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Paul Sparks - Online English Lesson Plans, Lesson Material and Ideas for "Culture of English Speaking Countries Lessons", Xiangtan Normal University...




British Trade and Foreign Policy

Although some countries may be capable of producing all the food, manufacturing products or services needed by their population, they will normally specialise in the production of only some of these goods and services. By specialising, surpluses are created which can be traded with other countries. The UK has some natural resources such as oil, but needs to trade to get other resources such as iron.

The UK has to trade with other countries for the following reasons:

  • It lacks some natural resources and raw materials. The type of climate and weather means that certain foods can not be grown naturally.

  • The UK needs foreign currency to buy what it can not produce, and this foreign currency is gained by selling exports from the UK.

  • As trade increases, unemployment may fall, which will benefit the country, as well as individuals.

  • The population gains from a wider choice of goods and services.

Changes in UK Trade:
Until recently the UK was regarded by other countries as a producer of manufactured goods for export. They traded these goods against food and raw materials in return. the largest imports into the UK are now finished manufactured goods, with food taking a smaller percentage of imports. 

The reasons for the UK reducing its export of manufactured goods are as follows:

  • Increases competition - other countries now manufacture more goods

  • Lower costs in other countries, wages overseas are less and costs of raw materials may be cheaper

  • Lack of staff training - Many managers and workers in the UK do not learn any foreign languages

The Balance of Payments: The "Balance of Payments" records the inflow and outflow of a countries foreign currency. Inflows of foreign currency come from the export of goods or services, outflows come from imports of goods and services where money leaves the country.

The Balance of Trade is calculated by "visible exports" less "visible imports" - "Visible" means goods only, not services, chemicals, engineering products and textiles are examples of visible goods. The balance of payments included the invisible trade as well as visible.

Exporting: Both countries and individual firms benefit from exporting. A firm which exports gains a wider market, and should therefore get higher profits. However there are some problems to face when exporting:

  • Differences in measurements - different weights, sizes, electrical voltages etc.

  • Language difficulties - Product labels, communication etc.

  • Payments - difficulties can occur from selling overseas, non payment etc.

  • Costs - higher delivery costs, insurance, currency differences etc.

  • Import restrictions - There may be limits on how many goods can be imported into a country

  • Documentation - There may be complicated documents and procedures for firms to comply with.

Because governments realise the advantages gained from international trade they may assist companies in exporting. They may set up trade associations and "Chambers of Commerce" (local business organisations).

Restrictions on Trade: Sometimes governments may impose restrictions on trade, they can do this by any of the following methods:

  • Tariffs - These are import duties or taxes, the UK has "Customs and Excise" duties that people must pay when they export goods to the UK. This can make imported goods more expensive, therefore encouraging people to buy goods produced at home rather than imported goods.

  • Quotas - These are physical restrictions on the amount of goods that can be imported into a country over a period of time. The UK has a quota on the number of cars that can be imported from Japan.

  • Subsidies - By providing money for home producers the businesses in the UK can compete on price against imports.

  • Embargoes - This is when bans are placed on importing certain items from overseas.

The restrictions on trade may be placed in order to raise revenue from tariffs, to protect existing industries from overseas importers, to protect new businesses who can not yet compete or to restrict "dumping" of foreign goods (goods which are exported at a very low price by countries wishing to establish a market in another country).

The European Union Influence on Trade: The EU was founded to increase trade between member states. It provides subsidies, for example to agriculture through the common agricultural policy (CAP). The EU promotes free movement of labour and investment between member states and helps lead to increased efficiency and trade. Other policies provide training and funding for business and education. The EU controls standards for quality and safety of goods. The UK is now linked to the rest of Europe by the Channel Tunnel, a direct rail link between the UK and France.

UK Trade and Investment: The UK is an open economy. This means that the living standards and the competitiveness of industry depends on the ability to trade and invest freely. The UK is currently the world’s fifth largest exporter of goods (£188 billion in 2000) and second largest exporter of services (£67 billion in 2000). Exports are equivalent to more than one-quarter of GDP.

Trade and Investment: How the UK Benefits: Trade allows countries, and the firms and individuals within them, to specialise in economic activities which best allow them to exploit their relative strengths, abilities, resources and expertise, and to buy from and sell to other countries doing likewise. In this way trade: 

  • Means lower prices and wider choice for consumers. 

  • Benefits industry through better access to competitive sources of components and materials, boosting their performance at home and abroad. 

  • Stimulates competition and innovation

  • Promotes economic growth in developed and less developed economies, and helps generate the resources to promote higher standards of employment and environmental protection.

  • Helps underpin political stability throughout the world. 

The world’s politicians agreed to establish the GATT and work for trade liberalisation after witnessing the damaging and tragic effects of widespread protection during the 1930s. Since then, average industrial tariffs of developed countries have fallen from nearly 40% to less than 5% through eight rounds of multilateral trade liberalisation. This has gone hand-in-hand with a twenty-fold increase in world trade and a more than six-fold increase in world incomes. 

Developing Countries & Trade: Trade doesn’t just benefit the UK. Developing countries also have much to gain. The available evidence suggests that open economies have faster growth rates than closed economies. Gains for developing countries do not come solely through improved access for their exports. Competitive domestic markets are a necessary condition for improving their rate of growth. 

Developing countries have much to gain from further liberalisation. On average manufacturing exports from developing countries to developed countries face an effective tariff 4 times higher than that on exports between developed countries. They would also gain from lower tariffs on trade between themselves, which are currently far higher than those in developed countries. 

The World Trade Organisation: In 1995, the WTO was established to succeed the General Agreement on Tariffs and Trade (GATT), which had long been the mechanism for international trade negotiations. The GATT was formed in 1948 as a ‘provisional’ instrument initially intended to pave the way to an International Trade Organisation (ITO) which would operate alongside the the World Bank and International Monetary Fund. The ITO would have had an ambitious agenda covering trade disciplines, employment, international investment, services, competition, and commodity agreements.

The GATT brought together 23 countries, including the UK, to lower customs tariffs and give a boost to world-wide liberalisation. They also agreed to accept some of the trade rules of the draft ITO Charter ahead of its agreement, to protect the gains made from the tariff reductions. However, the Havana Charter, which would have established the ITO, was never ratified, meaning the Organisation was never formed, and GATT remained the only multilateral instrument governing international trade.

An informal organisation was built around the GATT to discuss trade-related issues and negotiate further liberalisation. Taking place in ‘rounds’, these negotiations at first concentrated on lowering tariffs before moving on to additional issues such as subsidies. The eighth trade round - the Uruguay Round - ran from 1986-94 and was the most extensive of all, covering trade in goods, services, and intellectual property. It also established the WTO, which is a permanent organisation with permanent, enforceable rules. 

The World Trade Organisation exists to regulate international trade. It is based on non discrimination, ensuring that similar products from different countries must be treated the same way. The WTO serves as a forum for trade negotiations and also provides an arbitration service for countries embroiled in trade disputes. 

Although the UK is a member of the WTO in its own right, for all practical purposes it is part of the WTO through the membership of the European Union (EU), as required by the Common Commercial Policy of the European Community (EC).

Summary of UK Trade: The UK depends on foreign trade for its survival. All countries can benefit from increased international trade. Countries can specialise in goods and services and import the goods and services which that can not produce themselves. Firms have to face many difficulties in implementing exporting facilities, however if they do begin to export there are many benefits.

Foreign Policy:
After the Second World War Britain was active in setting up the United Nations and gained a seat on the UN Security Council, along with the Soviet Union, China and France. After the break up of the British Empire the UK decided to build and maintain its own nuclear weapons to ensure that it would remain superior to most other states in terms of military capability.

A major factor that has influenced British foreign policy is the fact that the UK is an island, and until the Channel Tunnels was build it was separate from any other country. Britain continued to maintain links with the countries which are still a part of the commonwealth of countries. Canada was a very good trading partner for the fur trade. Australia was used to transport criminals to - a much cheaper option than keeping them in prison in Britain.

The Prime Minister and the government decide on the general direction of Britain's foreign policy. There are many government departments who are concerned with foreign policy, the Foreign and Commonwealth Office (FCO) is the main department, but other departments also play a big part, including the Ministry of Defence (MoD) who control the security and defence of the UK.

A main factor which influences Britain's foreign policy is the relationship between the UK and America. Britain and America worked together when there were concerns about the Soviet Union. There are also close links regarding war policy and there are over 60 American military bases in the UK.

The Mission of the Foreign & Commonwealth Office is to promote the national interests of the United Kingdom and to contribute to a strong world community. The following are the main issues in British foreign policy:

Human Rights

Africa Policy: Attempts to Restore Peace and Moving The Peace Process Forward

Asia Pacific Region: various issues

Balkans: Focus on Stability Pact for SE Europe

Britain and the European Union: Policies, Relations with the rest of the world etc.

Britain, China and Hong Kong: Hand over of Hong Kong, Trade Relations etc.

Commonwealth: Commonwealth Games, Diverse Community, Commonwealth debate etc.

Drugs and International Crime: Tackling the Threat, Coordinating the international drugs and crime efforts. Tackling the major drug threats.

Environment: Climate Change, Environmental Security, Pollution etc.

Falkland Islands: Constitutional Status, Contacts with Argentina. Economy & Natural Resources, Geography & History, Security, Sovereignty, etc. 

Global and regional organisations: Commonwealth, Council of Europe, EU, NATO, United Nations.

Global Economic Issues: Globalisation, International Organisations

International Coalition Against Terrorism: The future of Afghanistan, World Consensus and Response to the terrorist attacks, Responsibility for the terrorist atrocities, Muslims in the UK.

International Security: Arms Control, European Security and Defence Policy

Latin America and the Caribbean: Development Assistance, Drugs, Environment, Human Rights

Middle East Peace Process

Overseas Territories: Environment & Conservation, Human Rights etc.

Promoting the UK: British Council, Scholarships, Working with Foreign Journalists, World Service

Public Forum: The G8 Summit in Genoa, The Nice Treaty, The future of the Commonwealth, The EU Stockholm Summit.

Relations with Iraq: Oil for Food contracts, Proposed Changes, The Iraqi Regime's Record, Human Rights.

United Nations: Drugs & terrorism, Emergency assistance, Human rights, International Criminal Court, International law, Millennium Summit, Peace & security, Sustainable development, The UK commitment, The UK's stake in the UN

Defence: Britain spends more on defence than most other developed countries. It continues to maintain nuclear weapons, despite many protests and much opposition. The UK is a member of NATO (North Atlantic treaty Organisation). The purpose of NATO is to protect member states and to provide a foundation for security in Europe. It also provides transatlantic defence co-operation (USA and Canada). NATO is only meant to be used in self defence against attack from other nations. Britain has a naval nuclear force, currently with four nuclear submarines.

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