С Reading
- l. Read the text and answer the questions.
- Why does the United Kingdom need to sell to other countries?
- How do we call goods and services sold to other countries? Analyze this process.
- What differences in language do you know?
- What company can act like an insurance one and why?
- Who may provide different goods and services?
- What for are bonded warehouses used?
- What are the main features of bonded warehouses?
- What are the functions of HM Customs and Excise?
- How are taxes on imports collected in HM Custom and Excise?
- When can quotas be imposed? Give an example.
International Specialization
Jones Bill
Countries would find it very difficult to produce all the goods and services which they might need and not have to buy any from other countries.
It pays countries, therefore, to concentrate on the production of particular goods and services.As a result of specializing a country produces a surplus, that is, more goods and services than it needs for its own consumption. For example, a
country might produce 500,000 cars yet only sells 100,000 of these cars
within the country. This leaves a surplus of 400,000 cars. The surplus produced by one country will then need to be exchanged for the goods and services it cannot produce. Thus the 400,000 cars will be sold to other countries and the money received used to buy, for example, the oil that the country needs but cannot produce. Countries, therefore, have to take part in foreign trade which is the buying and selling of goods between countries.
The Importance of International Trade to the United Kingdom
The United Kingdom needs to buy from other countries for several reasons.
Some raw materials do not occur in the United Kingdom; for example, the United Kingdom cannot produce large quantities of gold. The country does not have the right climate to grow certain products. For instance it would be difficult to grow oranges here and it is easier to buy them from countries such as Spain. Some goods would be too expensive to produce; for example, the United Kingdom no longer produces motorcycles because it is cheaper for Japan to produce them. International trade gives the people in the United Kingdom the chance to buy a variety of goods and services from all over the world, such as coffee from Brazil and tourist services from Spain.The United Kingdom needs to sell to other countries so that foreign currency can be earned, to create jobs and to increase the income of workers. Foreign currency can be earned, for example, from American tourists visiting the country and spending dollars.
These dollars can then be used to buy American films, which can be shown in the United Kingdom. This applies also to other countries and goods. Jobs are created for the people in the United Kingdom. The incomes of workers are increased which results in a higher standard of living because they can afford to buy more goods and services.
Exports and Imports
Goods and services sold to other countries are called exports. By exporting a country gains foreign currency. Goods and services bought from other countries are called imports. By importing a country loses foreign currency. Goods bought from and sold to other countries are called visibles. Thus cars, cocoa and steel are examples of visibles. Services bought from and sold to other countries are called invisibles. Thus banking, insurance and tourism are examples of invisibles.
Difficulties Faced by Exporters
When exporters sell goods to other countries they can come across certain problems.
There are differences in language. Letters, labels and catalogues may have to be translated from, for example, English into German.
Currency differences bring exchange rate problems. AUK exporter might sell a machine for $ 4,500 in the USA. These dollars will then have to be changed into pounds sterling. If the exchange rate is amp; 1 = $ 1.50 the exporter will receive amp;3000. When exporters sell goods on credit there is always the danger that customers will not pay what they owe. This is a credit risk. If the foreign firms are far away it becomes more difficult for exporters to decide if they will be paid. Delivery may be difficult. Longer distances are likely to be involved and more than one form of transport may have to be used. There are risks of damage and theft. When goods are being transported over long distances there is more chance that the goods will be damaged or stolen. There are difficulties with standartization of produce. For example, cars exported to the USA are usually left-hand drive. Import controls, for example, taxes on imports, may cause delays. Differences in language and the longer distances involved make it more difficult for exporters to obtain information.Government Help for Exporters
The United Kingdom government helps exporters in a number of ways.
The Export Credits Guarantee Department (ECGD) is part of the Department of Trade and Industry. It acts like an insurance company by offering credit insurance. Exporters pay premiums to the ECGD and then will be able to claim compensation if their customers do not pay what they owe.
The British Overseas Trade Board (BOTB) is part of the Department of Trade and Industry. It can give information to exporters about, for example, the types of product wanted in other countries and the forms which have to be completed when selling to those countries.
United Kingdom embassies in foreign countries have commercial staff who can help United Kingdom firms to sell in those countries.
Other Help for Exporters
As well as receiving help from the government United Kingdom firms can also be helped by various trade associations, institutions or societies.
Chambers of commerce are local organizations of firms who may provide different goods and services. Thus the London Chamber of Commerce and Industry is made up of firms involved in banking, engineering, retailing and so on. The link between these firms is that they operate in the London area. If these firms wish to export, the Chamber of Commerce can give them advice and may provide translation services.
Trade associations are national organizations of firms providing similar goods and services. Thus the Society of Motor Manufacturers and Traders is made up of firms who make and sell cars. If one of these firms wants to export, advice can be obtained from the trade association.
The British Standards Institution (BSI) gives information about technical standards in foreign count ries. For example, cars exported to Japan may have to have a certain size of headlight.
The clearing banks can help with the exchange of foreign currency and with receiving money from and paying money to other countries.
Bonded Warehouses
Bonded warehouses are used in international trade although they are also used in home trade. Their main features are:
- goods on which taxes have to be paid can be placed in a bonded warehouse;
- at this stage the tax has not been paid;
- while in the bonded warehouse the goods can, for example, be bottled, blended or packed;
- once the tax has been paid the goods can be taken from the bonded warehouse;
- bonded warehouses can be owned by importers, shipping companies, manufacturers, etc.;
- НМ Customs and Excise controls bonded warehouses, e. g., it checks that tax has been paid on goods, which leave the warehouse;
- if goods are taken out of the warehouse before the tax has been paid the owner of the warehouse has to pay a large fine to HM Customs and Excise.
HM Customs and Excise
The Customs and Excise carry out a number of tasks in foreign trade.
It checks ships, aircraft and vehicles to make sure that goods are not smuggled into the country. Taxes are collected on imports which gives the Government money to spend, and statistics (figures) are obtained which allows the balance of payments to be calculated. It controls bonded warehouses.Controls on Exports and Imports
Governments can make it more difficult for firms to export and import by using controls. Import duties (or tariffs) are taxes placed on imports to make them more expensive. Quotas can be imposed. If the UK government sets a quota of 10,000 Japanese cars per year then no more than 10,000 Japanese cars could be imported into the UK in that year. An embargo is a complete ban placed on certain goods, e. g., during wartime an embargo would be placed on trade with enemy countries. The UK Government may give subsidies (money) to firms in this country to help sell their goods more cheaply abroad. The firms would then be able to compete more easily with foreign firms.
Governments use such controls for several reasons. A tax on imports raises money and gives a government money to spend. Controls on imports help the balance of payments. If a government can reduce the value of imports then a deficit on the balance of payments may be turned into a surplus. If fewer imports are bought there is more chance of home-produced goods being sold and workers will be needed to make these goods; this gives a boost to employment.