1.

NATURE & SCOPE OF International marketing

From Wikipedia, the free encyclopedia

International marketing (IM) or global marketing refers to marketing carried out by companies overseas or across national borderlines. This strategy uses an extension of the techniques used in the home country of a firm.[1] It refers to the firm-level marketing practices across the border including market identification and targeting, entry mode selection, marketing mix, and strategic decisions to compete in international markets.[2] According to the American Marketing Association (AMA) "international marketing is the multinational process of planning and executing the conception, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives."[3] In contrast to the definition of marketing only the wordmultinational has been added.[3] In simple words international marketing is the application of marketing principles to across national boundaries. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term. The intersection is the result of the process of internationalization. Many American and European authors see international marketing as a simple extension of exporting, whereby the marketing mix4P's is simply adapted in some way to take into account differences in consumers and segments. It then follows that global marketing takes a more standardised approach to world markets and focuses upon sameness, in other words the similarities in consumers and segments.

Topics covering the micro-context of international marketing

According to Kotabe, the following topics covers the micro-context of international marketing.[4] Organisational and consumer behaviour: organisational buying behaviour; international negotiations; consumer behaviour; country of origin.

Marketing entry decisions: initial mode of entry specific modes of entry exporting; joint ventures.

Local market expansion: marketing mix decisions:

global standardisation vs. local responsiveness Marketing mix: product policy; advertising; pricing; distribution.

Global strategy: Competitive strategy: conceptual development; competitive advantage vs. competitive positioning; sources of competitive advantage and performance implications. Strategic alliances:

learning and trust; recipes for alliance success; performance of different types of alliance. Global sourcing:

global sourcing in a service context; benefits of global sourcing; country of origin issues in global sourcing. Multinational performance:

determinants of performance; a different interpretation of performance. Analytical techniques in cross-national research: measuerment issues; reliability and validity issues.

Differences between domestic marketing and international marketing

International marketing is developed by various multinational companies on a global level in order to set a common brand platform for their products and brands. It is then passed on to each local or domestic market who makes adjustments for their country and manages its implementation. Such a structure ensures a global brand consistency, pricing and messaging. It also can have significant cost savings as major advertising and marketing campaigns can be developed centrally and implemented locally. [edit]Mode

of engagement in foreign markets

After the decision to invest has been made, the exact mode of operation has to be determined. The risks concerning operating in foreign markets is often dependent on the level of control a firm has, coupled with the level of capital expenditure outlayed. The principal modes of engagement are listed below: Exporting (which is further divided into direct and indirect exporting) Joint ventures Direct investment (split into assembly and manufacturing)

[edit]Exporting Direct exporting involves a firm shipping goods directly to a foreign market. A firm employing indirect exporting would utilize a channel/intermediary, who in turn would disseminate the product in the foreign market. From a company's standpoint, exporting consists of the least risk. This is so since no capital expenditure, or outlay of company finances on new non-current assets, has necessarily taken place. Thus, the likelihood of sunk costs, or general barriers to exit, is slim. Conversely, a company may possess less control when exporting into a foreign market, due to not control the supply of the good within the foreign market. [edit]Joint

ventures

A joint venture is a combined effort between two or more business entities, with the aim of mutual benefit from a given economic activity. Some countries often mandate that all foreign investment within it should be via joint ventures (such as India and the People's Republic of China). By comparison with exporting, more control is exerted, however the level of risk is also increased. [edit]Direct

investment

In this mode of engagement, a company would directly construct a fixed/non-current asset within a foreign country, with the aim of manufacturing a product within the overseas market. Assembly denotes the literal assembly of completed parts, to build a completed product. An example of this is the Dell Corporation. Dell possesses plants in countries external to the United States of America, however it assembles personal computers and does not manufacture them from scratch. In other words, it attains parts from other firms, and assembles a personal computer's constituent parts (such as a motherboard, monitor, CPU, RAM, wireless card, modem, sound card, etc.) within its factories. Manufacturing concerns the actual forging of a product from scratch. Car manufacturers often construct all parts within their plants. Direct investment has the most control and the most risk attached. As with any capital expenditure, the return on investment (defined by the payback period,Net Present Value, Internal Rate of Return, etc.) has to be ascertained, in addition to appreciating any related sunk costs with the capital expenditure.

2.Difference Between Domestic marketing and International marketing

Domestic marketing and International marketing are same when it comes to the fundamental principle of marketing. Marketing is an integral part of any business that refers to plans and policies adopted by any individual or organization to reach out to its potential customers. A web definition defines marketing as a process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals. With the world shrinking at a fast pace, the boundaries between nations are melting and companies are now progressing from catering to local markets to reach out to customers in different parts of the world. Marketing is a ploy that is used to attract, satisfy and retain customers. Whether done at a local level or at the global level, the fundamental concepts of marketing remain the same. Domestic Marketing The marketing strategies that are employed to attract and influence customers within the political boundaries of a country are known as Domestic marketing. When a company caters only to local markets, even though it may be competing against foreign companies operating within the country, it is said to be involved in domestic marketing. The focus of companies is on the local customer and market only and no thought is given to overseas markets. All the product and services are produced keeping in mind local customers only. International Marketing When there are no boundaries for a company and it targets customers overseas or in another country, it is said to be engaged in international marketing. If we go by the definition of marketing given above, the process becomes multinational in this case. As such, and in a simplified way, it is nothing but application of marketing principles across countries. Here it is interesting to note that the techniques used in international marketing are primarily those of the home country or the country which has the headquarters of the company. In America and Europe, many experts believe international marketing to be similar to exporting. According to another definition, international marketing refers to business activities that direct the flow of goods and services of a company to consumers in more than one country for profit purposes only. Difference between domestic marketing and international marketing As explained earlier, both domestic as well as international marketing refer to the same marketing principles. However, there are glaring dissimilarities between the two. Scope The scope of domestic marketing is limited and will eventually dry up. On the other end, international marketing has endless opportunities and scope. Benefits As is obvious, the benefits in domestic marketing are less than in international marketing. Furthermore, there is an added incentive of foreign currency that is important from the point of view of the home country as well. Sharing of technology Domestic marketing is limited in the use of technology whereas international marketing allows use and sharing of latest technologies. Political relations Domestic marketing has nothing to do with political relations whereas international marketing leads to improvement in political relations between countries and also increased level of cooperation as a result. Barriers In domestic marketing there are no barriers but in international marketing there are many barriers such as cross cultural differences, language, currency, traditions and customs.

3.ECONOMIC ENVIRONMENT
In the past fifty years the global economy has changed rapidly. Particularly marked has been the development of world economic integration and standardised products. Coca Cola, Nissan and Marlboro cigarettes are examples of products which serve nearly every market. Generally there have been four major changes: capital movements rather than trade have become the driving force of the global economy production has become "uncoupled" from employment primary products have become "uncoupled" from the industrial economy and, the world economy is in control - individual nations are not, despite the large world economic share of the USA and Japan. Taking each of these changes in turn, world trade is about some US$ 3 trillion, however, capital movements are much higher. The London Eurodollar market is worth about US$ 75 trillion per annum and foreign exchange transactions are US$ 35 trillion per annum. Another change is the decoupling of employment from production. Employment is in decline whilst manufacturing output is growing or remaining static at 20-25% of GNP. Sectors such as agriculture, are achieving higher productivity through mechanisation but this is at the expense of employment. Still another change is the decoupling of the primary product market from the industrial economy. Many commodity prices have collapsed, for example tea, yet industrial economies have been relatively affected. Unfortunately the prime producers have been dramatically affected. Finally, the most significant change is the change of focus from domestic to the world economy as the chief economic unit. This has been grasped by Japan and Germany, but not really by the USA, or Africa. These factors have repercussions on exporting by developing countries. Firstly with developing countries' emphasis on the export of primary products, they are at the mercy of world supply and demand movements, with the resultant fluctuations in prices. Depressed world market prices can have a deleterious effect on developing economies. Secondly the rapid globalisation and focus away from domestic economies has created global competition and in turn, this has pushed up quality. Generally speaking, unless developing countries can break into noncomittally based products they are being further left behind in the global economic stakes. However positively, whilst developed worlds concentrate on industrial and

service products it leaves opportunities for developing countries to export more food based products.

The global economy

The development of the global economy can be traced back many hundreds of years when traders from the east and west came together to exchange goods. However, the growth of the modern global economy is marked by a number of features as follows: The legacy of mercantilism 1500-1750 The prevalent wisdom was one of nationalism, that is, that one nation prospered at the expense of another. Nations like the UK, Netherlands and later France and Germany, with powerful navies which ruled the waves in the West, and the traders of the East, dominated that area. Over time, nationalism gave way to bullionism, where gold and silver, rather than other raw materials, became the basis of wealth. Still later, domination took another form, where countries were believed to be powerful if they had a favourable balance of trade - an excess of exports over imports. Mercantilism died with the development of the United Nations (UN) and the General Agreement on Tariffs and Trade (GATT), along with Adam Smith's tome on the "Wealth of Nations" which advocated market forces as the principal driving force to development and wealth. World trade Economic progress is linked to world trade and those who preach trade restrictions are denying this fact. Countries like the old communist bloc (Russia, East Germany, etc.) have not developed as fast as those with more outward orientation. The same can be said of African nations, where the inability to industrialise and export in volume has locked them into, generally, primary product producers. Economic Structural Adjustment Programmes (ESAP) are supposed to remedy this situation by giveng "command economies" a market oriented focus. Another argument concerns whether marketing has relevance to the process of economic development. Less developed countries (LDCs) have traditionally focused on production and domestic income generation. Also, marketing addresses itself to needs and wants and it could be argued that where LDCs' productive capabilities are far less than unsatisfied needs and wants, then marketing is superfluous. However, adopting "marketing" could lead to the more efficient and effective use of productive and marketing resources and it may be able to focus on current needs and find better solutions. For example, techniques developed in the West for optimising transport resources could well be transferred to effect. Similarly, adopting new methods of marketing may give better results. A good example is the Cold Storage Company of Zimbabwe (CSC). By changing from the current system of marketing cattle (the CSC takes in cattle, at fixed prices and slaughters) to an auction system by description, all actors in the system could benefit. Decisions in product, price, communications and merchandising can stimulate economic development. Changing from fixed price systems to market based pricing could lead to the faster achievement of development objectives (for example "higher incomes"). In current drought conditions in Africa, governments could well benefit from advertising

other forms of nutritious food, for example, fish, rather than let the populace be left uninformed and disgruntled about the lack of maize.

Composition of world trade Agriculture, minerals, fuels and manufactured goods figure most in world trade. However shifts are occurring (see table 2.1) .
6

Table 2.1 Shift in commodity trade - % of world trade

Product 1980 1985% 1988% Agriculture 22.5 1 14 Minerals 14 -5 14 Fuel 41 -3.5 1 Manufactures 17 4.5 1

Interestingly enough, those economies which have divested themselves of agriculture (or made it more efficient) and invested in manufacturing are those which have shown spectacular growth. Table 2.2 compares Zimbabwe with Thailand .
6

Patterns of trade Most industrialised nations trade with each other. This had led to their continued domination. particularly the USA, Western Europe and Japan which between them have 66% of world GNP and trade. In 1985 industrialised trade to other industrialised countries accounted for 47% of trade, next came developing countries to industrialised (15%), and finally industrialised to developing countries (13%). Political influences can also be seen between trading partners, for example Zimbabwe's trade with China. Marketers need to identify trading patterns between nations and product trading patterns. East-West trade and West to the former communist bloc is likely to grow at the expense of North-South trade. Table 2.2 Structure of production
Distribution of GDP % GDP $ m Agriculture Industry Manufacturing Services 1970 1992 1970 1992 1970 1992 1970 1992 1970 1992 Zimbabwe 1415 5350 15 22 36 35 21 30 49 43 Thailand 7087 110337 26 12 25 39 16 28 49 49 Country

This pattern is repeated throughout Africa and Asia in general. Comparative costs - comparative advantage As discussed in chapter one, price has been called the immediate basis for international trade - cheaper prices based on different cost structures, especially labour. Countries trade because they produce and export goods in which they enjoy a greater comparative advantage and import goods in which they have a least comparative advantage. A further refinement of this is the international product cycle discussed fully in chapter one.

Balance of payments This is the measure of all economic transactions between one nation and another. The balance of payments is made up of the current account, showing trade in goods and services; and the capital account, which shows financial transactions. In 1989, after official transfers, the USA had a US$ 109,242 million deficit on its current account, Japan had a $ 131,400 million surplus, Tanzania a $ 778,5 million deficit and Zimbabwe a $ 2,783 million deficit. The balance of payments account helps marketers select the location of supply for foreign markets and the selection of markets. The capital account may show the nations which have control restrictions and hence be difficult to deal with. In this regard, African nations are generally disadvantaged. Government policy This refers to the government measures and regulations which have a bearing on trade tariffs, quotas, exchange controls and invisible tariffs. These can cause formidable barriers to marketers and will be dealt with at length later. World Institutions Institutions like GATT and the United Nations Conference on Trade and Development (UNCTAD) have been of help to countries in their development. GATT had over 120 members and associated and accounted for 80% of world trade. Its intention was to create a general system of preferences and negotiate tariffs for members' products on a nondiscriminant basis and provide a forum for consultation. The Kennedy Round of the 1960s was superseded by the Tokyo round of the 1970s and that by the current Uruguay round signed in 1994. UNCTAD furthers the development of emerging nations. It seeks to improve the prices of primary goods exports through commodity agreements. It also established a tariff preference system favouring developing nations. Regionalism Regionalism is a major and important trade development. Some regional groupings have either market (EU) or command (China) or mixed economies (former communist countries and The Preferential Trade Area (PTA) and The Southern African Development Community (SADC). With these developments, free trade zones have occurred (all internal barriers abolished) economic unions (the EU), export pricing zones (Mauritius) and other schemes. The major regional economic organisations are: Acuerdo de Cartegna (Andean Group), Association of South East Nations (ASEAN), Asian Pacific Rim countries (APC), Caribbean Community and Common Market (CARICOM), Central American Common Market (Mercado Comn Centro Americano), Council of Arab Economic Unity, Economic Community of West African States (ECOWAS), the European Union (EU), Latin American Integration Association, Organisation Commune Africane et Mauricienne, Preferential Trade Area (PTA) and the Southern African

Development Conference (SADC). A principal collapse has been the Council for Economic Assistance (COMECON) with the disappearance of the communist bloc in Eastern Europe. Of these blocs, the EU (reporting 33% of world trade) and EFTA are very important. To counteract the growing power of the EU, the USA and Canada have entered into an agreement with Mexico as a willing partner and created the North American Free Trade Agreement (NAFTA). These blocs are of various form, power, influence and success. ASEAN is a collaboration of industry and agriculture, PTA in tariffs. SADC and PTA have had historically little impact but are now beginning to grow in importance in view of the normalisation of South Africa. The EU, North American Union and the Pacific Rim Union will pose the greatest power blocs in future years. Many developing countries have entered into trading blocks as a reaction against loss of developed country markets or as a base to build economic integration and markets. The development of trading blocs can bring headaches and advantages to trade. It is worth comparing the European Union, a relatively well developed bloc, with SADC and the PTA which are well developed. SADC and PTA are described in a little detail in appendix one and two of this chapter. The international financial system Global financing operations based on the gold standard gave rise to instability, so Bretton Woods, post World War II, saw the nascence of the International Monetary Fund (IMF) and World Bank. The IMF deals with the International Monetary System. Involved countries joined IMF to establish a par value for other countries in terms of the US dollar and maintain it with +/one percent of that value. The system fell down because large corporations were holding more funds than banks and so a "float" set in. IMF began to fade somewhat. However it still lends, on a short term basis, to countries with payment problems to help them continue trading. The World Bank, or International Bank for Reconstruction and Development (IBRD) deals with international capital. It provides long term capital to aid economic development. Currently it has about US$ 22 billion annually for this operation. The role of the World Bank has often been criticised especially on its conditionalities for loans to Africa in funding structural adjustment and trade liberalisation programmes. However many developing countries require institutional funding to help them with trade and balance payment problems. Other major lenders include the EU and bilateral donors and agencies who have provided money for developmental projects. A principal donor is the United States Agency for International Development (USAID). The United States of America Since the Gulf War of 1991, the USA has played an increasingly important role in the economic affairs of the world. Since that time, itself, and its agency USAID, have increasingly flexed their muscles. However, the balance of economic power in recent years, has shifted towards the Pacific rim, especially Japan and the Asian Tigers.

Individual economies Whilst the global factors listed above have aided the development of a world economy, marketers must consider carefully individual economies. A study of these helps answer the questions - how big is the market and what is it like? Currently there are over 200 individual countries in the world. Size of market General indications of market size include population (growth rates and distribution) and income (distribution, per capita, GNP). a) Population: In general, the larger the population, the bigger the market. However there is no correlation between income level and population. China has 2 billion plus people, India 1 billion, Zimbabwe 8 million. However, they do not have the same income per capita as the USA or UK. In 1993 the USA population of 252.2 million, the UK 57.4 million and Africa 400 million, were respectively 6%, 1.5% and 9% of the world's population. However the USA and UK had an infinitely higher GNP per capita income than Africa, US$ 22,520, UK $17,300 and Africa $ 270 respectively (1989). Different countries experience different population growth rates. In the early 90s, the UK had an annual growth rate of 0.1%, the Ivory Coast 6%, and Africa in general, 3% per annum. Low income countries and oil rich countries have the largest growth rates. Growth rates have a dual edge - they are good for sales but bad for world resources. The world population, currently standing at 5 billion is experiencing a rapid growth rate. It is expected to reach 7 billion by the end of the century. The strain on world resources is likely to be very large. The distribution of the population is also important. Different age groups have different needs and population density should mean good market potential, the higher the better. The Netherlands have 1000 persons per square mile, Bangladesh 1,791 but the USA only 65 persons per square mile. However, the USA spends more per capita than Bangladesh b) Income: No one has yet been able to assess accurately the impact of the AIDS pandemic on world population and economic activity. South Africa estimates AIDS will cost South African industry R16.7 billion by the year 2000 (Business Herald - Nov. 24.1994). Suffice to say, unless a cure or prevention is found, it could be serious, especially in Africa and South East Asia, the world's "hot spots" Income is the most important variable affecting market potential. Markets are not markets without money to spend. Interestingly, there is an inverse correlation between GNP per capita and income elasticity of demand for food. Asia has a 0.9 income elasticity of demand and the USA 0.16. The distribution of income is very uneven. In Kenya the lowest 20% of the population receive less then 3% of national resource. This bimodal distribution of income means marketers must analyse two economies in a country. Per capita measures have therefore, many limitations. Per capita judges a country's level of economic development and its degree of modernisation and progress in health, education and welfare. Half of

the world's population lives with an average per capita income of only US$ 270. Per capita is usually reflected in US dollars and is only valid for comparison if exchange rates are equal. Exchange rates reflect international goods and services in a country but not domestic consumption. Another limitation of per capita measures is the lack of comparability with the figures themselves. The US budget contains food, clothing and shelter. In many of the less developed nations these items may be largely self provided and therefore not reflected in national income tables. Also in the UK, snow equipment is included, and this is not, obviously, in Africa and parts of Asia. Other limitations are that sales of goods are not well correlated with per capita income and if there is great unevenness in income distribution, per capita figures are less meaningful. Product saturation can be equally troublesome in affecting market potential. A vacuum cleaner in the Netherlands has a 95% household penetration rate, but only 7% in Italy. Gross National Product is a better indicator of potential than Gross Domestic Product as GDP includes more than "product". World GNP figures reveal the concentration of wealth in the three nations, the USA, Japan and Western Europe. Africa trails far behind (see table 2.3) .
3

However, when evaluating markets it is wise to consider individual product areas. For example, Belgium's GNP is better than India's but India's, consumption of steel is 3 times that of Belgium's. Table 2.3 GDP and GNP of selected countries
GDP % GNP % US$ bn of World US$ bn of World USA 5670 35 3000 29 UK 903 6 540 5 Africa 322 3 220 3

The United Nations International Comparison Project (ICP) developed a sophisticated method for measuring total expenditure, which has been used to derive more reliable and directly comparable estimates of per capita income. The World Bank has published a comparison of ICP findings with its own Atlas figures based on the exchange rate conversion. The use of exchange rates tends to distort real income or standard of living measures. The nature of economy More than money makes up an economy's economic environment. Natural resources -raw materials now and in the future are important. If synthetic gold or tobacco were developed or, in the case of the latter, became unfashionable, Zimbabwe's economy would be ruined. Topography may produce two, three or more submarkets in a country. Zambia, for example, has "rural" and "urban" areas with different needs and wants. Extremes of climate - like the Southern African drought in 1992 can devastate economies and derail any economic development plans and exports. Simply, products are not available to export, because they are being consumed by the domestic economy.

The nature of economic activity Economic activity is often correlated to the type of economic activity. Various methods have been derived to classify economies. These are: Stages of market development Global markets are at different stages of development which can be divided into five categories based on the criterion of gross national product per capita. i) Preindustrial countries - incomes less than US$ 400 GNP per capita. Limited industrialisation, low literacy rates, high birth rates, heavy reliance on foreign aid, political instability. Parts of Sub-Saharan Africa. Little market potential. ii) Less developed countries - per capita between US$ 401 and US$ 1,635. Early stages of industrialisation, growing domestic market, mature product markets, increasing competitive threat. iii) Developing countries - per capita income between US$ 1,636 and US $ 5,500. Decrease in percentage of agricultural workers, industrialisation, rising wages, high literacy rates, lower wage rates than developed countries, formidable competitors. iv) Industrialised countries - per capita income between US$ 5,501 and US$ 10,000. Moving towards post industrialisation, high standard of living. v) Advanced countries - per capita income in excess of US$ 10,000. Post industrialisation, information processors, knowledge based, less machine based. Product opportunities are in new products, innovations and raw materials plus fresh foods. The World Bank classification The World Bank has drawn up a classification of economies based on GNP per capita. i) Low income economies, China and India, other low-income-GNP per capita income of between US$ 675 or less, 41 nations including Tanzania, Kenya, Zambia and Malawi. ii) Middle income economies, lower middle income, GNP per capita of between US$ 676 and US$ 2,695, 40 nations including Zimbabwe, Mexico and Thailand. iii) Upper middle income, GNP per capita of between US$ 2,676 and US$ 8,355, 17 nations including Brazil, Portugal and Greece. iv) High income economies, OECD members and others, GNP per capita of between US$ 8,356 or more, 24 nations including UK and the USA. v) Other economies - communist bloc.

Mozambique and Switzerland are the two extreme ends of the spectrum with US$ 80 per capita and US$ 29,880 per capita respectively.

Rostow: Whilst economic in nature, Rostow (1971) produced a five stage model of economic takeoff:
Stage 1 traditional society, little increase in productivity, no modern science application systematically, low level of literacy Stage 2 the preconditions of takeoff, modern techniques in agriculture and production, developments in infrastructure and social institutions Stage 3 the takeoff, normal growth patterns, rapid agricultural and industrial modernisation, good social environment. Stage 4 the drive to maturity, modern technology applied to all fronts, international involvement, can produce anything Stage 5 the age of high mass consumption, production of durable goods and services, large amounts of These classifications enable marketers to assess where and how to operate in countries which may display the stage characteristics. For example African exporters would look to stage 4 and 5 economies to obtain the greatest revenue opportunities for other produce. Another way to assess the market alternatives to a potential global marketer is to look at the origin of its national product - is it farm or factory generated? Farm workers tend to have low incomes. Input-output tables provide other insights into a country's potential, that is, what inputs go into a particular industry's output? What combination of labour, materials and equipment? Infrastructure Infrastructure is a very important element in considering whether to market in a country or not. Transportation, for example, is vital. Zambia and Zimbabwe are landlocked and have relatively poor transport facilities. Tanzania, whilst having direct access to the coast, has also a relatively poor internal rural infrastructure. Chaos can therefore ensue, especially during the rainy season. Without being able to get produce to the point of exportation, countries will suffer poor export performance accordingly. Energy consumption shows the overall industrialisation of a society as does its infrastructure. The less energy is consumed, the less likely the development of the market resulting in a not too attractive market proposition. Communications are essential. India has only some 10 million telephones to a population of 1 billion people. Media availability is important. Zambia has 680 radios per 1000 population, France 2,059 per 1000. Malawi has no domestic television service but access to satellite television.

Commercial infrastructure is also vital - banks, accountants, advertising agencies and other services. Without these " transaction " facilities, exporting cannot take place. Urbanisation Differences exist between "urban" and "country" dwellers. City dwellers may have more income, more developed communications and access to new products. Developing countries tend to suffer from rural drift, but without the accompanying incomes characteristic of developed countries. So when assessing market opportunities widespread urbanisation is no guarantee of a good market potential. Other Inflation causes havoc with economies and foreign exchange. For example Zambia has an unofficial inflation rate of over 100%, which makes it difficult and expensive to access capital for investment and obtain pre-export finance. The role of Government is essential. Some encourage joint ventures and investment, others do not. The number of international companies operating in an economy can be both good and bad. Japan's investment in the USA and UK is high, creating jobs, but gives rise to negative feelings because access to Japan is not so easy. This has led to calls for protectionism. Similarly, flows from developed countries to less developed ones are generally one way. This leads to instability in the underdeveloped country because it has no "hostage" leverage. Repatriation or transfer of dividends can be an issue which can detract from investment if negative facilities exist. This can seriously undermine economic development and trade. Many African countries are undergoing structural adjustment and trade liberalisation programmes. In some cases, these have met with limited success. They can create market opportunities, but they also can cause internal economic upheavals for long periods of time, detracting from investment by outsiders and limiting the export opportunities, especially if interest rates rise, as is often the case. The economic environment is one of the major determinants of market potential and opportunity. Careful analysis of this, particularly income and the stage of economic development is essential. Failure to do so will lead, at best, to sub optimal opportunity and, at worst, to disaster. Less developed countries like Africa, are at a disadvantage, due to their primary material export dependence. It behoves these nations in the continent to derive policies and strategies for rapid industrialisation, or forever to be at the mercy of world demand and prices. Economic factors are just some of the "environmental uncontrollables" which marketers must consider when deciding to market globally. The global economy can be traced back hundreds of years when traders from the east and west came together to exchange goods. Through the legacy of mercantilism up to the current GATT Round, marketers have had to contend with changes and developments in the economic environment, including the growth of regional economic blocs, all aimed at increasing cooperation between the grouped nations. Markets differ widely in their size and state of development world wide.

4.TRADING BLOCKS
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.[1] One of the first economic blocs was the German Customs Union (Zollverein) initiated in 1834, formed on the basis of the German Confederation and subsequently German Empirefrom 1871. Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the 1990s after the collapse of Communism. By 1997, more than 50% of all world commerce was conducted under the auspices of regional trade blocs.[2] Economist Jeffrey J. Scott of the Peterson Institute for International Economics notes that members of successful trade blocs usually share four common traits: similar levels of per capita GNP, geographic proximity, similar or compatible trading regimes, and political commitment to regional organization.[3] Advocates of worldwide free trade are generally opposed to trading blocs, which, they argue, encourage regional as opposed to global free trade.[4] Scholars and economists continue to debate whether regional trade blocs are leading to a more fragmented world economy or encouraging the extension of the existing global multilateral trading system.[5][6]Trade blocs can be stand-alone agreements between several states (such as the North American Free Trade Agreement (NAFTA) or part of a regional organization (such as theEuropean Union). Depending on the level of economic integration, trade blocs can fall into different categories, such as:[7] preferential trading areas, free trade areas, customs unions,common markets and economic and monetary unions.

European Union
The European Union (EU) i/jrpinjunjn/ is an economic and political union of 27 member states which are located primarily in Europe.[7] The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by six countries in 1958. In the intervening years the EU has grown in size by the accession of new member states, and in power by the addition of policy areas to its remit. The Maastricht Treaty established the European Union under its current name in 1993.[8] The latest amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009. The EU operates through a hybrid system of supranational independent institutions and intergovernmentally made decisions negotiated by the member states.[9][10][11] Important institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank. The European Parliament is elected every five years by EU citizens. The EU has developed a single market through a standardised system of laws which apply in all member states. Within the Schengen Area (which includes EU and non-EU states) passport controls have been abolished.[12] EU policies aim to ensure the free movement of people, goods, services, and capital,[13] enact legislation in justice and home affairs, and maintain common policies on trade, [14] agriculture,[15] fisheries and regional development.[16] A monetary union, the eurozone, was established in 1999 and is currently composed of 17 member states. Through the Common Foreign and Security Policy the EU has developed a limited role in external relations and defence. Permanent diplomatic missions have been established around the world and the EU is represented at the United Nations, the WTO, the G8 and the G-20. With a combined population of over 500 million inhabitants,[17] or 7.3% of the world population,[18] the EU generated a nominal GDP of 16,242 billion US dollars in 2010, which represents an estimated 20% of global GDP when measured in terms of purchasing power parity.[19]

European Union
[show]

Flag

Motto: United in diversity[1][2][3]

Anthem: Ode to Joy

Anthem of the European Union

Ode to Joy[2] (orchestral)

Political centres

Brussels Luxembourg Strasbourg

Official languages

23[show]

Demonym

European[4]

Member States

27[show]

Leaders

-European Council -European Commission -European Parliament -Council of the European Union

Herman Van Rompuy Jos Manuel Barroso Jerzy Buzek Donald Tusk(Poland)

Legislature

Legislature

-Upper House

Council

-Lower House

Parliament

Establishment -Paris Treaty -Rome Treaty -Maastricht Treaty -Lisbon Treaty 23 July 1952 1 January 1958 1 November 1993 1 December 2009

Area -Total 4,324,782 km2 1,669,807 sq mi -Water (%) 3.08

Population -2011 estimate -Density 502,486,499 [5] 116.2/km2 300.9/sq mi

GDP (PPP) -Total -Per capita

2010 (IMF) estimate $15,203 trillion $30,455

GDP (nominal) -Total -Per capita

2010 (IMF) estimate $16,242 trillion $32,537

Gini (2009)

30.7 (EU25)[6] (low)

HDI (2010)

0.835 (very high)

Currency

euro () (EUR)[show]

Time zone -Summer (DST)

(UTC+0 to +2) (UTC+1 to +3[nb 1])

Internet TLD

.eu[nb 2]

Website

History
19451958
After World War II, moves towards European integration were seen by many as an escape from the extreme forms of nationalism which had devastated the continent.[20] One such attempt to unite Europeans was theEuropean Coal and Steel Community, which was declared to be "a first step in the federation of Europe", starting with the aim of eliminating the possibility of further wars between its member states by means of pooling the national heavy industries.[21] The founding members of the Community were Belgium, France,Italy, Luxembourg, the Netherlands, and West Germany. The originators and supporters of the Community include Jean Monnet, Robert Schuman, Paul Henri Spaak, and Alcide De Gasperi.[22] In 1957, the six countries signed the Treaties of Rome, which extended the earlier cooperation within the European Coal and Steel Community (ECSC) and created the European Economic Community, (EEC) establishing a customs union and the European Atomic Energy Community (Euratom) for cooperation in developing nuclear energy. The treaty came into force in 1958.[

19581972
The EEC and Euratom were created separately from ECSC, although they shared the same courts and the Common Assembly. The executives of the new communities were called Commissions, as opposed to the "High Authority". The EEC was headed by Walter Hallstein (Hallstein Commission) and Euratom was headed by Louis Armand (Armand Commission) and then Etienne Hirsch. Euratom would integrate sectors in nuclear energy while the EEC would develop a customs union between members.[23][24][25] Throughout the 1960s tensions began to show with France seeking to limit supranational power. However, in 1965 an agreement was reached and hence in 1967 the Merger Treaty was signed in Brussels. It came into force on 1 July 1967 and created a single set of institutions for the three communities, which were collectively referred to as the European Communities (EC), although commonly just as the European Community.[26][27] Jean Rey presided over the first merged Commission (Rey Commission).[28]

19731993
In 1973 the Communities enlarged to include Denmark (including Greenland, which later left the Community in 1985), Ireland, and the United Kingdom.[29]Norway had negotiated to join at the same time but Norwegian voters rejected membership in a referendum and so Norway remained outside. In 1979, the first direct, democratic elections to the European Parliament were held.[30] Greece joined in 1981, Portugal and Spain in 1986.[31] In 1985, the Schengen Agreement led the way toward the creation of open borders without passportcontrols between most member states and some non-member states.[32] In 1986, the European flag began to be used by the Community[33] and the Single European Act was signed. In 1990, after the fall of the Iron Curtain, the former East Germany became part of the Community as part of a newly united Germany.[34] With enlargement towards European formerly communist countries as well as Cyprus (Greek part) and Malta on the agenda, the Copenhagen criteria for candidate members to join the European Union were agreed.

1993present
The European Union was formally established when the Maastricht Treaty came into force on 1 November 1993,[8] and in 1995 Austria, Finland and Swedenjoined the newly established EU. In 2002, euro notes and coins replaced national currencies in 12 of the member states. Since then, the eurozone has increased to encompass 17 countries. In 2004, the EU saw its biggest enlargement to date when Cyprus, the Czech Republic, Estonia, Hungary, Latvia,Lithuania, Malta, Poland, Slovakia and Slovenia joined the Union.
[35]

On 1 January 2007, Romania and Bulgaria became the EU's newest members. In the same year Slovenia adopted the euro,[35] followed in 2008 by Cyprus and Malta, by Slovakia in 2009 and by Estonia in 2011. In June 2009, the 2009 Parliament elections were held leading to a renewal of Barroso's Commission Presidency, and in July 2009 Iceland formally applied for EU membership. On 1 December 2009, the Lisbon Treaty entered into force and reformed many aspects of the EU. In particular it changed the legal structure of the European Union, merging the EU three pillars system into a single legal entity provisioned with legal personality, and it created a permanent President of the European Council, the first of which is Herman Van Rompuy, and a strengthened High Representative, Catherine Ashton.[36]

Treaties
Main article: Treaties of the European Union
Signed 1948 In forc 1948 Docum els 1951 1954 1952 1955 s ty ed els Treaty 1957 1965 1975 1958 1967 N/A e es er y n conclus ion 1985 1985 gen 1986 1987 1992 1993 1997 1999 am Treaty 2001 2003 Treaty 2007 2009 Lisbon Treaty

e Bruss Pari Modifi Rom Merg Europea Schen Single ent Treaty Trea Bruss treati Treat Council Treaty

Maastrich Amsterd Nice

European Act t Treaty

Three pillars of the European U nion: European Communities: European Atomic Energy Community (EURATOM) European Coal and Steel Treaty expired in Europe

Community (ECSC) European Economic Community (EEC) Schengen Rules

2002

European Community (EC) Justice and

TREVI

Home Affairs (J HA)

Police and Judicial Co-operation in Criminal Matters (PJCC)

an Union(E U)

European Political Cooperation ( EPC) Common Foreign and Security Policy (CFSP)

Unconsolida ted bodies

Western European Union (WEU)

Treaty terminated in 2011

Member states
Main article: Member State of the European Union See also: Special Member State territories and the European Union, Enlargement of the European Union, Future enlargement of the European Union, and Withdrawal from the European Union

The member states of the European Union (European Communities pre-1993), animated in order of accession. Only territories in and around Europe are shown.
Albania Austria Belarus Belgium Bos. & Herz. Bulgaria Croatia Cyprus

The European Union is composed of 27 sovereign Member States: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic,Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithua nia, Luxembourg, Malta, theNetherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.[42] The Union's membership has grown from the original six founding statesBelgium, France, (then-West) Germany, Italy, Luxembourg and the Netherlandsto the present day 27 by successive enlargements as countries acceded to the treaties and by doing so, pooled their sovereignty in exchange for representation in the institutions.[43] To join the EU a country must meet theCopenhagen criteria, defined at the 1993 Copenhagen European Council. These require a stable democracy that respectshuman rights and the rule of law; a functioning market economy capable of competition within the EU; and the acceptance of the obligations of membership, including EU law. Evaluation of a country's fulfilment of the criteria is the responsibility of the European Council.[44] No member state has ever left the Union, although Greenland (an autonomous province of Denmark) withdrew in 1985.[45] The Lisbon Treaty now provides a clause dealing with how a member leaves the EU.[46] Croatia is an acceding country and may become the 28th member of the EU on 1 July 2013, subject to a national referendum.[47] There are four candidate countries: Iceland, Macedonia,[nb 4] [48] Montenegro and Turkey. Albania, Bosnia and Herzegovina andSerbia are officially recognised as potential candidates.[49] Kosovo is also listed as a potential candidate but the European Commission does not list it as an independent country because not all member states recognise it as an independent country separate from Serbia.[50] Four countries forming the EFTA (that are not EU members) have partly committed to the EU's economy and regulations: Iceland (a candidate country for EU membership), Liechtenstein and Norway, which are a part of the single market through theEuropean Economic Area, and Switzerland, which has similar ties through bilateral treaties.[51][52] The relationships of theEuropean microstates, Andorra, Monaco, San Marino and the Vatican include the use of the euro and other areas of cooperation.[53] [edit]Environment Further information: European Commissioner for the Environment and European Climate Change Programme The first environmental policy of the European Community was launched in 1972. Since then it has addressed issues such as acid rain, the thinning of the ozone layer, air quality, noise pollution, wasteand water pollution. The Water Framework Directive is an example of a water policy, aiming for rivers, lakes, ground and coastal waters to be of "good quality" by 2015.[54] The Birds Directive and theHabitats Directive are pieces of European Union legislation for protection of biodiversity and natural habitats. These protections however only directly cover animals and plants; fungi and micro-organisms have no protection under European Union law.[55] The directives are implemented through the Natura 2000 programme and covers 30,000 sites throughout Europe.[54] In 2007, the Polish government sought to build a motorway through the Rospuda valley, but the Commission has been blocking construction as the valley is a wildlife area covered by the programme.[56] In 2007, member states agreed that the EU is to use 20% renewable energy in the future and that it has to reduce carbon dioxide emissions in 2020 by at least 20% compared to 1990 levels.[57] This

includes measures that in 2020, 10% of the overall fuel quantity used by cars and trucks in EU 27 should be running on renewable energy such as biofuels. This is considered to be one of the most ambitious moves of an important industrialised region to fight global warming.[58] [edit]Politics Main article: Politics of the European Union
European Union

This article is part of the series:

Politics and government of the European Union Parliament[show] Council of Ministers[show] European Council[show] Commission[show] Court of Justice[show] Other institutions[show] Policies and issues[show] Foreign relations[show] Elections[show] Law[show]

The EU operates solely within those competencies conferred on it upon the treaties and according to the principle of subsidiarity (which dictates that action by the EU should only be taken where an objective cannot be sufficiently achieved by the member states alone). Laws made by the EU institutions are passed in a variety of forms. Generally speaking they can be classified into two groups: those which come into force without the necessity for national implementation measures, and those which specifically require national implementation measures.[59] [edit]Governance Main articles: EU institutions and Legislature of the European Union The European Union has seven institutions: the European Parliament, the Council of the European Union, the European Commission, the European Council, the European Central Bank, the Court of Justice of the European Union and the European Court of Auditors. Competencies in scrutinising and amending legislation are divided between the European Parliament and the Council of the European Union while executive tasks are carried out by the European Commission and in a limited capacity by the European Council (not to be confused with the aforementioned Council of the European Union). The monetary policy of the eurozone is governed by the European Central Bank. The interpretation and the application of EU law and the treaties are ensured by the Court of Justice of the European Union. There are also a number of ancillary bodies which advise the EU or operate in a specific area. [edit]European Council

President of the European Council,Herman Van Rompuy

The European Council gives direction to the EU, and convenes at least four times a year. It comprises the President of the European Council, the President of the European Commission and one representative per member state; either its head of state or head of government. The European Council has been described by some as the Union's "supreme political authority".[60] It is actively involved in the negotiation of thetreaty changes and defines the EU's policy agenda and strategies. The European Council uses its leadership role to sort out disputes between member states and the institutions, and to resolve political crises and disagreements over controversial issues and policies. It acts externally as a "collective Head of State" and ratifies important documents (for example, international agreements and treaties).[61] On 19 November 2009, Herman Van Rompuy was chosen as the first permanent President of the European Council. On 1 December 2009, theTreaty of Lisbon entered into force and he assumed office. Ensuring the external representation of the EU,[62] driving consensus and settling divergences among members are tasks for the President both during the convocations of the European Council

and in the time periods between them. The European Council should not be mistaken for theCouncil of Europe, an international organisation independent from the EU. [edit]Commission

Commission PresidentJos Manuel Barroso

The European Commission acts as the EU's executive arm and is responsible for initiating legislation and the day-to-day running of the EU. The Commission is also seen as the motor of European integration. It operates as a cabinet government, with 27 Commissioners for different areas of policy, one from each member state, though Commissioners are bound to represent the interests of the EU as a whole rather than their home state. One of the 27 is the Commission President (currently Jos Manuel Duro Barroso) appointed by the European Council. After the President, the most prominent Commissioner is the High Representative of the Union for Foreign Affairs and Security Policy who is ex-officio Vice President of the Commission and is chosen by the European Council too.[63] The other 25 Commissioners are subsequently appointed by the Council of the European Union in agreement with the nominated President. Eventually, the 27 Commissioners as a single body are subject to a vote of approval by the European Parliament. [edit]Parliament

The European Parliament building inStrasbourg, France

The European Parliament (EP) forms one half of the EU's legislature (the other half is the Council of the European Union, see below). The 736 (soon to be 751) Members of the European Parliament (MEPs) are directly elected by EU citizens every five years on the basis of proportional

representation to the share of votes collected by each political party. Although MEPs are elected on a national basis, they sit according to political groups rather than their nationality. Each country has a set number of seats and is divided into sub-national constituencies where this does not affect the proportional nature of the voting system.[64]

The ordinary legislative procedure of the European Union.

The Parliament and the Council of the European Union pass legislation jointly in nearly all areas under the ordinary legislative procedure. This also applies to the EU budget. Finally, the Commission is accountable to Parliament, requiring its approval to take office, having to report back to it and subject to motions of censure from it. The President of the European Parliament carries out the role of speaker in parliament and represents it externally. The EP President and Vice Presidents are elected by MEPs every two and a half years.[65] [edit]Council The Council of the European Union (also called the "Council"[66] and sometimes referred to as the "Council of Ministers"[67]) forms the other half of the EU'slegislature. It consists of a government minister from each member state and meets in different compositions depending on the policy area being addressed. Notwithstanding its different configurations, it is considered to be one single body. [68] In addition to its legislative functions, the Council also exercises executive functions in relations to the Common Foreign and Security Policy. [edit]Budget Main article: Budget of the European Union

The 2011 EU budget (141.9 bn. in total; commitment appropriations):[69] Cohesion and competitiveness for growth and employment (45%) Citizenship, freedom, security and justice (1%) The EU as a global player (6%) Rural development (11%) Direct aids and market related expenditures (31%) Administration (6%)

The 27 member state EU had an agreed budget of 120.7 billion for the year 2007 and 864.3 billion for the period 20072013,[70] representing 1.10% and 1.05% of the EU-27's GNI forecast for the respective periods. By comparison, the United Kingdom's expenditure for 2004 was estimated to be 759 billion, and France was estimated to have spent 801 billion. In 1960, the budget of the then European Economic Community was 0.03% of GDP.[71] In the 2010 budget of 141.5 billion, the largest single expenditure item is "cohesion & competitiveness" with around 45% of the total budget.[72] Next comes "agriculture" with approximately 31% of the total.[72] "Rural development, environment and fisheries" takes up around 11%. [72] "Administration" accounts for around 6%.[72] The "EU as a global partner" and "citizenship, freedom, security and justice" bring up the rear with approximately 6% and 1% respectively.[72] The European Court of Auditors aims to ensure that the budget of the European Union has been properly accounted for. The court provides an audit report for each financial year to the Council and the European Parliament. The Parliament uses this to decide whether to approve the Commission's handling of the budget. The Court also gives opinions and proposals on financial legislation and antifraud actions.[73] The Court of Auditors is legally obliged to provide the Parliament and the Council with "a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions".[74] The Court has not given an unqualified approval of the Union's accounts since 1993. [75] In their report on 2009 the auditors found that five areas of Union expenditure, agriculture and the cohesion fund, were materially affected by error.[76] The European Commission estimated that the financial impact of irregularities was 1,863 million.[77] [edit]Competences EU member states retain all powers not explicitly handed to the European Union. In some areas the EU enjoys exclusive competence. These are areas in which member states have renounced any capacity to enact legislation. In other areas the EU and its member states share the competence to legislate. While both can legislate, member states can only legislate to the extent to which the EU has not. In other policy areas the EU can only co-ordinate, support and supplement member state action but cannot enact legislation with the aim of harmonising national laws.[78] That a particular policy area falls into a certain category of competence is not necessarily indicative of what legislative procedure is used for enacting legislation within that policy area. Different legislative procedures are used within the same category of competence, and even with the same policy area. The distribution of competences in various policy areas between Member States and the Union is divided in the following three categories:

Exclusive competence:
"The Union has exclusive competence to make directives and conclude international agreements when provided for in a Union legislative act."

the customs union the establishing of the competition rulesnecessary for the functioning of the internal market monetary policy for the Member States whose currency is the euro the conservation of marine biological resources under the common fisheries policy common commercial policy

Shared competence:
"Member States cannot exercise competence in areas where the Union has done so." "Union exercise of competence shall not result in Member States being prevented from exercising theirs in:"

the internal market social policy, for the aspects defined in this

research, technological development

and space

Treaty

economic, social and territorial cohesion agriculture and fisheries, excluding the

development cooperation, humanitarian aid

"The Union coordinates Member States policies or implements supplemental to theirs common policies, not covered elsewhere"

conservation of marine biological resources

environment consumer protection transport trans-European networks energy the area of freedom, security and justice common safety concerns in public health

coordination of economic, employment and

social policies

common foreign, security and defence policies

matters, for the aspects defined in this Treaty

Supporting competence:
"The Union can carry out actions to support, coordinate or supplement Member States' actions in:"

the protection and improvement of human health industry culture tourism education, youth, sport and vocational training civil protection (disaster prevention) administrative cooperation

Legal system

The EU is based on a series of treaties. These first established the European Community and the EU, and then made amendments to those founding treaties.[79] These are power-giving treaties which set broad policy goals and establish institutions with the necessary legal powers to implement those goals. These legal powers include the ability to enact legislation[nb 5] which can directly affect all member states and their inhabitants.[nb 6] The EU has legal personality, with the right to sign agreements and international treaties.[80] Under the principle of supremacy, national courts are required to enforce the treaties that their member states have ratified, and thus the laws enacted under them, even if doing so requires them to ignore conflicting national law, and (within limits) even constitutional provisions.[nb 7] [edit]Courts

of Justice

The judicial branch of the EUformally called the Court of Justice of the European Unionconsists of three courts: the Court of Justice, the General Court, and the European Union Civil Service Tribunal. Together they interpret and apply the treaties and the law of the EU.[81] The Court of Justice primarily deals with cases taken by member states, the institutions, and cases referred to it by the courts of member states.[82] The General Court mainly deals with cases taken by individuals and companies directly before the EU's courts,[83] and the European Union Civil Service Tribunal adjudicates in disputes between the European Union and its civil service.[84] Decisions from the General Court can be appealed to the Court of Justice but only on a point of law.[85]

Fundamental rights

The last amendment to the constitutional basis of the EU came into force in 2009 and was the Lisbon Treaty.

The treaties declare that the EU itself is "founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities ... in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail."[86] In 2009 the Lisbon Treaty gave legal effect to the Charter of Fundamental Rights of the European Union. The charter is a codified catalogue of fundamental rights against which the EU's legal acts can be judged. It consolidates many rights which were previously recognised by the Court of Justice and derived from the "constitutional traditions common to the member states."[87] The Court of Justice has long recognised fundamental rights and has, on occasion, invalidated EU legislation based on its failure to adhere to those fundamental rights.[88] The Charter of Fundamental Rights was drawn up in 2000. Although originally not legally binding the Charter was frequently cited by the EU's courts as encapsulating rights which the courts had long recognised as the fundamental principles of EU law. Although signing the European Convention on Human Rights (ECHR) is a condition for EU membership,[nb 8] previously, the EU itself could not accede to the Convention as it is neither a state[nb 9] nor had the competence to accede.[nb 10] The Lisbon Treaty and Protocol 14 to the ECHR have changed this: the former binds the EU to accede to the Convention while the latter formally permits it. The EU also promoted human rights issues in the wider world. The EU opposes the death penalty and has proposed its world wide abolition.[89] Abolition of the death penalty is a condition for EU membership.[90] [edit]Acts The main legal acts of the EU come in three forms: regulations, directives, and decisions. Regulations become law in all member states the moment they come into force, without the requirement for any implementing measures,[nb 11] and automatically override conflicting domestic provisions.[nb 5] Directives require member states to achieve a certain result while leaving them discretion as to how to achieve the result. The details of how they are to be implemented are left to member states.[nb 12] When the time limit for implementing directives passes, they may, under certain conditions, havedirect effect in national law against member states. Decisions offer an alternative to the two above modes of legislation. They are legal acts which only apply to specified individuals, companies or a particular member state. They are most often used inCompetition Law, or on rulings on State Aid, but are also frequently used for procedural or administrative matters within the institutions. Regulations, directives, and decisions are of equal legal value and apply without any formal hierarchy.[91]

[edit]Justice

and home affairs

Further information: Area of freedom, security and justice

The Schengen Area comprises most member states ensuring open borders.

Since the creation of the EU in 1993, it has developed its competencies in the area of justice and home affairs, initially at an intergovernmental level and later by supranationalism. To this end, agencies have been established that co-ordinate associated actions: Europol for co-operation of police forces,[92] Eurojustfor co-operation between prosecutors,[93] and Frontex for co-operation between border control authorities.[94] The EU also operates the Schengen Information System[12] which provides a common database for police and immigration authorities. This cooperation had to particularly be developed with the advent of open borders through the Schengen Agreement and the associated cross border crime. Furthermore, the Union has legislated in areas such as extradition,[95] family law,[96] asylum law, [97] and criminal justice.[98] Prohibitions against sexual and nationality discrimination have a long standing in the treaties.[nb 13] In more recent years, these have been supplemented by powers to legislate against discrimination based on race, religion, disability, age, and sexual orientation.[nb 14] By virtue of these powers, the EU has enacted legislation on sexual discrimination in the work-place, age discrimination, and racial discrimination.[nb 15] [edit]Foreign

relations

Main articles: Foreign relations of the European Union, Common Foreign and Security Policy, and European External Action Service

High Representative of the Union for Foreign Affairs and Security Policy, Catherine Ashton.

Foreign policy cooperation between member states dates from the establishment of the Community in 1957, when member states negotiated as a bloc in international tradenegotiations under the Common Commercial Policy.[99] Steps for a more wide ranging coordination in foreign relations began in 1970 with the establishment of European Political Cooperation which created an informal consultation process between member states with the aim of forming common foreign policies. It was not, however, until 1987 when European Political Cooperation was introduced on a formal basis by the Single European Act. EPC was renamed as the Common Foreign and Security Policy (CFSP) by the Maastricht Treaty.[100] The aims of the CFSP are to promote both the EU's own interests and those of the international community as a whole, including the furtherance of international co-operation, respect for human rights, democracy, and the rule of law.[101] The CFSP requires unanimity among the member states on the appropriate policy to follow on any particular issue. The unanimity and difficult issues treated under the CFSP makes disagreements, such as those which occurred over the war in Iraq,[102] not uncommon.

The EU participates in all G8 and G20summits. (G20 summit in Seoul)

The co-ordinator and representative of the CFSP within the EU is the High Representative of the Union for Foreign Affairs and Security Policy (currently Catherine Ashton) who speaks on behalf of the EU in foreign policy and defence matters, and has the task of articulating the positions expressed by the member states on these fields of policy into a common alignment. The High Representative heads up the European External Action Service (EEAS), a unique EU department[103] that has been officially implemented and operational since 1 December 2010 on the occasion of the first anniversary of the entry into force of the Treaty of Lisbon.[104] The EEAS will serve as a foreign ministry and diplomatic corps for the European Union.[105] Besides the emerging international policy of the European Union, the international influence of the EU is also felt through enlargement. The perceived benefits of becoming a member of the EU act as an incentive for both political and economic reform in states wishing to fulfil the EU's accession criteria, and are considered an important factor contributing to the reform of European formerly Communist countries.[106] This influence on the internal affairs of other countries is generally referred to as "soft power", as opposed to military "hard power".[107] [edit]Military Main article: Military of the European Union

The Eurofighter Typhoon and Eurocopter Tiger are built by a consortium of some EU states.

The European Union does not have one unified military. The predecessors of the European Union were not devised as a strong military alliance because NATO was largely seen as appropriate and sufficient for defence purposes.[108] 21 EU members are members of NATO[109] while the remaining member states follow policies of neutrality.[110] However the compatibility of their neutrality with EU membership is questioned (including by the Prime Minister of Finland)[111] and with mutual solidarity in the event of disasters, terrorist attacks and armed aggression covered by TEU Article 42 (7) and TFEU Article 222 of the EU treaties; the Western European Union, a military alliance with a mutual defence clause, was disbanded in 2010 as its role had been transferred to the EU.[112] According to the Stockholm International Peace Research Institute (SIPRI), France spent more than $44 billion on defence in 2010, placing it third in the world after the US and China, while the United Kingdom spent almost 39 billion, the fourth largest.[113] Together, France and the United Kingdom account for 45 per cent of Europe's defence budget, 50 per cent of its military capacity and 70 per cent of all spending in military research and development.[114] In 2000, the United Kingdom, France, Spain, and Germany accounted for 97% of the total military research budget of the then 15 EU member states.[115] Following the Kosovo War in 1999, the European Council agreed that "the Union must have the capacity for autonomous action, backed by credible military forces, the means to decide to use them, and the readiness to do so, in order to respond to international crises without prejudice to actions by NATO". To that end, a number of efforts were made to increase the EU's military capability, notably the Helsinki Headline Goal process. After much discussion, the most concrete result was the EU Battlegroups initiative, each of which is planned to be able to deploy quickly about 1500 personnel.[116] EU forces have been deployed on peacekeeping missions from Africa to the former Yugoslavia and the Middle East.[117] EU military operations are supported by a number of bodies, including theEuropean Defence Agency, European Union Satellite Centre and the European Union Military Staff.[118] In an EU consisting of 27 members, substantial security and defence cooperation is increasingly relying on great power cooperation.[119] [edit]Humanitarian

aid

Further information: ECHO (European Commission)

Collectively, the EU is the largest contributor of foreign aid in the world.

The European Commissions Humanitarian Aid Office, or "ECHO", provides humanitarian aid from the EU to developing countries. In 2006 its budget amounted to 671 million, 48% of which went to the African, Caribbean and Pacific countries.[120] Counting the EU's own contributions and those of its member states together, the EU is the largest aid donor in the world.[121] Humanitarian aid is financed directly by the budget (70%) as part of the financial instruments for external action and also by the European Development Fund(30%).[122] The EU's external action financing is divided into 'geographic' instruments and 'thematic' instruments.[122] The 'geographic' instruments provide aid through the Development Cooperation Instrument (DCI, 16.9 billion, 2007 2013), which must spend 95% of its budget on overseas development assistance(ODA), and from the European Neighbourhood and Partnership Instrument (ENPI), which contains some relevant programmes.[122] The European Development Fund (EDF, 22.7 bn, 20082013) is made up of voluntary contributions by member states, but there is pressure to merge the EDF into the budgetfinanced instruments in order to encourage increased contributions to match the 0.7% target and allow the European Parliament greater oversight.[122] The EU's aid has previously been criticised by the eurosceptic think-tank Open Europe for being inefficient, mis-targeted and linked to economic objectives.[123] Furthermore, some charities such as ActionAid have claimed European governments have inflated the amount they have spent on aid by incorrectly including money spent on debt relief, foreign students, and refugees. Under the deinflated figures, the EU as a whole did not reach its internal aid target in 2006[124] and is expected not to reach the international target of 0.7% of gross national income until 2015.[125] However, four countries have reached the 0.7% target: Sweden, Luxembourg, the Netherlands and Denmark.[121] In 2005 EU aid was 0.34% of the GNP which was higher than that of either the United States or Japan.[126] The previous commissioner for aid, Louis Michel, has called for aid to be delivered more rapidly, to greater effect, and on humanitarian principles.[127] [edit]Economy Main articles: Economy of the European Union and Regional policy of the European Union

The ten largest economies in the world counting the EU as a single entity, by GDP (2011)[128]

The EU has established a single market across the territory of all its members. A monetary union, the eurozone, using a single currency comprises 17 member states.[129] In 2010 the EU generated an estimated 26% (16.242 billion international dollars) share of the global gross domestic product[19] making it the largest economy in the world. It is the largest exporter,[130] the largest importer[131] of goods and services, and the biggest trading partner to several large countries such as China,[132] India,[133] and the United States. Of the top 500 largest corporations measured by revenue (Fortune Global 500 in 2010), 161 have their headquarters in the EU.[134] In May 2007 unemployment in the EU stood at 7%[135] while investment was at 21.4% of GDP, inflation at 2.2% and public deficit at 0.9% of GDP.[136] There is a significant variance for annual per capita income within individual EU states, these range from 5,000 to 50,000 (about US$7,000 to US$69,000).[137] The difference between the richest and poorest regions (271 NUTS-2 regions of the Nomenclature of Territorial Units for Statistics) ranged, in 2007, from 26% of the EU27 average in the region of Severozapaden in Bulgaria, to 334% of the average in Inner London in the United Kingdom. On the high end, Inner London has 83,200 PPP per capita, Luxembourg 68,500, and Bruxelles-Cap 55,000, while the poorest regions, areSeverozapaden with 6,400 PPP per capita, Nord-Est and Severen tsentralen with 6,600 and Yuzhen tsentralen with 6,800.[138] Structural Funds and Cohesion Funds are supporting the development of underdeveloped regions of the EU. Such regions are primarily located in the new member states of East-Central Europe. [139] Several funds provide emergency aid, support for candidate members to transform their country to conform to the EU's standard (Phare, ISPA, and SAPARD), and support to the former USSRCommonwealth of Independent States (TACIS). TACIS has now become part of the worldwide EuropeAid programme. The EU Seventh Framework Programme (FP7) sponsors research conducted by consortia from all EU members to work towards a single European Research Area.[140] [edit]Internal

market

Main article: Internal Market (European Union)

EU Member States have a standardised passportdesign with the name of the member state, a symbol, and the words "European Union" given in their official language(s). (Ireland model)

Two of the original core objectives of the European Economic Community were the development of a common market, subsequently renamed the single market, and acustoms union between its member states. The single market involves the free circulation of goods, capital, people and services within the EU,[129] and the customs union involves the application of a common external tariff on all goods entering the market. Once goods have been admitted into the market they cannot be subjected to customs duties, discriminatory taxes or import quotas, as they travel internally. The non-EU member states of Iceland, Norway, Liechtenstein and Switzerland participate in the single market but not in the customs union.[51] Half the trade in the EU is covered by legislation harmonised by the EU.
[141]

Free movement of capital is intended to permit movement of investments such as property purchases and buying of shares between countries.[142] Until the drive towardsEconomic and Monetary Union the development of the capital provisions had been slow. Post-Maastricht there has been a rapidly developing corpus of ECJ judgements regarding this initially neglected freedom. The free movement of capital is unique insofar as it is granted equally to non-member states. The free movement of persons means that EU citizens can move freely between member states to live, work, study or retire in another country. This required the lowering of administrative formalities and recognition of professional qualifications of other states.[143] The free movement of services and of establishment allows self-employed persons to move between member states in order to provide services on a temporary or permanent basis. While services account for 6070% of GDP, legislation in the area is not as developed as in other areas. This lacuna has been addressed by the recently passed Directive on services in the internal market which aims to liberalise the cross border provision of services.[144] According to the Treaty the provision of services is a residual freedom that only applies if no other freedom is being exercised. [edit]Competition Further information: European Union competition law and European Commissioner for Competition The EU operates a competition policy intended to ensure undistorted competition within the single market.[nb 16] The Commission as the competition regulator for the single market is responsible forantitrust issues, approving mergers, breaking up cartels, working for economic liberalisation and preventing state aid.[145]

The Competition Commissioner, currently Joaqun Almunia, is one of the most powerful positions in the Commission, notable for the ability to affect the commercial interests of trans-national corporations.[146] For example, in 2001 the Commission for the first time prevented a merger between two companies based in the United States (GE and Honeywell) which had already been approved by their national authority.[147] Another high profile case against Microsoft, resulted in the Commission fining Microsoft over 777 million following nine years of legal action.[148] [edit]Monetary

union

Main articles: Economic and Monetary Union of the European Union and Eurozone

The eurozone (in darker blue) is constituted by 17 member states adopting the euro as legal tender.

The European Central Bank in Frankfurt governs the monetary policy.

The creation of a European single currency became an official objective of the European Economic Community in 1969. However, it was only with the advent of the Maastricht Treaty in 1993 that member states were legally bound to start the monetary union no later than 1 January 1999. On this date the euro was duly launched by eleven of the then 15 member states of the EU. It remained an accounting currency until 1 January 2002, when euro notes and coins were issued and national currencies began to phase out in the eurozone, which by then consisted of 12 member states. The eurozone (constituted by the EU member states which have adopted the euro) has since grown to 17 countries, the most recent being Estonia which joined on 1 January 2011. All other EU member states, except Denmark and the United Kingdom, are legally bound to join the euro[149] when the convergence criteriaare met, however only a few countries have set target dates for accession. Sweden has circumvented the requirement to join the euro by not meeting the membership criteria.[nb 17] The euro is designed to help build a single market by, for example: easing travel of citizens and goods, eliminating exchange rate problems, providing price transparency, creating a single financial

market, price stability and low interest rates, and providing a currency used internationally and protected against shocks by the large amount of internal trade within the eurozone. It is also intended as a political symbol of integration and stimulus for more.[150] Since its launch the euro has become the second reserve currency in the world with a quarter of foreign exchanges reserves being in euro. [151] The euro, and the monetary policies of those who have adopted it in agreement with the EU, are under the control of the European Central Bank (ECB).[152] The ECB is the central bank for the eurozone, and thus controls monetary policy in that area with an agenda to maintain price stability. It is at the centre of the European System of Central Banks, which comprehends all EU national central banks and is controlled by its General Council, consisting of the President of the ECB, who is appointed by the European Council, the Vice-President of the ECB, and the governors of the national central banks of all 27 EU member states.[153] [edit]Financial

supervision

The European System of Financial Supervisors is an institutional architecture of the EU's framework of financial supervision composed by three authorities: the European Banking Authority, theEuropean Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. To complement this framework, there is also a European Systemic Risk Board under the responsibility of the ECB. The aim of this financial control system is to ensure the economic stability of the EU.[154] [edit]Energy Main article: Energy policy of the European Union

EU energy production

46% of total EU primary energy use

Nuclear energy[nb 18]

29.3%

Coal & lignite

21.9%

Gas

19.4%

Renewable energy

14.6%

Oil

13.4%

Other

1.4%

Net imports of energy

54% of total primary EU energy use

Oil & petroleum products

60.2%

Gas

26.4%

Other

13.4%

In 2006, the 27 member states of the EU had a gross inland energy consumption of 1,825 million tonnes of oil equivalent (toe).[155] Around 46% of the energy consumed was produced within the member states while 54% was imported.[155] In these statistics, nuclear energy is treated as primary energy produced in the EU, regardless of the source of the uranium, of which less than 3% is produced in the EU.[156] The EU has had legislative power in the area of energy policy for most of its existence; this has its roots in the original European Coal and Steel Community. The introduction of a mandatory and comprehensive European energy policy was approved at the meeting of the European Council in October 2005, and the first draft policy was published in January 2007.[157] The EU has five key points in its energy policy: increase competition in the internal market, encourage investment and boost interconnections between electricity grids; diversify energy resources with better systems to respond to a crisis; establish a new treaty framework for energy co-operation with Russia while improving relations with energy-rich states in Central Asia[158] and North Africa; use existing energy supplies more efficiently while increasing use of renewable energy; and finally increase funding for new energy technologies.[157] The EU currently imports 82% of its oil, 57% of its gas[159] and 97.48% of its uranium[156] demands. There are concerns that Europe's dependence on Russian energy is endangering the Union and its member countries. The EU is attempting to diversify its energy supply.[160] [edit]Infrastructure Further information: European Commissioner for Transport and European Commissioner for Industry and Entrepreneurship

The resund Bridge between Denmark and Sweden is part of the Trans-European Networks.

The EU is working to improve cross-border infrastructure within the EU, for example through the Trans-European Networks (TEN). Projects under TEN include the Channel Tunnel, LGV Est, the Frjus Rail Tunnel, the resund Bridge, the Brenner Base Tunnel and the Strait of Messina Bridge. In 2001 it was estimated that by 2010 the network would cover: 75,200 kilometres (46,700 mi) of roads; 78,000 kilometres (48,000 mi) of railways; 330 airports; 270 maritime harbours; and 210 internal harbours.[161][162] The developing European transport policies will increase the pressure on the environment in many regions by the increased transport network. In the pre-2004 EU members, the major problem in transport deals with congestion and pollution. After the recent enlargement, the new states that joined since 2004 added the problem of solving accessibility to the transport agenda.[163] The Polish road network in particular was in poor condition: at Poland's accession to the EU, 4,600 roads needed to be upgraded to EU standards, demanding approximately 17 billion.[164][not in citation given] The Galileo positioning system is another EU infrastructure project . Galileo is a proposed Satellite navigation system, to be built by the EU and launched by the European Space Agency (ESA), and is to be operational by 2012. The Galileo project was launched partly to reduce the EU's dependency on the US-operated Global Positioning System, but also to give more complete global coverage and allow for far greater accuracy, given the aged nature of the GPS system.[165] It has been criticised by some due to costs, delays, and their perception of redundancy given the existence of the GPS system.[166] [edit]Agriculture Main article: Common Agricultural Policy

EU farms are supported by the CAP, the largest budgetary expenditure. (Vineyard in Spain)

The Common Agricultural Policy (CAP) is one of the oldest policies of the European Community, and was one of its core aims.[167] The policy has the objectives of increasing agricultural production, providing certainty in food supplies, ensuring a high quality of life for farmers, stabilising markets, and ensuring reasonable prices for consumers.[nb 19] It was, until recently, operated by a system of subsidies and market intervention. Until the 1990s, the policy accounted for over 60% of the then European Community's annual budget, and still accounts for around 34%.[168] The policy's price controls and market interventions led to considerable overproduction, resulting in so-called butter mountains and wine lakes. These wereintervention stores of produce bought up by the Community to maintain minimum price levels. In order to dispose of surplus stores, they were often sold on the world market at prices considerably below Community guaranteed prices, or farmers were offered subsidies (amounting to the difference between the Community and world prices) to

export their produce outside the Community. This system has been criticised for under-cutting farmers outside of Europe, especially those in the developing world.[169] The overproduction has also been criticised for encouraging environmentally unfriendly intensive farming methods.[169] Supporters of CAP say that the economic support which it gives to farmers provides them with a reasonable standard of living, in what would otherwise be an economically unviable way of life. However, the EU's small farmers receive only 8% of CAP's available subsidies.
[169]

Since the beginning of the 1990s, the CAP has been subject to a series of reforms. Initially these reforms included the introduction of set-aside in 1988, where a proportion of farm land was deliberately withdrawn from production, milk quotas (by the McSharry reforms in 1992) and, more recently, the 'de-coupling' (or disassociation) of the money farmers receive from the EU and the amount they produce (by the Fischler reforms in 2004). Agriculture expenditure will move away from subsidy payments linked to specific produce, toward direct payments based on farm size. This is intended to allow the market to dictate production levels, while maintaining agricultural income levels. [167] One of these reforms entailed the abolition of the EU's sugar regime, which previously divided the sugar market between member states and certain African-Caribbean nations with a privileged relationship with the EU.[170] [edit]Education

and science

Main articles: Educational policies and initiatives of the European Union and Framework Programmes for Research and Technological Development

Renewable energy is one priority in transnational research activities such as the FP7

Education and science are areas where the EU's role is limited to supporting national governments. In education, the policy was mainly developed in the 1980s in programmes supporting exchanges and mobility. The most visible of these has been the Erasmus Programme, a university exchange programme which began in 1987. In its first 20 years it has supported international exchange opportunities for well over 1.5 million university and college students and has become a symbol of European student life.[171] There are now similar programmes for school pupils and teachers, for trainees in vocational education and training, and for adult learners in the Lifelong Learning Programme 20072013. These programmes are designed to encourage a wider knowledge of other countries and to spread good practices in the education and training fields across the EU.[172] Through its support of the Bologna process the EU is supporting comparable standards and compatible degrees across Europe.

Scientific development is facilitated through the EU's Framework Programmes, the first of which started in 1984. The aims of EU policy in this area are to co-ordinate and stimulate research. The independent European Research Council allocates EU funds to European or national research projects.[173] The Seventh Framework Programme (FP7) deals in a number of areas, for example energy where it aims to develop a diverse mix of renewable energy for the environment and to reduce dependence on imported fuels.[174] [edit]Health

care

European Health Insurance Card. (French version pictured)

Although the EU has no major competences in the field of health care, Article 35 of the Charter of Fundamental Rights of the European Union affirms that "A high level of human health protection shall be ensured in the definition and implementation of all Union policies and activities". All the member states have either publicly sponsored and regulated universal health care or publicly provided universal health care. The public plans in some countries provide basic or "sick" coverage only; their citizens can purchase supplemental insurance for additional coverage. The European Commission's Directorate-General for Health and Consumers seeks to align national laws on the protection of people's health, on the consumers' rights, on the safety of food and other products.[175][176]
[177]

Health care in the EU is provided through a wide range of different systems run at the national level. The systems are primarily publicly funded through taxation (universal health care). Private funding for health care may represent personal contributions towards meeting the non-taxpayer refunded portion of health care or may reflect totally private (non-subsidised) health care either paid out of pocket or met by some form of personal or employer funded insurance. All EU and many other European countries offer their citizens a free European Health Insurance Card which, on a reciprocal basis, provides insurance for emergency medical treatment insurance when visiting other participating European countries.[178] A specific directive, the Directive on crossborder healthcare, aims at promoting cooperation on health care between member states and facilitating access to safe and high-quality cross-border healthcare for European patients.[179][180][181] [edit]Demographics Main article: Demographics of the European Union On 23 October 2010, the combined population of all 27 member states was forecast at 501,064,211 as of 1 January 2010.[5]

Population of the 5 largest cities in the EU[182]

City

City limits (2006)

Density/km

Density /sq mi

Urban area (2005)

LUZ (2004)

Metropolitan Area[183] (2011)

Berlin

3,410,000

3,815

9,880

3,761,000

4,971,331

4,325,000

London

7,512,400

4,761

12,330

9,332,000

11,917,000

12,500,000

Madrid

3,228,359

5,198

13,460

4,990,000

5,804,829

6,500,000

Paris

2,153,600

24,672

63,900

9,928,000

11,089,124

12,089,098

Rome

2,708,395

2,105

5,450

2,867,000

3,457,690

3,300,000

The EU is home to more global cities than any other region in the world.[184] It contains 16 cities with populations of over one million, the largest being London. Besides many large cities, the EU also includes several densely populated regions that have no single core but have emerged from the connection of several cites and now encompass large metropolitan areas. The largest are Rhine-Ruhr having approximately 11.5 million inhabitants (Cologne, Dortmund, Dsseldorf et al.), Randstad approx. 7 million (Amsterdam, Rotterdam, The Hague, Utrecht et al.), Frankfurt/Rhine-Main approx. 5.8 million (Frankfurt, Wiesbaden et al.), the Flemish diamond approx. 5.5 million (urban area in between Antwerp, Brussels, Leuven and Ghent), the resund Region approx. 3.7 million (Copenhagen, Denmark and Malm, Sweden), and the Upper Silesian Industrial Region approx. 3.5 million (Katowice, Sosnowiec et al.)[185] In 2010, 47.3 million people lived in the EU, who were born outside their resident country. This corresponds to 9.4% of the total EU population. Of these, 31.4 million (6.3%) were born outside the EU and 16.0 million (3.2%) were born in another EU member state. The largest absolute numbers of people born outside the EU were in Germany (6.4 million), France (5.1 million), the United Kingdom (4.7 million), Spain (4.1 million), Italy (3.2 million), and the Netherlands (1.4 million).[186] [edit]Languages Main article: Languages of the European Union

European official languages report (EU-251)

Language

Native Speakers

Total

English

13%

51%

German

18%

32%

French

12%

26%

Italian

13%

16%

Spanish

9%

15%

Polish

9%

10%

Dutch

5%

6%

Greek

3%

3%

Czech

2%

3%

Swedish

2%

3%

Hungarian

2%

2%

Portuguese

2%

2%

Slovak

1%

2%

Danish

1%

1%

Finnish

1%

1%

European official languages report (EU-251)

Language

Native Speakers

Total

Lithuanian

1%

1%

Slovenian

1%

1%

Estonian

<1%

<1%

Irish

<1%

<1%

Latvian

<1%

<1%

Maltese

<1%

<1%

Published in 2006, before the

accession of Bulgaria and Romania. Survey conducted in 2005, based on population with a minimum age of 15. Native: Native language[187] Total: EU citizens able to hold a conversation in this language[188]

Among the many languages and dialects used in the EU, it has 23 official and working languages: Bulgarian, Czech, Danish, Dutch, English, Estonian,Finnish, French, German, Greek, Hun garian, Italian, Irish, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovene, Sp anish, andSwedish.[189][190] Important documents, such as legislation, are translated into every official language. The European Parliament provides translation into all languages for documents and its plenary sessions.[191] Some institutions use only a handful of languages as internal working languages. [192] Catalan,Galician, Basque, Scottish Gaelic and Welsh are not official languages of the EU but have semi-official status in that official translations of the treaties are made into them and citizens of the EU have the right to correspond with the institutions using them. Language policy is the responsibility of member states, but EU institutions promote the learning of other languages.[nb 20][193] English is the most spoken language in the EU and is spoken by 51% of the EU population counting both native and non-native speakers.[194] German is the most widely spoken

mother tongue (about 88.7 million people as of 2006). 56% of EU citizens are able to engage in a conversation in a language other than their mother tongue.[195] Most official languages of the EU belong to the Indo-European language family, except Estonian, Finnish, and Hungarian, which belong to theUralic language family, and Maltese, which is an Afroasiatic language. Most EU official languages are written in the Latin alphabet except Bulgarian, written in Cyrillic, and Greek, written in the Greek alphabet.[196] Besides the 23 official languages, there are about 150 regional and minority languages, spoken by up to 50 million people.[196] Of these, only the Spanish regional languages (that is, Catalan/Valencian, Galician, and the non-Indo-European Basque), Scottish Gaelic, and Welsh[197] can be used by citizens in communication with the main European institutions.[198] Although EU programmes can support regional and minority languages, the protection of linguistic rights is a matter for the individual member states. The European Charter for Regional or Minority Languages ratified by most EU states provides general guidelines that states can follow to protect their linguistic heritage. [edit]Religion Main article: Religion in the European Union

The percentage of Europeans in each member state who believe in "a God".[199]

The EU is a secular body with no formal connection with any religion, but Article 17 of the Treaty on the Functioning of the European Union recognises the "status under national law of churches and religious associations" as well as that of "philosophical and non-confessional organisations".[200] The preamble to the Treaty on European Union mentions the "cultural, religious and humanist inheritance of Europe".[200] Discussion over the draft texts of the European Constitution and later the Treaty of Lisbon included proposals to mention Christianity or "God" or both, in the preamble of the text, but the idea faced opposition and was dropped.[201] Christians in the EU are divided among followers of Roman Catholicism, numerous Protestant denominations (especially in northern Europe), and Orthodoxy (in Greece, Cyprus, Bulgaria and Romania). Other religions, such as Islam and Judaism, are also represented in the EU population. As of 2009, the EU had an estimated Muslim population of 13 million,[202] and an estimated Jewish population of over a million.[203] Eurostat's Eurobarometer opinion polls showed in 2005 that 52% of EU citizens believed in a god, 27% in "some sort of spirit or life force", and 18% had no form of belief.[199] Many countries have experienced falling church attendance and membership in recent years.[204] The countries where the

fewest people reported a religious belief were Estonia (16%) and the Czech Republic (19%).[199] The most religious countries are Malta (95%; predominantly Roman Catholic), and Cyprus and Romania both with about 90% of the citizens believing in God (both predominantly Eastern Orthodox). Across the EU, belief was higher among women, increased with age, those with religious upbringing, those who left school at 15 with a basic education, and those "positioning themselves on the right of the political scale (57%)."[199] [edit]Culture

and sport

Main articles: Cultural policies of the European Union and Sport policies of the European Union

Turku in Finland (left) and Tallinn in Estonia (right) are the European Capitals of Culture in 2011

Cultural co-operation between member states has been a concern of the EU since its inclusion as a community competency in the Maastricht Treaty.[205] Actions taken in the cultural area by the EU include the Culture 2000 7-year programme,[205] the European Cultural Month event,[206] the Media Plus programme,[207] orchestras such as the European Union Youth Orchestra[208] and theEuropean Capital of Culture programme where one or more cities in the EU are selected for one year to assist the cultural developmentof that city.[209] Sport is mainly the responsibility of an individual member states or other international organisations rather than that of the EU. However, there are some EU policies that have had an impact on sport, such as the free movement of workers which was at the core of theBosman ruling, which prohibited national football leagues from imposing quotas on foreign players with European citizenship.[210] The Treaty of Lisbon requires any application of economic rules to take into account the specific nature of sport and its structures based on voluntary activity.[211] This followed lobbying by governing organisations such as the International Olympic Committee and FIFA, due to objections over the applications of free market principles to sport which led to an increasing gap between rich and poor clubs.[212] The EU does fund a program for Israeli, Jordanian, Irish and British football coaches, as part of the Football 4 Peace project.[213] [edit]See

also

Geogr aphy portal

Europe portal European Union portal

Book: European Union

Wikipedia books are collections of articles that can be downloaded or ordered in print.

North American Free Trade Agreement

The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada United States Free Trade Agreement between the U.S. and Canada. In terms of combined GDP of its members, as of 2010 the trade bloc is the largest in the world. The North American Free Trade Agreement (NAFTA) has two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and theNorth American Agreement on Labor Cooperation (NAALC).

Provisions
The goal of NAFTA was to eliminate barriers to trade and investment between the US, Canada and Mexico. The implementation of NAFTA on January 1, 1994 brought the immediate elimination of tariffs on more than one-half of U.S. imports from Mexico and more than one-third of U.S. exports to Mexico. Within 10 years of the implementation of the agreement, all US-Mexico tariffs would be eliminated except for some U.S. agricultural exports to Mexico that were to be phased out within 15 years. Most U.S.-Canada trade was already duty free. NAFTA also seeks to eliminate non-tariff trade barriers.

Mechanisms
Chapter 20 provides a procedure for the interstate resolution of disputes over the application and interpretation of NAFTA. It was modeled after Chapter 18 of the Canada-United States Free Trade Agreement.[4] NAFTA's effects, both positive and negative, have been quantified by several economists, whose findings have been reported in publications such as the World Bank's Lessons from NAFTA for Latin America and the Caribbean,[5] NAFTA's Impact on North America,[6] and NAFTA Revisitedby the Institute for International Economics.[7] Some[who?] argue that NAFTA has been positive for Mexico, which has seen its poverty rates fall and real income rise (in the form of lower prices, especially food),

even after accounting for the 199495 economic crisis.[8] Others[who?] argue that NAFTA has been beneficial to business owners and elites in all three countries, but has had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from US agribusiness, and negative impacts on US workers in manufacturing and assembly industries who lost jobs. Critics also argue that NAFTA has contributed to the rising levels of inequality in both the US and Mexico. Some economists believe that NAFTA has not been enough (or worked fast enough) to produce an economic convergence,[9] nor to substantially reduce poverty rates. Some have suggested that in order to fully benefit from the agreement, Mexico must invest more in education and promote innovation in infrastructure and agriculture. [edit]Trade The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, America, and Mexico. NAFTA allowed agriculture goods to be tariff-free such as eggs, poultry and other meats and crops. This allowed corporations to trade freely and import and export various goods on a North American scale. Since the implementation of NAFTA, the countries involved have been able to do the following: [edit]Exports At $248.2 billion for Canada and $163.3 billion for Mexico, they were the top two purchasers of US exports in 2010. US goods exports to NAFTA in 2010 were $411.5 billion, up 23.4% ($78 billion) from 2009 and 149% from 1994 (the year prior to Uruguay Round) and up 190% from 1993 (the year prior to NAFTA). US exports to NAFTA accounted for 32.2% of overall US exports in 2010. The top export categories (2-digit HS) in 2010 were machinery ($63.3 billion), vehicles (parts) ($56.7 billion), electrical machinery ($56.2 billion), mineral fuel and oil ($26.7 billion), and plastic ($22.6 billion). US exports of agricultural products to NAFTA countries totaled $31.4 billion in 2010. Leading categories included red meats, fresh/chilled/frozen ($2.7 billion); coarse grains ($2.2 million); fresh fruit ($1.9 billion); snack foods (excluding nuts) ($1.8 billion); and fresh vegetables ($1.7 billion). US exports of private commercial services, excluding military and government, to NAFTA were $63.8 billion in 2009 (the latest data available), down 7% ($4.6 billion) from 2008, but up 125% since 1994. [edit]Imports At $276.4 billion for Canada and $229.7 billion for Mexico, they were the second and third largest suppliers of goods imports to the United States in 2010. US goods imports from NAFTA totaled $506.1 billion in 2010, up 25.6% ($103 billion), from 2009, up 184% from 1994, and up 235% from 1993. US imports from NAFTA accounted for 26.5% of overall U.S. imports in 2010. The five largest categories in 2010 were mineral fuel and oil (crude oil) ($116.2 billion), vehicles ($86.3 billion), electrical machinery ($61.8 billion), machinery ($51.2 billion), and precious stones (gold) ($13.9 billion). US imports of agricultural products from NAFTA countries totaled $29.8 billion in 2010. Leading categories include fresh vegetables ($4.6 billion); snack foods including chocolate ($4.0 billion); fresh fruit (excluding bananas) ($2.4 billion); live animals ($2.0 billion); and red meats, fresh/chilled/frozen ($2.0 billion).

US imports of private commercial services excluding military and government were $35.5 billion in 2009 (latest data available), down 11.2% ($4.5 billion) from 2008 but up 100% since 1994. [edit]Trade Balances The US goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25 billion) over 2009. The US goods trade deficit with NAFTA accounted for 26.8% of the overall U.S. goods trade deficit in 2010. The US had a services trade surplus of $28.3 billion with NAFTA countries in 2009 (the latest data available). [edit]Investment The US foreign direct investment (FDI) in NAFTA Countries (stock) was $357.7 billion in 2009 (latest data available), up 8.8% from 2008. The US direct investment in NAFTA countries is in nonbank holding companies, and in the manufacturing, finance/insurance, and mining sectors. The [[foreign direct investment,] of Canada and Mexcico in the United States (stock) was $237.2 billion in 2009 (the latest data available), up 16.5% from 2008.[2][3][4] [edit]Industry Maquiladoras (Mexican factories that take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico. These are plants that moved to this region from the United States, hence the debate over the loss of American jobs. Hufbauer's (2005) book shows that income in the maquiladora sector has increased 15.5% since the implementation of NAFTA in 1994. Other sectors now benefit from the free trade agreement, and the share of exports from non-border states has increased in the last five years while the share of exports from maquiladora-border states has decreased. This has allowed for the rapid growth of non-border metropolitan areas, such as Toluca, Len and Puebla; all three larger in population than Tijuana, Ciudad Jurez, and Reynosa. [edit]Environment For more details on this topic, see NAFTA's Impact on the Environment. Securing U.S. congressional approval for NAFTA would have been impossible without addressing public concerns about NAFTAs environmental impact. The Clinton administration negotiated a side agreement on the environment with Canada and Mexico, the North American Agreement on Environmental Cooperation (NAAEC), which led to the creation of the Commission for Environmental Cooperation (CEC) in 1994. To alleviate concerns that NAFTA, the first regional trade agreement between a developing country and two developed countries, would have negative environmental impacts, the CEC was given a mandate to conduct ongoing ex post environmental assessment of NAFTA.[10] In response to this mandate, the CEC created a framework for conducting environmental analysis of NAFTA, one of the first ex post frameworks for the environmental assessment of trade liberalization. The framework was designed to produce a focused and systematic body of evidence with respect to the initial hypotheses about NAFTA and the environment, such as the concern that NAFTA would create a "race to the bottom" in environmental regulation among the three countries, or the hope that NAFTA would pressure governments to increase their environmental protection mechanisms.[11]The CEC has held four symposia using this framework to evaluate the environmental impacts of NAFTA and has commissioned 47 papers on this subject. In keeping with the CECs overall strategy of

transparency and public involvement, the CEC commissioned these papers from leading independent experts.[12] Overall, none of the initial hypotheses were confirmed.[citation needed] NAFTA did not inherently present a systemic threat to the North American environment, as was originally feared, apart from potentially the ISDS provisions of Ch 11. NAFTA-related environmental threats instead occurred in specific areas where government environmental policy, infrastructure, or mechanisms, were unprepared for the increasing scale of production under trade liberalization.[citation needed] In some cases, environmental policy was neglected in the wake of trade liberalization; in other cases, NAFTA's measures for investment protection, such as Chapter 11, and measures against non-tariff trade barriers, threatened to discourage more vigorous environmental policy.[13] The most serious overall increases in pollution due to NAFTA were found in the base metals sector, the Mexican petroleum sector, and the transportation equipment sector in the United States and Mexico, but not in Canada.[14] [edit]Agriculture From the earliest negotiation, agriculture was (and still remains) a controversial topic within NAFTA, as it has been with almost all free trade agreements that have been signed within the WTOframework. Agriculture is the only section that was not negotiated trilaterally; instead, three separate agreements were signed between each pair of parties. The CanadaU.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas the MexicoU.S. pact allows for a wider liberalization within a framework of phase-out periods (it was the first NorthSouth FTA on agriculture to be signed). The overall effect of the MexicoU.S. agricultural agreement is a matter of dispute. Mexico did not invest in the infrastructure necessary for competition, such as efficient railroads and highways, creating more difficult living conditions for the country's poor. Still, the causes of rural poverty cannot be directly attributed to NAFTA[citation needed]; in fact, Mexico's agricultural exports increased 9.4 percent annually between 1994 and 2001, while imports increased by only 6.9 percent a year during the same period.[15] One of the most affected agricultural sectors is the meat industry. Mexico has gone from a small-key player in the pre-1994 U.S. export market to the 2nd largest importer of U.S. agricultural products in 2004, and NAFTA may be credited as a major catalyst for this change. The allowance of free trade removed the hurdles that impeded business between the two countries. As a result, Mexico has provided a growing meat market for the U.S., leading to an increase in sales and profits for the U.S. meat industry. This coincides with a noticeable increase in Mexican per capita GDP that has created large changes in meat consumption patterns, implying that Mexicans can now afford to buy more meat and thus per capita meat consumption has grown.[16] Production of corn in Mexico has increased since NAFTA's implementation. However, internal corn demand has increased beyond Mexico's sufficiency, and imports have become necessary, far beyond the quotas Mexico had originally negotiated.[17] Zahniser & Coyle have also pointed out that corn prices in Mexico, adjusted for international prices, have drastically decreased, yet through a program of subsidies expanded by former president Vicente Fox, production has remained stable since 2000.
[18]

The logical result of a lower commodity price is that more use of it is made downstream. Unfortunately, many of the same rural people who would have been likely to produce higher-margin value-added products in Mexico have instead emigrated. The rise in corn prices due to increased ethanol demand may improve the situation of corn farmers in Mexico.[citation needed]

In a study published in the August 2008 issue of the American Journal of Agricultural Economics, NAFTA has increased U.S. agricultural exports to Mexico and Canada even though most of this increase occurred a decade after its ratification. The study focused on the effects that gradual "phasein" periods in regional trade agreements, including NAFTA, have on trade flows. Most of the increase in members agricultural trade, which was only recently brought under the purview of the World Trade Organization, was due to very high trade barriers before NAFTA or other regional trade agreements.
[19]

[edit]Mobility

of persons

According to the Department of Homeland Security Yearbook of Immigration Statistics, during fiscal year 2006 (i.e., October 2005 through September 2006), 73,880 foreign professionals (64,633 Canadians and 9,247 Mexicans) were admitted into the United States for temporary employment under NAFTA (i.e., in the TN status). Additionally, 17,321 of their family members (13,136 Canadians, 2,904 Mexicans, as well as a number of third-country nationals married to Canadians and Mexicans) entered the U.S. in the treaty national's dependent (TD) status.[20] Because DHS counts the number of the new I-94 arrival records filled at the border, and the TN-1 admission is valid for three years, the number of non-immigrants in TN status present in the U.S. at the end of the fiscal year is approximately equal to the number of admissions during the year. (A discrepancy may be caused by some TN entrants leaving the country or changing status before their three-year admission period has expired, while other immigrants admitted earlier may change their status to TN or TD, or extend TN status granted earlier). Canadian authorities estimated that, as of December 1, 2006, a total of 24,830 U.S. citizens and 15,219 Mexican citizens were present in Canada as "foreign workers". These numbers include both entrants under the NAFTA agreement and those who have entered under other provisions of the Canadian immigration law.[21] New entries of foreign workers in 2006 were 16,841 (U.S. citizens) and 13,933 (Mexicans).[

Non-tariff barriers to trade

From Wikipedia, the free encyclopedia

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted. Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some nontariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources. In other forms, they are criticized as a means to evade free trade rules such as those of the World Trade Organization (WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that restrict the use of tariffs. Some of non-tariff barriers are not directly related to foreign economic regulations, but nevertheless they have a significant impact on foreign-economic activity and foreign trade between countries. Trade between countries is referred to trade in goods, services and factors of production. Non-tariff barriers to trade include import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export subsidies, countervailing duties, technical barriers to trade, sanitary and phyto-sanitary measures, rules of origin, etc. Sometimes in this list they include macroeconomic measures affecting trade.

Six Types of Non-Tariff Barriers to Trade

1. Specific Limitations on Trade:

1. 2.
3.

Quotas Import Licensing requirements Proportion restrictions of foreign to domestic goods (local content

requirements) 4. Minimum import price limits Embargoes Valuation systems Anti-dumping practices Tariff classifications Documentation requirements Fees Standard disparities Intergovernmental acceptances of testing methods and standards

5.
2. 1.

Customs and Administrative Entry Procedures:

2.
3. 4. 5. 3. 1. 2.

Standards:

3. 4. 1. 2. 3. 4. 5. 1. 2. 3. 4. 5. 6. 6. Others: 1. 2. [edit]Examples

Packaging, labeling, and marking Government procurement policies Export subsidies Countervailing duties Domestic assistance programs Prior import deposit subsidies Administrative fees Special supplementary duties Import credit discrimination Variable levies Border taxes Voluntary export restraints Orderly marketing agreements

Government Participation in Trade:

Charges on imports:

of Non-Tariff Barriers to Trade

Non-tariff barriers to trade can be: Import bans General or product-specific quotas Rules of Origin Quality conditions imposed by the importing country on the exporting countries Sanitary and phyto-sanitary conditions Packaging conditions Labeling conditions Product standards Complex regulatory environment Determination of eligibility of an exporting country by the importing country

Determination of eligibility of an exporting establishment (firm, company) by the importing country. Additional trade documents like Certificate of Origin, Certificate of Authenticity etc. Occupational safety and health regulation Employment law Import licenses State subsidies, procurement, trading, state ownership Export subsidies Fixation of a minimum import price Product classification Quota shares

Foreign exchange market controls and multiplicity Inadequate infrastructure "Buy national" policy Over-valued currency Intellectual property laws (patents, copyrights) Restrictive licenses Seasonal import regimes Corrupt and/or lengthy customs procedures

[edit]Types

of Non-Tariff Barriers

There are several different variants of division of non-tariff barriers. Some scholars divide between internal taxes, administrative barriers, health and sanitary regulations and government procurement policies. Others divide non-tariff barriers into more categories such as specific limitations on trade, customs and administrative entry procedures, standards, government participation in trade, charges on import, and other categories. We choose traditional classification of non-tariff barriers, according to which they are divided into 3 principal categories. The first category includes methods to directly import restrictions for protection of certain sectors of national industries: licensing and allocation of import quotas, antidumping and countervailing duties, import deposits, so-called voluntary export restraints, countervailing duties, the system of minimum import prices, etc. Under second category follow methods that are not directly aimed at restricting foreign trade and more related to the administrative bureaucracy, whose actions, however, restrict trade, for example: customs procedures, technical standards and norms, sanitary and veterinary standards, requirements for labeling and packaging, bottling, etc. The third category consists of methods that are not directly aimed at restricting the import or promoting the export, but the effects of which often lead to this result. The non-tariff barriers can include wide variety of restrictions to trade. Here are some example of the popular NTBs. [edit]Licenses The most common instruments of direct regulation of imports (and sometimes export) are licenses and quotas. Almost all industrialized countries apply these non-tariff methods. The license system requires that a state (through specially authorized office) issues permits for foreign trade transactions of import and export commodities included in the lists of licensed merchandises. Product licensing can take many forms and procedures. The main types of licenses are general license that permits unrestricted importation or exportation of goods included in the lists for a certain period of time; and one-time license for a certain product importer (exporter) to import (or export). One-time license indicates a quantity of goods, its cost, its country of origin (or destination), and in some cases also customs point through which import (or export) of goods should be carried out. The use of licensing systems as an instrument for foreign trade regulation is based on a number of international level standards agreements. In particular, these agreements include some provisions of the General Agreement on Tariffs and Trade and the Agreement on Import Licensing Procedures, concluded under the GATT (GATT). [edit]Quotas Licensing of foreign trade is closely related to quantitative restrictions quotas - on imports and exports of certain goods. A quota is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of time. This category includes global quotas in respect to

specific countries, seasonal quotas, and so-called "voluntary" export restraints. Quantitative controls on foreign trade transactions carried out through one-time license. Quantitative restriction on imports and exports is a direct administrative form of government regulation of foreign trade. Licenses and quotas limit the independence of enterprises with a regard to entering foreign markets, narrowing the range of countries, which may be entered into transaction for certain commodities, regulate the number and range of goods permitted for import and export. However, the system of licensing and quota imports and exports, establishing firm control over foreign trade in certain goods, in many cases turns out to be more flexible and effective than economic instruments of foreign trade regulation. This can be explained by the fact, that licensing and quota systems are an important instrument of trade regulation of the vast majority of the world. The consequence of this trade barrier is normally reflected in the consumers loss because of higher prices and limited selection of goods as well as in the companies that employ the imported materials in the production process, increasing their costs. An import quota can be unilateral, levied by the country without negotiations with exporting country, and bilateral or multilateral, when it is imposed after negotiations and agreement with exporting country. An export quota is a restricted amount of goods that can leave the country. There are different reasons for imposing of export quota by the country, which can be the guarantee of the supply of the products that are in shortage in the domestic market, manipulation of the prices on the international level, and the control of goods strategically important for the country. In some cases, the importing countries request exporting countries to impose voluntary export restraints. [edit]Agreement on a "voluntary" export restraint In the past decade, a widespread practice of concluding agreements on the "voluntary" export restrictions and the establishment of import minimum prices imposed by leading Western nations upon weaker in economical or political sense exporters. The specifics of these types of restrictions is the establishment of unconventional techniques when the trade barriers of importing country, are introduced at the border of the exporting and not importing country. Thus, the agreement on "voluntary" export restraints is imposed on the exporter under the threat of sanctions to limit the export of certain goods in the importing country. Similarly, the establishment of minimum import prices should be strictly observed by the exporting firms in contracts with the importers of the country that has set such prices. In the case of reduction of export prices below the minimum level, the importing country imposes anti-dumping duty which could lead to withdrawal from the market. Voluntary" export agreements affect trade in textiles, footwear, dairy products, consumer electronics, cars, machine tools, etc. Problems arise when the quotas are distributed between countries, because it is necessary to ensure that products from one country are not diverted in violation of quotas set out in second country. Import quotas are not necessarily designed to protect domestic producers. For example, Japan, maintains quotas on many agricultural products it does not produce. Quotas on imports is a leverage when negotiating the sales of Japanese exports, as well as avoiding excessive dependence on any other country in respect of necessary food, supplies of which may decrease in case of bad weather or political conditions. Export quotas can be set in order to provide domestic consumers with sufficient stocks of goods at low prices, to prevent the depletion of natural resources, as well as to increase export prices by restricting supply to foreign markets. Such restrictions (through agreements on various types of goods) allow producing countries to use quotas for such commodities as coffee and oil; as the result, prices for these products increased in importing countries.

[edit]Embargo Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may be imposed on imports or exports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence, could be economic. [edit]Standards Standards take a special place among non-tariff barriers. Countries usually impose standards on classification, labeling and testing of products in order to be able to sell domestic products, but also to block sales of products of foreign manufacture. These standards are sometimes entered under the pretext of protecting the safety and health of local populations. [edit]Administrative

and bureaucratic delays at the entrance

Among the methods of non-tariff regulation should be mentioned administrative and bureaucratic delays at the entrance which increase uncertainty and the cost of maintaining inventory. [edit]Import

deposits

Another example of foreign trade regulations is import deposits. Import deposits is a form of deposit, which the importer must pay the bank for a definite period of time (non-interest bearing deposit) in an amount equal to all or part of the cost of imported goods. At the national level, administrative regulation of capital movements is carried out mainly within a framework of bilateral agreements, which include a clear definition of the legal regime, the procedure for the admission of investments and investors. It is determined by mode (fair and equitable, national, most-favored-nation), order of nationalization and compensation, transfer profits and capital repatriation and dispute resolution. [edit]Foreign

exchange restrictions and foreign exchange controls

Foreign exchange restrictions and foreign exchange controls occupy a special place among the nontariff regulatory instruments of foreign economic activity. Foreign exchange restrictions constitute the regulation of transactions of residents and nonresidents with currency and other currency values. Also an important part of the mechanism of control of foreign economic activity is the establishment of the national currency against foreign currencies. [edit]The

transition from tariffs to non-tariff barriers

One of the reasons why industrialized countries have moved from tariffs to NTBs is the fact that developed countries have sources of income other than tariffs. Historically, in the formation of nationstates, governments had to get funding. They received it through the introduction of tariffs. This explains the fact that most developing countries still rely on tariffs as a way to finance their spending. Developed countries can afford not to depend on tariffs, at the same time developing NTBs as a possible way of international trade regulation. The second reason for the transition to NTBs is that these tariffs can be used to support weak industries or compensation of industries, which have been affected negatively by the reduction of tariffs. The third reason for the popularity of NTBs is the ability of interest groups to influence the process in the absence of opportunities to obtain government support for the tariffs.

[edit]Non-tariff

barriers today

With the exception of export subsidies and quotas, NTBs are most similar to the tariffs. Tariffs for goods production were reduced during the eight rounds of negotiations in the WTO and the General Agreement on Tariffs and Trade (GATT). After lowering of tariffs, the principle of protectionism demanded the introduction of new NTBs such as technical barriers to trade (TBT). According to statements made at United Nations Conference on Trade and Development (UNCTAD, 2005), the use of NTBs, based on the amount and control of price levels has decreased significantly from 45% in 1994 to 15% in 2004, while use of other NTBs increased from 55% in 1994 to 85% in 2004. Increasing consumer demand for safe and environment friendly products also have had their impact on increasing popularity of TBT. Many NTBs are governed by WTO agreements, which originated in the Uruguay Round (the TBT Agreement, SPS Measures Agreement, the Agreement on Textiles and Clothing), as well as GATT articles. NTBs in the field of services have become as important as in the field of usual trade. Most of the NTB can be defined as protectionist measures, unless they are related to difficulties in the market, such as externalities and information asymmetries information asymmetries between consumers and producers of goods. An example of this is safety standards and labeling requirements. The need to protect sensitive to import industries, as well as a wide range of trade restrictions, available to the governments of industrialized countries, forcing them to resort to use the NTB, and putting serious obstacles to international trade and world economic growth. Thus, NTBs can be referred as a new of protection which has replaced tariffs as an old form of protection.

Trade barrier
From Wikipedia, the free encyclopedia

Trade barriers are government-induced restrictions on international trade.[1] The barriers can take many forms, including the following:

Tariffs Non-tariff barriers to trade

Import licenses Export licenses Import quotas Subsidies Voluntary Export Restraints Local content requirements Embargo Currency devaluation[2]

Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results. Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel. Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive processed goods. The Commitment to Development Index measures the effect that rich country trade policies actually have on the developing world.

[edit]Examples

of free trade areas

North American Free Trade Agreement (NAFTA)

South Asia Free Trade Agreement (SAFTA) European Free Trade Association European Union (EU) Union of South American Nations New West Partnership (An internal free-trade zone in Canada between Alberta, British Columbia,

and Saskatchewan)

Gulf Cooperation Council common market

Other trade barriers include differences in culture, customs, traditions, laws, language and currency. trading barriers include farming produce industry

The Basics Of Tariffs And Trade Barriers International trade increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad. While all of these seem beneficial, free trade isn't widely accepted as completely beneficial to all parties. This article will examine why this is the case, and look at how countries react to the variety of factors that attempt to influence trade.

What Is a Tariff? In simplest terms, a tariff is a tax. It adds to the cost of imported goods and is one of several trade policies that a country can enact.

Why Are Tariffs and Trade Barriers Used? Tariffs are often created to protect infant industries and developing economies, but are also used by more advanced economies with developed industries. Here are five of the top reasons tariffs are used:

Protecting Domestic Employment The levying of tariffs is often highly politicized. The possibility of increased competition from imported goods can threaten domestic industries. These domestic companies may fire workers or shift production abroad to cut costs, which means higher unemployment and a less happy electorate. The unemployment argument often shifts to domestic industries complaining about cheap foreign labor, and how poor working conditions and lack of regulation allow foreign companies to produce goods more cheaply. In economics, however, countries will continue to produce goods until they no longer have a comparative advantage (not to be confused with an absolute advantage).

Protecting Consumers A government may levy a tariff on products that it feels could endanger its population. For example, South Korea may place a tariff on imported beef from the United States if it thinks that the goods could be tainted with disease.

Infant Industries The use of tariffs to protect infant industries can be seen by the Import Substitution Industrialization (ISI) strategy employed by many developing nations. The government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth. This increases the prices of imported goods and creates a domestic market for domestically produced goods, while protecting those industries from being forced out by more competitive pricing. It decreases unemployment and allows developing countries to shift from agricultural products to finished goods.

Criticisms of this sort of protectionist strategy revolve around the cost of subsidizing the development of infant industries. If an industry develops without competition, it could wind up producing lower quality goods, and the subsidies required to keep the state-backed industry afloat could sap economic growth.

National Security Barriers are also employed by developed countries to protect certain industries that are deemed strategically important, such as those supporting national security. Defense industries are often viewed as vital to state interests, and often enjoy significant levels of protection. For example, while both Western Europe and the United States are industrialized, both are very protective of defenseoriented companies.

Retaliation Countries may also set tariffs as a retaliation technique if they think that a trading partner has not played by the rules. For example, if France believes that the United States has allowed its wine producers to call its domestically

produced sparkling wines "Champagne" (a name specific to the Champagne region of France) for too long, it may levy a tariff on imported meat from the United States. If the U.S. agrees to crack down on the improper labeling, France is likely to stop its retaliation. Retaliation can also be employed if a trading partner goes against the government's foreign policy objectives.

Types of Tariffs and Trade Barriers There are several types of tariffs and barriers that a government can employ:

Specific tariffs Ad valorem tariffs Licenses Import quotas Voluntary export restraints Local content requirements

Specific Tariffs
A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff can vary according to the type of good imported. For example, a country could levy a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported.

Ad Valorem Tariffs
The phrase ad valorem is Latin for "according to value", and this type of tariff is levied on a good based on a percentage of that good's value. An example of an ad valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles. The 15% is a price increase on the value of the automobile, so a $10,000 vehicle now costs $11,500 to Japanese consumers. This price increase protects domestic producers from being undercut, but also keeps prices artificially high for Japanese car shoppers.

Non-tariff barriers to trade include:

Licenses A license is granted to a business by the government, and allows the business to import a certain type of good into the country. For example, there could be a restriction on imported cheese, and licenses would be granted to certain companies allowing them to act as importers. This creates a restriction on competition, and increases prices faced by consumers.

Import Quotas An import quota is a restriction placed on the amount of a particular good that can be imported. This sort of barrier is often associated with the issuance of licenses. For example, a country may place a quota on the volume of imported citrus fruit that is allowed.

Voluntary Export Restraints (VER) This type of trade barrier is "voluntary" in that it is created by the exporting country rather than the importing one. A voluntary export restraint is usually levied at the behest of the importing country, and could be accompanied by a reciprocal VER. For example, Brazil could place a VER on the exportation of sugar to Canada, based on a request by Canada. Canada could then place a VER on the exportation of coal to Brazil. This increases the price of both coal and sugar, but protects the domestic industries.

Local Content Requirement Instead of placing a quota on the number of goods that can be imported, the government can require that a certain percentage of a good be made domestically. The restriction can be a percentage of the good itself, or a percentage of the value of the good. For example, a restriction on the import of computers might say that 25% of the pieces used to make the computer are made domestically, or can say that 15% of the value of the good must come from domestically produced components.

In the final section we'll examine who benefits from tariffs and how they affect the price of goods.

Who Benefits?

The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased revenue as imports enter the domestic market. Domestic industries also benefit from a reduction in competition, since import prices are artificially inflated. Unfortunately for consumers - both individual consumers and businesses - higher import prices mean higher prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.

The effect of tariffs and trade barriers on businesses, consumers and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this time period, businesses will profit and the government will see an increase in revenue from duties. In the long term, businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income. How Do Tariffs Affect Prices? Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive market to remain open.

Figure 1 illustrates the effects of world trade without the presence of a tariff. In the graph, DS means domestic supply and DD means domestic demand. The price of goods at home is found at price P, while the world price is found at P*. At a lower price, domestic consumers will consume Qw worth of goods, but because the home country can only produce up to Qd, it must import Qw-Qd worth of goods.

Figure 1. Price without the influence of a tariff

Figure 1 illustrates the effects of world trade without the presence of a tariff. In the graph, DS means domestic supply and DD means domestic demand. The price of goods at home is found at price P, while the world price is found at P*. At a lower price, domestic consumers will consume Qw worth of goods, but because

the home country can only produce up to Qd, it must import Qw-Qd worth of goods.

Figure 2. Price under the effects of a tariff

Tariffs and Modern Trade The role tariffs play in international trade has declined in modern times. One of the primary reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). Such organizations make it more difficult for a country to levy tariffs and taxes on imported goods, and can reduce the likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas and export restraints. Organizations like the WTO attempt to reduce production and consumption distortions created by tariffs. These distortions are the result of domestic producers making goods due to inflated prices, and consumers purchasing fewer goods because prices have increased.

Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has improved global integration and brought about globalization. Multilateral agreements between governments increase the likelihood of tariff reduction, while enforcement on binding agreements reduces uncertainty. The Bottom Line Free trade benefits consumers through increased choice and reduced prices, but because the global economy brings with it uncertainty, many governments impose tariffs and other trade barriers to protect industry. There is a delicate balance between the pursuit of efficiencies and the government's need to ensure low unemployment.