The Trade Relationship between the UK and the International Communities - Assignment Example

International Trade and Financial Markets Task Introduction The process of globalization is increasingly encouraging trade between different nations. Long before the initiation of the concept of international business, commercial activities were mostly concentrated within the boundaries of a community or a country. Comparative advantage and other famous ideas are behind the push to cross-border trading. The idea of comparative advantage is based on the fact that resources are unevenly distributed in countries. For this reason, those countries with abundant resources effectively and efficiently manufacture products whose primary inputs are the available resources. For instance, assume UK can experience vast harvest of grapes as compared to Brazil. On the other hand, Brazil thrives in rubber production than any other country. The concept of comparative advantage, therefore, requires the UK to engage more resources in producing grapes. On the other hand, Brazil would better engage in the mass production of rubber. The two countries would, therefore, export their abundant products to the foreign markets. That is; rubber would be exported to the UK and grapes would be exported to Brazil. The mentioned exchange process is referred to as the international trade, which is regulated by trade policies (Suranovic 2012). Trade policies are rules that regulate the exchange of goods, services and other assets between two or more countries. Trade policies also encompass the tax rules, government incentives, and subsidies. The flow of goods, services, and other assets from one country to another is significant for the following reasons: first, it improves economic and social ties between countries. Second, international trade avails a wide variety of goods and services for the consumers. It therefore, enhances the consumer sovereignty, which is the free will of the customers to consume products and services of their interest. Third, international trade improves a country’s economic performance among other importance. The paper seeks to present a critical evaluation of the appropriateness of the trade policies in the United Kingdom (Trade Policy 2015). The trade relationship between the UK and the international communities The link between the United Kingdom and the international communities, specially the developing countries, is based on the following: the export and import of goods and services between UK and the developing countries, the investments activities in the developing countries, relocation to and from development countries, and offering aid to developing countries. The goods exported to the UK from the developing countries in the year 2014 was US $ 453 billion. Comparatively, back in 1990, the level of export into the UK was US $ 34 billion. The increase in the level of imports from the developing countries is due to the rise in the developing economies like India and China among others (Te Velde & Cali 2006). Among the emerging economies that export goods to the UK, China is the most active is exporter. The reason is the increased export level in a short period. That is, in 1995, the 18th largest exporter to the UK was China. The position moved to the 13th largest in 2000 and the 6th most active in the year 2004. The value of the export to the UK by then was US $ 19.4 billion. That makes the China’s share of exports to UK by developing countries rise from 10% in the year 1997 to 22% in the year 2003. The primary exports to the UK have currently stepped up the level of their exports (China, India, and Bangladesh among other). The increasing competition from the mentioned major exporters has dwarfed the attempts of other developing countries like Malaysia and Indonesia to step up their level of export to the UK. The UK imports goods from the developing countries primarily in Asia. A portion of the total imports to the UK are from sub-Saharan Africa. Between the year 1990 and 2004, there has been an increase in the level of imports from sub-Saharan Africa from US $ 4 billion to US $ 11 billion. Based on the statistics, it is vividly clear that the imports from the developing countries in Asia are more intense that those from the sub-Saharan countries. The leading exporting African countries to the UK are the South Africa and Botswana. Their elimination from the export analysis significantly reduces the level of export from sub-Saharan African countries to the UK (Te Velde & Cali 2006). The UK Foreign Direct Investment The foreign direct investment is on the rise in the developing countries over the past years. The level of private financing from the UK to the developing countries (in Asia) went beyond the aid level in the year 1990. Foreign direct investment is among the methods of improving the economic performance of a country. In addition to being a source of finance, foreign direct investment leads to the transfer of skills and technology to the developing countries. However, the levels of foreign direct investment to the developing countries are weak due to lack of attractive investment opportunities. However, the markets that show the possibility of future growth such as China, India and Mexico receive a substantial amount of foreign direct investments from the UK (Te Velde & Cali 2006). The UK Trade Policies The UK government has formulated several trade policies in a bid to enhance the development level of the underdeveloped countries, reduce the degree of poverty and increase the trading activities between the UK and the developing countries. They are as follows: the 1997 DFID White Paper, the 2000 DFID White Paper, the 2004 DTI White Paper, and the 2005 Commission for Africa Report. The 1997 DFID White Paper – the primary aim of the 1997 Department for International Development White Paper policy was to ensure that sustainable development was the main goal of the range of policies formulated by the UK government. Such policies were viewed to affect the developing countries, and they are the following: the environment policy, trade policy, investment and agricultural policy. The policies under the rules-based segment of the 1997 DFID White Paper states that the UK government should push for an open, impartial and sustainable joint trading system, which benefits all the participating countries (Morrissey n.d.). The full integration of the multilateral system and the participation in the WTO by the developing countries are the primary goals of the policy. The regionalization policy seeks to ensure that the bilateral and regional free trade agreement enhances the economic expansion. The standards and codes of conduct policy’s primary objective are to fight the implementation of unfair trade standards on the developing countries. In addition, the system condemns unfair discrimination of exports from the developing countries. The Air for Trade Policy states that the removal of trade barriers is of little benefit to the developing countries if their resources are insufficient to facilitate the exploration of such opportunities (Morrissey n.d.). The 2000 DFID White Paper – the primary aim of the 2000 department for international development is to ensure that the process of globalization presents equal development opportunities to the developed, the developing and the underdeveloped countries. The paper was written based on the following fundamental ideas: first, to create and support an international trading system that is transparent and rules-based, which pushes for impartial trade regulations and amplifies the voice of the developing nations. Second is to push for the elimination of commercial restrictions, in the developed and the developing countries, and enhance the capacity of the developing countries to exploit business opportunities. The rules-based system of the paper states that the world trade organization’s primary task is to implement international trade regulation equitably both for the poor and the rich countries. In addition, the rules-based policy system asserts that an open trade does not mean an unregulated trade (Te Velde & Cali 2006). The regionalization policy under the white paper responded to Everything but Arms (EBA) proposals made by the European Commission allow the entry of exports from the least developed countries (LDCs) into the European Union without charging duty fees, but arms. The policy opens up market opportunities for the least developed countries in the developed countries, thus, stimulates economic activities, which enhance the economic performance of the LDCs. Under the Aid for Trade, the UK is expected to recognize the different developmental stages under which the world trade organization member countries fall. Therefore, the UK is expected to implement trade regulations with respect to the development level of the trading partner (country). The policy also proposes the provision of technical help to countries in the sub-Saharan Africa that would enhance their capacity to increase the level of their activity in the international trade. In addition, the policy seeks to eliminate trade barriers preventing the financially challenged from participating in the international trade. Last, the paper shows no support for trade sanctions on least developed countries that fail to adhere to the labor standards. The article points out that the penalties exacerbate the poverty situation in the poor countries (Te Velde & Cali 2006). The 2004 DTI White Paper – the Department of Trade and Industry (DTI) white paper asserts that achieving Doha Development Agenda is the priority number one for the United Kingdom. The paper is of the view that the liberalization of Trade is an essential step toward poverty reduction. The paper suggests that the European Union should assume the control of the multilateral interventions in order to increase the benefits of trade transparency. Under the rules-based system, the paper states the role played the Doha Development Agenda in enhancing the world trade and eliminating the poverty is vital. The DDA also contains several policies calling for the improvement of the operations of global trade organization regulations. Under regionalization, the 2004 DTI paper contends that the economic partnership agreements are relevant for African, Caribbean and Pacific countries because their primary trading associates are symbolized by the European Union. Under the standards, the announcement of the International Labor Organization will be endorsed by the UK government. In the process, all the member states will be encouraged to authorize and implement the primary resolution made by the international labor organization (Te Velde & Cali 2006). The 2005 Commission for Africa Report – the policy formerly seemed not to be pioneered by the UK. However, its achievements were delivered by the UK’s Prime Minister, Tony Blair. The paper contends that sustainable growth and poverty reduction are not likely to be achieved by the African countries. The achievement of such goals is also possible when the African countries increase their share in the international trade. The paper further states that the African countries should join forces with the international community to ensure the accomplishment of the MDGs (millennium development goals) by jointly meeting the following three tasks: first, they should enhance trade capacity building strategies formulated by the African countries. Second, they should undo the trade barriers, implemented by the developed countries, through the Doha Development Agency’s initiated world trade negotiations. Last, they should support the efforts made by the African countries to conform to the new trading systems (The Africa Commission 2005). Critics of the appropriateness of the UK Trade Policies From a general perspective, the UK trade policies revolve around the following: lifting trade barriers put by the developing countries, enhancing the capacity of African countries to participate in the international trade, providing technical and financial support to the developing countries and ensuring the leniency of business regulations to the developing and the LDCs. As has been mentioned above, the UK policies lean more towards improving the trade with the developing countries. That is; the system enhances the exchange of goods, services and assets between the UK and the developing countries. The appropriateness of the trade policies is based on following: first, the increase in exports from the developing countries improves the economic performance of the UK. The exports include raw materials, which are further processed to produce more valuable products (Te Velde & Cali 2006). The UK then sells such outputs in the international market. Therefore, the revenue earned in the process improves the country’s economic performance. Consequently, the UK trade policies are appropriate. From another perspective, if what the UK trade policies stand for is achieved, the economic performance of the developing and the least developed countries would improve. The systems would make it possible to alleviate poverty, increase the development status and enhance the share of the developing countries in the international market. Based on that analysis, the UK trade policies are significant (Morrissey n.d.). Businesses in the UK are of the view that the UK trade policies are appropriate. For instance, the companies (CBI) are of the opinion that the efforts made to liberalize trade are necessary. The companies also support the implementation of the Common Agricultural Policy. They support the reduction of trade tariffs on clothing and textile products in order to attract more exports from the developing and least developed countries. However, some organization such as the European Federation of Food and Tourism Trade Unions (EFFAT) are against the European Union’s sugar policy. Though not among the systems discussed above, the European Union sugar policy is among the policies influencing the trading activities of the UK. Last, the Transatlantic Trade and Investment Partnership (TTIP) is a new system that would allow international food processing companies to export their products to the United Kingdom (Donnan & Groom 2014). The policy experiences extensive criticism from the local market. There is fear of lowering the food safety standards in the UK because the food safety standards in the US are lower compared to those of the UK (Armitage 2015). Conclusion As discussed above, most of the UK trade policies seek to lower barriers, increase the flow of funds into the international market, to improve the levels of export from the developing and the least developed country and alleviate poverty from the poor countries. In addition, the trade policies seek to increase the participation of African countries in the international trade. In the process, the economic performance of both the UK and the developing countries is enhanced. For that reason, they are appropriate. However, a number of the trade policies face opposition. For instance, the UK Labor Union (EFFAT) is strongly against the EU’s sugar policy. In addition, the UK citizens and labor union activists oppose the TTIP policy. List of References Armitage, J 2015, TTIP trade agreement: Critics driven “by anti-American sentiment” Viewed 11 March 2015, http://www.independent.co.uk/news/business/news/ttip-trade-agreement-critics-driven-by-antiamerican-sentiment-says-minister-lord-livingston-9705331.html Donnan, S. & Groom, B 2014, UK hits back at transatlantic trade critics, Viewed 11 March 2015, http://www.ft.com/intl/cms/s/0/29f1f7f2-31d3-11e4-b377-00144feabdc0.html#axzz3U4aKLJu6 Morrissey, O n.d., British Aid Policy Since 1997: Is DFID the Standard Bearer for Donors? Viewed 11 March 2015, http://www.nottingham.ac.uk/credit/documents/papers/02-23.pdf Suranovic, Steven M. 2012, The Theory of Comparative Advantage – Overview, Viewed 11 March 2015, http://internationalecon.com/Trade/Tch40/T40-0.php Te Velde, Dirk Willem & Cali M, 2006, A Political Economy Perspective on UK Trade Policy, Viewed 11 March 2015, http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/4675.pdf The Africa Commission 2005, Viewed 11 March 2015, http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/2091.pdf Trade Policy 2015, Viewed 11 March 2015, http://www.businessdictionary.com/definition/trade-policy.html Read More