developing countries • longer time periods for implementing agreements and commitments • measures to increase trading opportunities • provisions requiring all WTO member to safeguard the trade interest of developing countries • support to help developing countries build the infrastructure for WTO work, handle disputes and implement technical standards GATT = General Agreement on Tariffs and Trade = umbrella agreement for trade in goods The European Union = consists of a group of countries in Europe which have decided to join forces for their mutual benefit Developing : EEC = European Economic Community (Common Market) ? later EC ? EU Aims of the EU • to raise the living standards • promote freedom of movement of labour, capital and services • encourage close co-operation between member in matters of commerce, farming, finance, social services and legal systems • reduction of trade restrictions between members, and establishment of a common tariff policy to non-members • lasting peace and prosperity for all • trade freely with each other The Maastricht Treaty signed in February 1992 provided for future cooperation and a review of the EU’s political, economic and cultural links ? introduction of the euro on 1 January 1999 as single currency of the EU ? introduction of the European Central Bank (ECB) – full responsibility for monetary policy, responsible for keeping inflation under control Treaty of Amsterdam signed in October 1997 - to carry out further reviews of the working of the EU in preparation for the extension to new countries place employment and citizens’ rights at the heart of the Union sweep away the last remaining obstacles to freedom of movement and to strengthen security give Europe a stronger voice in world affairs make Union’s institutional structure more efficient with a view to enlarging the Union Trade and cooperation agreements European Development Funds ? technical assistance is provided to help develop economies into market economies - special links with Latin America, Mediterranean and Asia, … Organisation of the EU The Commission – proposes new laws, manages common EU policies and acts as a guardian; is based in Brussels and deals with all policy areas from agricultural to overseas development The European Parliament – 626 members who meet every week in Strasbourg Council of Ministers – based in Brussels, the ultimate decision-making body European Court of Justice – safeguards the principles and laws of the community, sits in Luxembourg, one judge from each member country Other Customs Union CARICOM = Caribbean Community around the world there are lot communities similar to the EU