The lecture provides the definition and importance of international trade. Discuss the context of economic integration and its influences on global market as well as local markets (VN and the rest of the world) Discuss the influences of economic integration on: Global markets (rest of the world) Local markets (VN) Giay Viet Joint Stock Company
LECTURE for BE ASSIGNMENT TASK TASK 4A Sources: 1.BPP Business Environment Coursebook (pages 278-289) International Trade Define what is international trade International trade is exchange of capital, goods, and services across international borders or territories It refers to exports of goods and services by a firm to a foreign-based buyer (importer) In most countries, it represents a significant share of gross domestic product (GDP) While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries Importance of International Trade Discuss the importance of international trade Overseas markets represent new market segments Saturation of its domestic market can force an organisation to seek overseas markets Organisation may wish to reduce its dependence upon one geographical market The nature of firm’s product may require an organisation to become active in an overseas market Commercial buyers of products operating in a number of overseas countries may require their suppliers to be able to cater for their needs across national boundaries The removal of many restrictions on international trade Increasing household disposable incomes results in greater consumption of many categories of luxuries, such as overseas travel, which can only be provided by overseas suppliers Cultural convergence that has resulted from improved communications (more on pages 278-279; internet) Economic Integration Discuss the context of economic integration and its influences on global market as well as local markets (VN and the rest of the world) Economic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state This is meant in turn to lead to lower prices for distributors and consumers (as no customs duties are paid within the integrated area) and the goal is to increase trade The trade stimulation effects intended by means of economic integration are part of the contemporary economic Theory of the Second Best: where, in theory, the best option is free trade, with free competition and no trade barriers whatsoever Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "second best" option for global trade where barriers to full free trade exist Do more internet research Influences of Economic Integration Discuss the influences of economic integration on: Global markets (rest of the world) Local markets (VN) Giay Viet Joint Stock Company Do internet research TASK 4B Sources: BPP Business Environment Coursebook a Monetary policy-EMS (page 300) b Common agriculture policy (page 300) c Social policy (page 307) d Regional policy (page 309) CHOOSE only two (2) policies 1.Define the policy 2.Discuss the importance 3.Discuss the impact on Giay Viet a Monetary system (EMS) European Monetary system was set up in 1979 Its purpose is “ to establish greater monetary stability in the European Union The exchange rates between currencies can fluctuate considerably.” ( BBP Professional education, 2004) In Europe, EMS is playing a very important role to recognize change in relative prices, avoid inflation risk premium, reduce the distortionary impact of tax and social security systems and maintain social cohesion and stability a Monetary system (EMS) European Monetary System (EMS) was an arrangement established in 1979 under the Jenkins European Commission where most nations of the European Economic Community (EEC) linked their currencies to prevent large fluctuations relative to one another After the collapse of the Bretton Woods system in 1971, most of the EEC countries agreed in 1972 to maintain stable exchange rates by preventing exchange fluctuations of more than 2.25% (the European "currency snake") In March 1979, this system was replaced by the European Monetary System, and the European Currency Unit (ECU) was defined The basic elements of the arrangement were: The ECU: A basket of currencies, preventing movements above 2.25% (6% for Italy) around parity in bilateral exchange rates with other member countries An Exchange Rate Mechanism (ERM) An extension of European credit facilities The European Monetary Cooperation Fund: created in October 1972 and allocates ECUs to members' central banks in exchange for gold and US dollar deposits b Common Agricultural Policy (CAP) The Common Agricultural Policy (CAP) is a system of European Union agricultural subsidies and programmes It represents 48% of the EU's budget, €49.8 billion in 2006 (up from €48.5 billion in 2005) The CAP combines a direct subsidy payment for crops and land which may be cultivated with price support mechanisms, including guaranteed minimum prices, import tariffs and quotas on certain goods from outside the EU Reforms of the system are currently underway reducing import controls and transferring subsidy to land stewardship rather than specific crop production (phased from 2004 to 2012) Detailed implementation of the scheme varies in different member countries of the EU Until 1992 the agriculture expenditure of the European Union represented nearly 49% of the EU's budget By 2013, the share of traditional CAP spending is projected to decrease significantly to 32%, following a decrease in real terms in the current financing period In contrast, the amounts for the EU's Regional Policy represented 17% of the EU budget in 1988 They will more than double to reach almost 36% in 2013 The aim of the common agricultural policy (CAP) is to provide farmers with a reasonable standard of living, consumers with quality food at fair prices and to preserve rural heritage However, there has been considerable criticism of CAP c Social Policy Promoted close co-operation between member states, particularly in matters relating to training, employment, working conditions, social security & collective bargaining, equal pay principle and make provision for the harmonisation of social security measures to accommodate migrant workers See more on page 307 d Regional Policy The Regional policy of the European Union (EU) is a policy with the stated aim of improving the economic wellbeing of certain regions in the EU Around one third of the EU's budget is devoted to this policy, the aim of which has been stated to be to remove the disparities in wealth across the EU, restructure declining industrial areas and to diversify rural areas which have declining agriculture The most significant enlargement of the European Union took place in May 2004 with ten new member states, mostly from eastern or central Europe, followed by accession of Bulgaria and Romania in January 2007 Most of these states are poorer than the existing members and the impact of this means that the EU's average GDP per capita has been reduced leading to some regions in the earlier EU-15 no longer qualifying for extra financial help On the other hand, most regions in the new member states qualify Regions needing support with the regional policy are given either objective one or objective two status Objective three regions cover all regions of the EU which not have objective one or two status TASK 4C Sources: BPP Business Environment Coursebook (pages 303-306) 1.What is EMU? 2.The advantages of an EMU member countries 3.Pros and cons of joining EMU 4.Express your own idea: Should UK enter into EMU? Explain What is EMU? A monetary union is an arrangement where several countries have agreed to share a single currency amongst themselves The European Economic and Monetary Union (EMU) consists of three stages coordinating economic policy, achieving economic convergence (that is, their economic cycles are broadly in step) and culminating with the adoption of the euro, the EU's single currency All member states of the European Union are expected to participate in the EMU The Copenhagen criteria is the current set of conditions of entry for states wanting to join the EU It contains the requirements that need to be fulfilled and the time framework within which this must be done in order for a country to join the monetary union An important element of this is the European Exchange Rate Mechanism ("ERM II"), in which candidate currencies demonstrate economic convergence by maintaining limited deviation from their target rate against the euro 14 What is EMU? All member states, except Denmark and the United Kingdom, have committed themselves by treaty to join EMU Sixteen member states of the European Union have entered the third stage and have adopted the euro as their currency Denmark, Estonia, Latvia, and Lithuania are the current participants in the exchange rate mechanism Of the pre-2004 members, the United Kingdom and Sweden have not joined ERM II and Denmark remains in ERM without proceeding to the third stage The five remaining (post-2004) states have yet to achieve sufficient convergence to participate These eleven EU members continue to use their own currencies 15 What is EMU? Stage One: July 1990 to 31 December 1993 On July 1990, exchange controls were abolished, thus capital movements were completely liberalised in the European Economic Community The Treaty of Maastricht in 1992 establishes the completion of the EMU as a formal objective and sets a number of economic convergence criteria, concerning the inflation rate, public finances, interest rates and exchange rate stability The treaty enters into force on the November 1993 16 What is EMU? Stage Two: January 1994 to 31 December 1998 The European Monetary Institute is established as the forerunner of the European Central Bank, with the task of strengthening monetary cooperation between the member states and their national banks, as well as supervising ECU banknotes On 16 December 1995, details such as the name of the new currency (the euro) as well as the duration of the transition periods are decided On 16-17 June 1997, the European Council decides at Amsterdam to adopt the Stability and Growth Pact, designed to ensure budgetary discipline after creation of the euro, and a new exchange rate mechanism (ERM II) is set up to provide stability above the euro and the national currencies of countries that haven't yet entered the eurozone On May 1998, at the European Council in Brussels, the 11 initial countries that will participate in the third stage from January 1999 are selected On June 1998, the European Central Bank (ECB) is created, and in 31 December 1998, the conversion rates between the 11 participating national currencies and the euro are established 17 What is EMU? Stage Three: January 1999 and continuing From the start of 1999, the euro is now a real currency, and a single monetary policy is introduced under the authority of the ECB A three-year transition period begins before the introduction of actual euro notes and coins, but legally the national currencies have already ceased to exist On January 2001, Greece joins the third stage of the EMU The euro notes and coins are introduced in January 2002 On January 2007, Slovenia joins the third stage of the EMU On January 2008, Cyprus and Malta join the third stage of the EMU On January 2009, Slovakia joins the third stage of the EMU 18 The advantages of an EMU member countries If everything goes to plan, by 2002, participating member states of the European Union will have ditched their national currency in favour of the euro, a single European currency The advantages and disadvantages of joining the European Monetary Union (Emu) will vary from country to country, and are difficult to predict Within the EU, each member state has its own financial system; therefore the introduction of the Euro will make a different impact on each country's economy But economists say that there are a number of advantages in signing up to the euro: Currency stability A single currency should end currency instability in the participating countries (by irrevocably fixing exchange rates) and reduce it outside them Because the euro would have the enhanced credibility of being used in a large currency zone, it would be more stable against speculation than individual currencies are now An end to internal currency instability and a reduction of external 19 currency instability would enable exporters to project future markets with greater certainty This could unleash great potential for growth The advantages of an EMU member countries Cheaper mortgages, lower interest rates A single currency should also result in lower interest rates as all member countries if the new European Central bank takes on the monetary credibility of Germany's Bundesbank The stability pact (the main points of which were agreed at the Dublin summit of European heads of state or government in December 1996) will force EU countries into a system of fiscal responsibility which will enhance the euro's international credibility This should lead to more investment, more jobs, lower interest rates - and for home owners to lower mortgages 20 The advantages of an EMU member countries Tourism Consumers would not have to change money when travelling within the euro zone, and would encounter less red tape when transferring large sums of money across borders Travellers will no longer be forced to change money and pay banks the commission charges A consumer might wish to make one large purchase or transaction across a European border such as buying a holiday home or a piece of furniture A single currency would help such transactions pass smoothly Business benefits Likewise, businesses would no longer have to pay hedging costs which they today in order to insure themselves against the threat of currency fluctuations Businesses, involved in commercial transactions in different member states, would no longer have to face the costs of accounting in different currencies Surprisingly, small firms stand the most to gain Experts estimate that 21 currently the currency cost of exports is ten times higher for small companies than for multi-nationals, who can offset sales against purchases and command the best rates Pros and Cons of Joining EMU Advantages Disadvantages Economic policy stability 1.Loss of national control over economic Facilitation of trade policy Lower interest rates The need to compensate Confusion in Preservation of the City’s position: the transition to EMU: Lower confidence arising from loss of national pride Express your own idea: Should UK enter into EMU? Explain ... Sources: 1.BPP Business Environment Coursebook (pages 278-289) International Trade Define what is international trade International trade is exchange of capital, goods, and services across international. .. the impact on Giay Viet a Monetary system (EMS) European Monetary system was set up in 1979 Its purpose is “ to establish greater monetary stability in the European Union The exchange rates between... stability a Monetary system (EMS) European Monetary System (EMS) was an arrangement established in 1979 under the Jenkins European Commission where most nations of the European Economic Community