Impact of International Trade and European Union on the British Companies

1. Introduction Dear colleagues I have been assigned to write this report in order to explain how British manufactures are involved into world economy and EU market are and how they are impacted by EU policies. I have decided to prove my points using recent EU issues that we are probably all familiar with even though they are not related to our industry because of accessibility of information. This report was written according to Briefing Sheet (Gannon, 2012) for Mr. Dave Gannon. It was assigned on 11. 3. 2012 and it is due 30.

3. 2012. In this report I am going to discuss the various factors both European and Global that influence British economy and companies operating within the economy. In the following sections of the report I will present all the findings on the topic. Also conclusions will be drawn and recommendations made at the end. 2. Findings 3. 1. Benefits of International Trade There are enormous amounts of benefits of international trade towards domestic companies; however I decided to discuss only the most important ones.

These are: adoption of new technologies, access to raw materials, and lesser dependency on one market. 3. 2. 1. Adoption of technologies International trade offers companies opportunity to access technologies that were not developed in the UK and adopt them. It is far cheaper and easier to buy an existing technology of an international market then to develop it. 3. 2. 2. Access to raw materials Some countries do not posses certain types of raw materials such as iron ore or oil. If there was no international trade companies would be limited in their businesses by absence of essential materials.

It would be hard for example to manufacture cars with a limited access to iron. Also it would be very hard to sell these cars if there was a very scarce amount of oil in the market. 3. 2. 3. Lesser dependency on one market International trade presents an opportunity for companies to sell their products on more than one market and therefore spread their risks and increase their profitability. 3. 2. Relation of British Companies to the World Economy Every company in the Great Britain is bound to the world economy regardless whether they export or not.

According to UK IMPORT AND EXPORT FIGURES 2011 (The Guardian, 2012) the top three imported products into the UK are Mineral fuels, Nuclear reactors, and vehicles other than railway. This type of goods are used on daily bases by majority of companies (excluding the nuclear reactors) and absence or scarcity of these product would have a severe impact on the British economy. The nuclear reactors are not used by public or companies however the electricity produced by them is also essential. On the other hand there is a lot of export from the Great Britain as well and great portion of companies are also directly or indirectly related to it.

In case of companies that do not export any goods there is a significant chance that the product or service they sell is being bought by a reseller and redistributed to another country or that the product they sell is being used as a part of different product that is exported outside the Great Britain. Without international trade majority the companies would lose their sales regardless of whether they export or not. 3. 3. The impact of European Union policies on British manufacturing organizations British companies tend to be affected on various scales by the EU policies as are most of the other companies all around the EU zone.

This is particularly true in case of manufacturing organizations. These companies are generally influenced either directly, for example, via donations, grants, and subsidies or indirectly, for example, by pollution taxation. Both of these types of policies may have a severe influence on the success and profitability of a company. An example of direct influence is EU CAP (Common Agricultural Policy). The CAP is responsible for allocating EU funds over all the member countries in order to support production, farmers and encourage innovation as published in The Common Agricultural Policy Explained (European Commission).

The influence of subsidies is more than significant as the EU budget for CAP in 2010 was according to Q&A: Reform of EU farm policy (BBC, 2011) €58 billion. For illustration it was precisely 47% of the EU total budget. In total 7% (€4 billion) of the subsidies were allocated in the UK. As an example of indirect influence I have selected pollution taxation. Nearly all the production nowadays is related to some kind of machinery producing substances that have a negative impact on the environment such as greenhouse gasses released by burning fossil fuels, etc.

EU tries to regulate output of the negative substances by taxation. The change in this type of tax rate can have a significant influence over production costs. For example agricultural companies are dependent on usage of tractors and other heavy equipment in order to conduct their business. If the environmental tax goes up it will affect costs of production of crops and other goods. According to TAXATION AND CUSTOMS UNION (European Commission, 2011) the total amount of environmental taxes collected in 2009 is €40. 6 billion which is a very significant amount. 3. 4.

Policies Impacting Decisions for Export within the EU The European Union policies sometimes present an opportunity for increasing profits by exporting into other EU countries. Very good example of such policy would be a recent decision of the EU to implement policies in order to improve living conditions of hens. The policy set new rules on breeding hen. However the majority of egg producers were not prepared for implementation of the policies resulting in shortage of eggs in the EU market. According to Food industry hit by egg shortage (European Voice, 2012) the price of eggs went up by 75% over past six months.

The most affected by this crisis are middle and eastern European countries such as the Czech Republic and Slovakia as they are highly dependent on egg imports from Poland which currently do not meet EU requirements for hen breeding. This situation might be seen as an opportunity by British producers to increase their short term sales volumes by exporting to the countries mentioned above. According to UK’s largest free-range egg farm shelves expansion over EU row (The Telegraph, 2012) there already is a British company preparing to take advantage of egg scarcity and planning to expand within the EU. 3.

Conclusions The UK is deeply connected to the world economy and the European Union. The EU can have both positive and negative effects on the British companies. 4. Recommendations I deeply recommend that we focus our attention towards EU policies and try to find an opportunity to export within the EU. ) 5. References The Guardian. (2011). UK export and import in 2011: top products and trading partners. Available: http://www. guardian. co. uk/news/datablog/2010/feb/24/uk-trade-exports-imports. Last accessed 30. 3. 2012. European Commission. The Common Agricultural Policy Explained. Available: http://ec. europa.

eu/agriculture/publi/capexplained/cap_en. pdf. Last accessed 30. 3. 2012. BBC. (2011). Q&A: Reform of EU farm policy. Available: http://www. bbc. co. uk/news/world-europe-11216061. Last accessed 30. 3. 2012. European Commission. (2011). TAXATION AND CUSTOMS UNION . Available: http://ec. europa. eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/2011/country/uk. pdf. Last accessed 30. 3. 2012. European Voice. (2012). Food industry hit by egg shortage. Available: http://www. europeanvoice. com/article/2012/march/food-industry-hit-by-egg-shortage/73915. aspx. Last accessed 30. 3. 2012.