Implications of Common Commercial Policy, Delivered Duty Paid - Assignment Example

European Trade Q.1 Implications of “Common Commercial Policy” Common Commercial Policy is the policy of European Union to maintain better trade relationship with other countries. “The common commercial policy is one of the main pillars of the European Union's relations with the rest of the world” (Common Commercial Policy. 2008). The policy is formed by EU in order to form uniformity in the policies of trade with other countries. The policy has stated principles on the tariffs and other charges in trades. The major goal of the policy is smoothening trade between countries. The policy aims for the economic development of all the countries involved in the trade activities. EU adopted this policy as a commitment to the society. Almost 25% of European Union’s trades with other countries include services. It has its most trade with United States. European Union is the second in the world in terms of investments. But the commercial policy of the Union mainly relates to the goods. The EU entertains trades with those countries that are weaker in terms of trade activities. Ensuring smoother trade with such countries contribute to its economic development. Therefore, the Union also has an important role in World Trade Organization (WTO). The major feature of its trade with third countries is the common tariff and other trade charges being charged by the Union. The commission also had a common foreign policy for its trade governance. The policy has three pillars on which the policy is constituted. The three pillars are Community Pillar, Common foreign and security policy Pillar, Police and judicial cooperation in criminal matters pillar. All the three pillars relates to different aspects. The common tariffs and trade charges has enabled many economically backward countries to participate in the trade activities internationally. The three pillars show that the agreements are formed not only for the trade cooperation but also for cooperation in all matters that are concerned with economic development and eradication of crimes. The Union gives preferences to the economically backward countries. The commission has a foreign and security policy that is the second pillar of the commission. The second pillar entails policies regarding cooperation in defence matters. This helps to have a common union in terms of defence. “The European Union, together with its Member States, is the largest provider of technical assistance to these countries” (The EU’s relations with Eastern Europe & Central Asia. 2001). European Union is one of largest trading partner of Eastern Europe and Central Asia. European Union intends to make a political and economic transformation in these countries. The union also aims at nuclear safety and cross border cooperation. The EU has decided to provide financial assistance to it surrounding nations through many partnership activities. This decision came up in 2007. A separate meeting called Asia-Europe Meeting was held in order to foster cooperation. This is a highly informal meeting. In these countries EU has also started programmes to ensure food safety. European Union also maintains bilateral relations with industrialized countries. Its cooperation with United States is an example for that. The Union has good strategic alliances with third countries to contribute for their welfare. The other nations that are dealt with by the Union are Asia, Latin America, Eastern Europe, The Mediterranean and ACP Countries. This clearly shows that the Union is fussed on economic development of cooperating countries. Q.2 Critical analysis of the likely implications for EU exports of the phasing-out of export subsidies European Union has decided on December 2005 to phase out subsidies on the Exports made by the member countries. European Union is one of the largest countries that use export subsidies. “The European Union (EU) is the largest user of export subsidies, accounting for roughly 90 percent of all export subsidy expenditures” (Leetma p.82). (European Union: issues and analysis. 2002). The objective of export subsidy is to bring a uniform price level for commodities. Uniform price level refers to world prices for commodities. The uniformity in the prices enables the movement of commodities all over the world. During late 90’s EU had an average exports of over 20 million tons. The export subsidies in the union had fluctuations on the basis of the currency fluctuations. The EU had commitments on its volume and expenditures. The commitments for expenditures it had was for sugar, fruits, alcohol, tobacco and vegetables. Later on the commitments were shifted to grains. The European Union also had an Agricultural Policy which also had an impact on the export subsidy. An option to eliminate the subsidies was an agricultural policy. The policy was Common Agricultural Policy. It also limited the production in order to reduce the subsidy. The Common Agricultural Policy was aimed to cut the subsidies on agricultural and diary products. Reduction in support prices was another option by EU in order to reduce subsidy. They decided to reduce prices for beef, grains and for diary products. The EU established a separate scenario for eliminating subsidy. World prices and exchange rates were the two factors that affected the export subsidies. A change in the world prices created a gap between World price and EU price change. “If the euro increases in value, the EU perceives world prices in euros to be lower and the need for subsidies increases.” (Leetma p.85). This decision by the EU helped the poor a great extend. This made them receive better income for their produce. This made the farmers to direct more products overseas. One of the officials of the European Union said that a subsidy cut is necessary to develop the living standards of the farmers. A subsidy cut will help the farmers to explore more market by going global. The Union found that a support is necessary for the farmers in this respect and found that cutting subsidies is the possible solution for helping the farmers. The Union said that developing countries should be given rights to cut down the tariffs. The decision was also taken by the Union to ensure food security. This policy of subsidy elimination is about to be adopted by many other developing countries by the year 2010. This subsidy could be termed as a real free trade policy as it aids many farmers. “Developing countries pushed to eliminate farm export subsidies by 2010, but the European Union insisted on an end date of 2013 to allow European farmers time to adjust” (Nations agree to phase out farm export subsidies, News hour. 2005). Around 149 nations decided to eliminate the farm subsidy by 2013. EU has made great effort to make these nations accept the principles. Q.3 Explanation of the terms Ex-works, Free on Board (FOB), Delivered Duty Paid (DDP) Ex-works: Ex-works is a term used in trades. This is a method adopted by the sellers to minimize their risk. The seller makes the goods available at their own premises. Premises include the factory, plant or warehouse of the seller. Therefore, the seller need not carry the goods to the desired location of the buyer. Instead the buyer will take the goods from seller’s premises so that the risk during transit lies with the buyer. The buyer pays the expenses of transport and insurance of goods. Usually it is the obligation of the seller to make the goods available to the buyer. The buyer decides the place where goods are to be dispatched. The risk of the seller usually ends when the goods are dispatched to the desired location of the buyer. It is the duty of the buyer to carry the goods to their premises after they have been dispatched at the desired place by the seller. “The buyer must arrange and pay for the transport having taken delivery of the goods” (International Commercial Contracts-Incoterms). So in this method the entire risk lies with the buyer. The term Ex-Works with many other terms based on the nature of the contract of trade. The term has certain significance in international trade because the terms and agreements regarding the international trade may be complicated than domestic trade. The responsibility of each party regarding goods must be clearly defined. The seller and the buyer must mutually agree upon the duties to be performed by each party. The term is one of the Incoterms (International Commercial terms). In ex-works the cost of the goods that are purchased is excluding the transportation, insurance and boarding costs. Free on Board (FOB): FOB is another incoterm. “A trade term requiring the seller to deliver goods on board a vessel designated by the buyer.” (Free On Board (FOB). 2008). This method is different from Ex-Works. In FOB the seller is responsible for the transport of goods from his premises to the vassal. The risks of loss till the goods are loaded to the ship lies with the seller. Customs clearing at the exporters dock is also the duty of the seller. After the goods are being loaded the risk of buyer starts. The buyer takes the risk of loss in transportation of the goods from the seller’s dock to the buyer’s dock. The customs clearing at the buyers dock is also done by the buyer. Purely defining, the risk of loss after the goods passes the rail lies with the buyer. But the risk is sometimes distributed in two ways. FOB shipping point and FOB destination. In FOB shipping point the risk of the buyer begins from the pint where the ship starts from the sellers dock. In FOB destination the risk of the buyer starts from the place where goods are dispatched from the ship or after the goods reach the destination. In the first case the shipping cost is paid by the buyer and in the second case shipping cost is paid by the seller. The type of FOB and the risk that lies on each party at different intervals are to be clearly specified in the contracts. Details regarding the payee of the expenses have to be clearly stated in the contract. Delivered Duty Paid (DDP): Delivered Duty Paid is also another Incoterm. Under this practice the seller pays all the expenses and takes the whole responsibility of the goods until they are loaded at the destination specified by the buyer. The expenses include freight, dock duty, shipping charges; insurance etc. the seller produces the necessary invoice to the buyer specifying the expenses clearly. The buyer clearly pays the expenses as per the invoice. The responsibility for obtaining the license for transport lies with the seller. He must also look into the clearing of customs formalities regarding the goods. Therefore, any risk of loss or damage of the goods finally rests with the seller. The buyer’s risks begin when the goods are being accepted and received by the buyer. Bibliography Common Commercial Policy. [online]. Europe Glossary. Last accessed 05 January 2008 at: http://www.europa.eu/scadplus/glossary/commercial_policy_en.htm European Union: issues and analysis. (2002). [online]. Economic research service. Last accessed 05 January 2008 at: http://www.ers.usda.gov/briefing/EuropeanUnion/IssuesExportsubsd.htm Free On Board (FOB). (2008). [online]. Investopedia. Last accessed 05 January 2008 at: http://www.investopedia.com/terms/f/fob.asp International Commercial Contracts-Incoterms. Obligations of the buyer. [online]. Business Link. Last accessed 05 January 2008 at: http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1077994557 LEETMA, Susan. Effects of Eliminating European Union Export Subsidies. Developing a scenario for Export subsidy elimination. Economic research service. P.85. Last accessed 05 January 2008 at: http://www.ers.usda.gov/publications/aer802/aer802k.pdf LEETMA, Susan. Effects of Eliminating European Union Export Subsidies. Introduction. Economic Research Service. P.82. Last accessed 05 January 2008 at: http://www.ers.usda.gov/publications/aer802/aer802k.pdf Nations agree to phase out farm export subsidies. (2005). [online]. News hour. Last accessed 05 January 2008 at: http://www.pbs.org/newshour/updates/wto_12-19-05.html The EU’s relations with Eastern Europe & Central Asia. (2001). [online]. External Relations. Last accessed 05 January 2008 at: http://ec.europa.eu/external_relations/ceeca/index.htm Read More