Import and Export Markets in the United Kingdom - Term Paper Example

? Import and Export Markets in the United Kingdom Import and Export Markets in the United Kingdom The United Kingdom produces a vast amount of products for exports and imports a wide range of electronics, food, oil, and other consumer goods. Over the past five years, some of the imports and exports have increased while others have decreased. This can be attributed to changing political, economic and other environments associated with this market. The UK’s share of the Global import and export market has slightly dropped from around 5.8% to 4%. The UK exports most of its goods to Brazil, India, Russia, and China while most of the imports come from china. The use of higher technology manufactured goods has caused a dramatic increase in both exports and imports. However, the recent financial crisis experienced around the world has led to a decline in imports and exports (Reuvid and Sherlock, 2011). In 2009, UK imports and exports totaled to $1,256 billion, which was equivalent to 4.3 of the world trade. The financial crisis has caused a rise in exchange rates of sterling pound, which has caused an 8.6% decrease in exports and 9.1% decrease in imports (Great Britain, 2009). Over the past ten years, the UK has been a net oil exporter, but production has been decreasing consistently over the past years. The oil industry has recorded an average decrease of 5.3% per year in exports. This has converted the UK from an oil export to an oil import land. Oil production in the region is less than demand, which calls for supplements through increased imports. Imports of other energy sources such as coal, electricity, and gas have increased over the past five years. In 2010, the importation of liquefied natural gas increased to account for 35% of total gas imports, while gas exports have decreased slightly over the same period. Gas has also been increasingly used for electricity supply with the amount required increasing by 47% (Great Britain, 2010). Changes in the financial sector affect business sentiments and investment decisions, which are linked to global trade. Data service exports at the start of 2007 were about 30 billion pounds while imports were about 33 billion pounds. Mid 2008 recorded the peak imports and exports at 40 billion and 34 billion pounds respectively. The rate of imports and exports of data services decreased consistently since 2008 reaching a low of 32 billion in imports and 29 billion in exports in mid 2009. However, an increase was recorded towards the end of 2010 with imports and exports reaching 41 and 35 billion respectively. The deep drop can be attributed to financial crisis experienced during this period. The dramatic drop experienced in 2009 can be attributed to the collapse of Lehman Brothers Company. Global insurance company AIG received below average ratings and mortgage lender Bradford & Bingley was nationalized. These changes caused the drop experienced in 2009. The UK has recorded an increase in intermediate goods trade, with a 40% increase in 2008 for non-fuel products. Production processes are divided between different countries, which have increased the flow of unfinished goods into and out of the UK. Most manufacturing countries have production firms in countries with low labor costs. Products manufactured in these countries are imported as finished or semi-finished goods. The sterling pound experienced strong depreciation between 2007 and 2008. Reports by the Bank of England (2010) suggest that goods and services exports responded differently to the weakening of sterling. Export of goods has been supported by the weakening because export performance is influenced by price. The service industry reported a decrease in exports due to a reduction in global demand. The fall of financial companies reduced the rate of financial service exports, which caused the reduced export services. According to the World Bank (BCC, 2011), trade in professional and technical services has been more resilient than trade in goods during the financial crisis. Most studies concentrate on appreciations caused by exchange rates rather than depreciations. Exchange rate fluctuations have little impact on export decisions as reported in a study by the University of Nottingham (BIS, 2010). Appreciations such as increase in real effective exchange rates are associated with a decrease in exports as a percentage of the total output. A survey by the British Chambers of Commerce reveals that a fall in the value of the sterling causes exporters to increase their exports. The weakened sterling gives them a higher profit margin and their overseas sales increase. A subsequent increase in the value of the sterling makes exporters reduce their profit margin to maintain their global market share. A survey conducted by UKTI in 2010 reveals that 40% of firms in global business would increase their overseas sales if the exchange rate remained the same. 27% of the surveyed firms recorded a benefit from the decline in the value of the sterling pound. These firms received enormous profits due to the depreciation of the sterling experienced in 2008 and 2009. The rise of Asian economic giants especially China has caused a reduction in the global market share of several developed countries such as USA, Germany, France, and UK. Exportation of goods from China has recorded a steady increase contributing to 9.5% of world exports in 2009. This has caused a reduction in the market share of other countries with the United Kingdom controlling only 3.1% of world exports in 2009. Most of the emerging markets deal with low value goods (Bleischwitz, 2009), while the UK has shifted to higher technology manufactured goods. Exports of high and medium high technology manufactured products were valued at over $250 billion in 2008. The UK has a higher global market share of high technology exports compared to Germany, Sweden, and Netherlands (Greenaway et al, 2007). Companies dealing with high technology goods have recorded high returns due to an increased demand for UK products. Several worldwide consumers have a high preference for UK manufactured goods compared to Chinese products. This has caused an increased demand for UK products giving these companies a larger global market share. An increased demand for high technology goods has caused a shift towards manufacturing in the UK. The establishment of several manufacturing companies contributed to about 42.7% of the total GDP in 2008. Most manufacturers have offshore manufacturing plants, which has caused an increase in semi-finished high technology products. Companies dealing in electronics, aircrafts, spacecrafts, pharmaceuticals and computing equipment have offshore manufacturing plants. In 2009, high technology manufacturing industries contributed to about 43% of GDP. Global and local demand for high-technology products has created increased employment opportunities for British citizens. Global sales of these products are combined with associated services. Manufacturing companies export their services to customers who purchase several UK products especially high technology products. This has formed part of the total service exports from the UK. High levels of technological and non-technological skills are required for maintaining these products, which creates a service export opportunity. Continued improvements in technology products provide exporters with increased demand for finished products. This also increases the importation of intermediate products. Duties and VAT are charged on all import and export goods depending on the type of goods. Exports to EU countries are exempted from duties, or their fee is reduced. Imports and exports to EU countries have to be registered with the customs offices since they require a customs declaration. However, exports and imports to and from outside EU countries do not require customs declaration. The company only requires a VAT registration certificate, and it can carry out its business without registering the goods with custom offices. Exemption of tax for import and export trade with EU countries has caused an increase in exports and imports across the UK. Manufacturing companies and business organizations have increased their activities across the region. UK electronic and pharmaceutical exports across the EU member countries have experienced a steady increase in the past five years. Corn Laws regulate the import and export of grains in the United Kingdom. They govern the amount of grains such as wheat and corn that can be imported or exported. Political differences and collaborations around the world have caused importation and exportation of weapons and other defense equipment. In the recent years, about one third of U.S defense exports have gone to Europe and half of the imports have come from Europe. European defense exports have doubled over the past five years to about $2.2 billion. Defense exports from the UK to the U.S have tripled over the past five years. 50% of European defense exports come from the UK. These countries are political allies and support each other in military activities. However, UK accounts for 25% of European defense imports from the U.S (Brown, 2010). U.K industry accounts for most investments in American defense industries. However, the U.S defense market is highly regulated, which has caused several restrictions in trade between the two regions. Transatlantic General License is required by exporters and importers across the Atlantic Ocean to USA. It provides a bench for negotiations regarding trade between USA and European countries including UK. To achieve access to American markets, the UK government has established balanced neutral negotiation platforms with the U.S. These negotiations deal with certification licenses, harmonization of companies, and confidence building for UK products. Such agreements encourage trade activities over the Atlantic Ocean causing an increase in the total amount of exports and imports. Harmonization rules are necessary for creating confidence and predictability of trade ties and obligations of each country. Trade agreements across several regions have seen UK companies acquire small companies in America and other nations. Several countries across the world encourage foreign direct investment, which has resulted to increased investment in global markets. In 2008, 78% of acquisitions of U.S defense companies by European companies were from UK companies. This was a 14% decrease from acquisitions of 2007. These companies have established a need for service exports and imports of intermediate products. USA has superior technological advancements compared to the United Kingdom, which creates cultural differences between the two countries (Aubin and Idiart, 2011). America strives to maintain a critical domain over UK and does not dialogue openly with the UK government. Security and technology control policies are the largest inhibitors of export and import between the two countries. Sharing data regarding some technological innovations across the two countries attracts national security interest. Trade regulations across several countries reduce the amount of imports and exports that can traverse national borders. This limits the market share that UK companies can control in terms of product and services export and import. Improved market access has caused an increase in the total revenue generated from imports and exports. Imports in foodstuffs such as coffee come from developing countries, which have several restrictions. Most coffee imports come from developing countries in Africa, and Asia and exports in food aid and product are directed towards these countries. Poverty in these countries causes cheap labor, which has encouraged off-shoring by several UK companies. Cheap labor in Taiwan has led to the establishment of several electronic companies from the UK. These companies are in charge of manufacturing electronic components that are exported to the UK for assembly. Hunger and poverty in third world countries has caused increased food exports from the UK. Most UK citizens have shifted from gas to electricity for domestic energy supply. This has caused a steady increase in demand for electricity supply in the region. Electricity imports have increased over the past five years while gas imports have decreased. This has affected gas imports and gas companies have recorded a reduction in income, while electricity companies have recorded an increase in income. Export and import market in the UK has recorded several depreciations and appreciations over the past five years. The reduction in overall exports and imports between 2008 and 2009 can be attributed to the depreciation of the sterling pound. This market deals with imports and exports in energy, defense equipment, food stuff, electronics, industrial good, and services. The total GDP in the UK has received a boost by increased imports and exports between 2009 and 2012. This market is affected by economic changes, political relationships between countries, trade laws, and social changes around the world. Trade barriers caused by legislations limit the total amount of products imported or exported between partner countries. Foreign investments have caused increased acquisitions of foreign companies by UK firms, which have caused an increase in the total percentage of exports and imports. References Aubin, Y., and Idiart, A. (2011). Export control law and regulations handbook: a practical guide to military and dual-use goods trade restrictions and compliance. New York: Wolters Kluwer Law & Business. Bank of England . 2010. Inflation Report November 2010. BIS Economics Paper.2010. Internationalisation of Innovative and High Growth SMEs, 5. Bleischwitz, R. 2009. Sustainable growth and resource productivity: economic and global policy issues. Sheffield: Greenleaf. British Chambers of Commerce (BCC).2011. Manufacturing for Export: Make or Break for the British Economy. Brown, D. 2010. The development of British defence policy: Blair, Brown, and beyond. Farnham: Surrey Ashgate Pub. Co. Great Britain, Macleay, I., Harris, K., and Annut, A. 2009. Digest of United Kingdom energy statistics. 2009. London: TSO. --------------------------- 2010. Digest of United Kingdom energy statistics. 2010. London: TSO. Greenaway, David, Kneller, Richard and Zhang, Xufei. 2007. Exchange Rates and Exports: Evidence from Manufacturing Firms in the UK. GEP Research Paper 07-13 University of Nottingham. Reuvid, J., and Sherlock, J. 2011. International Trade an Essential Guide to the Principles and Practices of Export. Londo: Kogan Page. Read More