TRADE
     
A fruit stand at a market.
Trade is the voluntary exchange of goods, services, or both. Trade is also called commerce. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.

Trade exists for many reasons. Due to specialisation and division of labor, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have a comparative advantage in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations. Trading can also refer to the action performed by traders and other market agents in the financial markets.

The EU is the largest economy in world, wort £11 trillion. The USA is worth £10.3tn trillion, China £5.4 trillion and Japan 2.7 trillion. Nearly 34% of world trade originates in Europe. This trade is worth around $US 5.5tn annually. The value of European exports of cars is nearly 50% of the total value of exports of cars globally. The value of European exports of pharma is 70% of the value of pharma exports globally. The value of European exports of aircraft and satellites is nearly 70% of the global value of aircraft and satellites. 28 of Forbes' top 100 companies are headquartered in the EU. EU is top trading partner for 80 countries. By comparison, the US is the top trading partner for a little over 20 countries. More than 70% of imports enter the Single Market at zero or reduced tariffs. The EU-US trade deal is expected to generate €80 billion worth of benefits for the EU and create 2 million jobs. EU-South Korea FTA saves EU exporters £1.35 billion annually in tariffs. It creates €19 billion in new trade. Completing FTAs with India, Canada, Singapore could add up to £75 billion to the EU’s GDP. Outside of the EU car exports will have to suffer 10% tariff and van exports a 20% tariff. That will have an impact on the investment decisions of manufacturers.

     
Launched back in 2013, the negotiations to complete a Transatlantic Trade and Investment Partnership (TTIP) are still very much ongoing, with political leaders presenting the trade deal as a huge opportunity for jobs and growth on both sides of the Atlantic. In the 2014 geopolitical climate and in the face of increasing international competition, leaders hope to use the deal to strengthen the ties between the EU and US, to reinforce the position of the two blocs as commercial and economic world leaders. The original deadline for completion, the end of 2014, will soon have passed. With a new European Commission and Parliament, and following November’s mid-term elections to Capitol Hill, pressure is on negotiators to finalise the agreement by the end of 2015, and before President Obama’s mandate comes to an end. This pressure comes against a backdrop of increasing media hostility and public protest in Europe, and a scaling up of outreach efforts by proponents of the deal.

February 2013, Obama, Van Rompuy, Barroso gave the go-ahead for a transatlantic free trade deal, an economic 'grand projet' that could inject around 1% of fuel per year into the tank of economic growth by 2027: 0.5% in the EU, perhaps 0.4% in the US or a combined €150bn. Trade and, specifically, bi-lateral deals are now hailed as the new engines of growth. In the years to come, we need to seize the opportunity of higher levels of growth abroad, especially in East and South Asia. the EU has an elemental interest in securing a full-scale deal with the US.

The agreement would wipe out the average 4% tariff and harmonise standards. But the bigger picture is that this would be a geostrategic game-changer. Transatlantic rules would be agreed between the US and Europe and those rules would set the standards that China and others would have to follow. This is not a pipe dream given that the US-EU economic relationship is already the world's largest, accounting for one third of total trade in goods and services and nearly half of global economic output.

The deal would develop: "...rules and principles on issues of global concern, including on market-based disciplines for State-Owned Enterprises (that's you China), combating discriminatory localisation barriers to trade, and promoting the global competitiveness of small- and medium-sized enterprises. These negotiations will set a standard, not only for our future bilateral trade and investment, including regulatory issues, but also for the development of global trade rules." The WTO is less certain.

April 2013, the European Parliament’s International Trade Committee (INTA) met and discussed the EU-US Trade Agreement and urge Council to launch trade and investment talks with US. The EU Council of Ministers should authorize the start of Transatlantic Trade and Investment Partnership (TTIP) talks with the US in June, say International Trade Committee MEPs in a resolution voted on Thursday. The negotiating mandate should include public procurement, the digital and ICT space, chemicals, automotive and transport, pharmaceuticals and health, energy and raw materials, agriculture, food and financial services, but exclude culture, they add.

The Parliamentary committee’s role is to draft a resolution to empower the EU to enter negotiations with the United States. The resolution adopted by the Committee will be sent to the EU Parliament for approval. Parliament’s approval of the resolution will then empower the EU Council with the mandate it requires to officially negotiate on behalf of the EU with the United States. Once such a mandate is given, the EU Parliament must then approve the final agreement, although they cannot amend the agreement. The INTA Committee will consider a wide array of amendments for potential inclusion in the draft resolution on EU Trade and Investment negotiations (from which is suggested that the over-ambitious plans for investment protection should be dropped from the proposal) with the United States of America, including:

- the 15 November 2012 digital freedom strategy,
- the 25 November 2010 resolution on human rights and social and environmental standards in international agreements,
- the protection and promotion of diversity of cultural expressions,
- climate change imperatives,
- the 6 April 2011 resolution on the future European International Investment Policy,
- the promotion of free, fair and open trade
- the possible inclusion of financial services in the proposed trade agreement.

The focus of the draft resolution will largely be on regulatory barriers (technical requirements, safety issues, ingredients, GMO's etc). EU Trade Ministers met informally on the 18th of April in Dublin (Ireland) to discuss the EU’s trade priorities with fresh discussions taking place on the proposed EU-US Trade Agreement. EU Commissioner for Trade Karel De Gucht and International Trade Advisor to the US President, Mike Froman attended the meeting marking the first time a representative from the US Administration has discussed EU-US trade relations directly with EU Trade Ministers.

Minister Bruton, the Irish Minister who chairs the EU Trade Council for the duration of Ireland’s Presidency, commented “I’m delighted to say real progress towards achieving an agreement among Ministers has been made... This agreement is a crucial part in the process of starting negotiations on a new EU-US Trade and Investment Partnership Agreement”. The EU Council set an ambitious target of June for the agreement on a mandate to begin direct negotiations with the United States.
British ambassador to the United States, Peter Westmacott, recently declared that financial services would be included in the proposed trade agreement “as the owners of the two most significant international financial centres on either side of the Atlantic ... we would both like to see financial services covered by these negotiations”. Support for the ambassador’s statement shortly followed from Michel Barnier, the European Commissioner responsible for the Single Market and Services and sources within the US Treasury Department.

On the US side, President Barack Obama has now taken all the necessary preliminary procedural steps, having notified Congress and requested public stakeholders’ input. Expectations that negotiations will begin to coincide with a trip to the EU in June/ July by the American President are high.

In March 2013, the EU Commission released an Impact Assessment Report on the Future of EU US Trade Relations. The report considered the many advantages to increased trade between the two trading blocs. The report established that the EU as the largest economy in the world, representing 25.1% of world GDP and 17.0% of world trade with the US in second position with 21.6% of world GDP and 13.4% of world trade. Conclusion of a deal between the two trading blocs is expected to net an increase of 28% (or €187Bn) in exports to the US each year as well as increasing global trade, producing an additional 6% growth in exports for the EU. The total benefit is anticipated to be worth approximately €220bn and provide much needed job creation for both sides. Prime Minister David Cameron cited the potential of the deal to create two million jobs across the EU at the Davos talks earlier this year.

The agreement will focus on market access, regulatory issues and non-tariff barriers as well as rules, principals and more generally on global themes likely to have far reaching influence on the global trading system such as a closer alignment on intellectual property protection and enforcement mechanisms.

World Trade Organization (WTO)

 

 

Trade news
Difficult areas for negotiation

Agriculture: in this sector there three main issues: subsidies, product controls and tariffs.  With regard to subsidies, each partner operates an elaborate system of agricultural subsidies with significant political implications domestically if they try to modify or remove them. Some of the most difficult trade disputes between the EU and the US have related to food products.  The dispute over the use of synthetic hormones in US beef ran from 1989 to 2009 and that over genetically modified organisms (GMOs) from 2004-06 but both issues will be raised by the US side.  In both cases the dispute partly resulted from the EU acting in response to consumer concerns rather than scientific advice and the World Trade Organisation (WTO) found against the EU.  There are some Member States that wish to ban GMOs again (although very few GMOs are authorised in the EU, especially for planting) but the Council has not been able to reach agreement.

Geographic indicators are an additional area of concern in agriculture.  The use of terms such as “champagne”, which are restricted under EU rules, is contentious in the US where they do not necessarily recognise the validity of the claims of a product to only come from a specific geographical area. As regards tariffs, the US has some very high tariffs on EU dairy products (up to 139 per cent), meat (30 per cent) and drinks (22-23 per cent), which the EU is keen to see reduced or abolished.  Some EU goods are banned from importation into the US completely, including apples and some cheeses.  On the other side, the EU retains high tariffs on most livestock products.

Culture: The EU has rules to protect the audio-visual sector from non-EU takeovers and to allow public subsidies; this exemption from usual EU rules is in particular valued by France where it as seen as a safeguard against the French film industry being taken over by Hollywood.  The French Government has suggested that it would veto an agreement that did not exclude culture (see below for further details).

Civil aircraft: The granting of subsidies to manufacturers of large civil aircraft in the US and the EU was governed from 1992 to 2004 by a bilateral agreement which reflected the fact that Boeing (USA) and Airbus (EU) are the two largest manufacturers of civil aircraft in the world.  The US decided to withdraw from this agreement in 2004 and refer the matter to the WTO which ruled that both parties had broken the rules on subsidies.  Discussions continue as the EU adopted counter-measures against the US in 2012.

Defence: defence equipment is a contentious area in international trade and particularly so for the USA and the EU because they are the world’s key centres of design and manufacture of such goods. The US Congress has in the past been inclined to favour a buy USA policy in this field and several EU Member States are keen to protect their national defence industrial sector from US competition.

Services: negotiating better access for services (both ways) will be challenging, as barriers to services generally involve behind-the-border regulatory issues.  In the EU, some of these concern regulation that has not yet been harmonised via the Single Market.  In the US, they include regulation at both federal and sub-federal level, with all the complications of securing agreement from independent federal regulatory agencies, on the one hand, and individual US states, on the other.  And services include some contentious sectoral issues, among them widening transatlantic differences in financial services regulation.

Other obstacles: other areas of dispute include the financial transactions tax, with US objections to the extra-territoriality provisions in the current proposals, air services, coastal shipping, the EU’s data protection rules and inward investment being frustrated by national rules. There are some significant cultural differences between the EU and the USA, for example over labour and consumer rights, that provoke dispute. The question of metric labelling is also an issue; US Federal law currently prohibits metric only labelling and requires both metric and US customary weights (similar to but not the same as UK imperial measures).  This led the EU in 2009 to adopt a measure allowing supplementary labelling with non-metric measures in order to help companies exporting to the US (and the UK too).  Differences over environmental standards also form an obstacle to agreement.

Current trends

Doha rounds

The Doha round of World Trade Organization negotiations aims to lower barriers to trade around the world, with a focus on making trade fairer for developing countries. Talks have been hung over a divide between the rich, developed countries, and the major developing countries (represented by the G20). Agricultural subsidies are the most significant issue upon which agreement has been hardest to negotiate. By contrast, there was much agreement on trade facilitation and capacity building. The Doha round began in Doha, Qatar, and negotiations have subsequently continued in: Cancún, Mexico; Geneva, Switzerland; and Paris, France and Hong Kong.

China

Beginning around 1978, the government of the People's Republic of China (PRC) began an experiment in economic reform. Previously the Communist nation had employed the Soviet-style centrally planned economy, with limited results. They would now utilise a more market-oriented economy, particularly in the so-called Special Economic Zones located in the Guangdong, Fujian, and Hainan. This reform has been spectacularly successful. By 2004, the GDP of the nation has quadrupled since 1978 and foreign trade exceeded $1 trillion US.
As of 2005, China had become the 3rd largest exporter behind Germany and the United States. This occurred in spite of the backlash from the shootings following Tiananmen Square protests of 1989. The PRC maintains a $29 billion trade surplus, and is rapidly becoming a leader in industrial manufacturing. In 1991 the PRC joined the Asia-Pacific Economic Cooperation group, a free-trade organisation. More recently, in 2001 they also joined the World Trade Organization. And now in 2015, with a decade of unprecedented economic growth, China is now entering a new era of economic, social and political development, impacted by its new position as the world’s second largest economy, with a booming middle class population but crippling environmental concerns. One Belt, One Road should strengthen this position.

Xi Jinping's Visit to the EU: A triumph of economic diplomacy

The 10-day European tour by the Chinese President Xi Jinping March 2014, ended with his visit to Belgium and the headquarters of the European Union, making him the first Chinese head of state to visit the EU institutions since the establishment of diplomatic relations between the two sides in 1975.

After reinforcing political and economic ties with the Netherlands, France and Germany and signing agreements worth billions of Euros, President Xi Jinping landed in Brussels not only to stress the importance of enhancing cooperation with Belgium but also to boost trade relations between Beijing and the 28 Member States as a block. In his speech for the College of Europe in Bruges, President Xi stated that China’s relations with the EU are to be considered one of the most important bilateral relations in the world which has considerable potential to be further developed.

Although the EU is China’s main trading partner and China is the EU’s most important source of imports, relations between the two global actors had soured during recent months with disputes over dumping, mainly regarding the solar panel and the wine incidents. During President Xi’s visit to Brussels, President Herman Van Rompuy and President Jose Manuel Barroso welcomed him at the European Council and the European Commission respectively. Following these meetings, the joint statement on “Deepening the EU-China Comprehensive Strategic Partnership for mutual benefit” was issued. In the joint statement the two sides renewed their pledge to work together for further strengthening EU-China relations over the next decade. President Xi then continued his official visit at the European Parliament, where Martin Schulz praised the supportive role of China in Europe’s recovery in the midst of the crisis.

With Xi Jinping’s return to Beijing, on 2 April 2014, China issued its second policy paper on the EU, which comes over a decade after the first EU-related policy paper, published in October 2003. In the paper's section IV (on Economic Cooperation and Trade), China stresses the importance of a long-term in-depth development of economic and trade relationships with the EU through already existing tools, such as China-EU High-Level Economic and Trade Dialogue, the China-EU Economic and Trade Joint Committee and other mechanisms. At the same time, China highlights the fact that the EU should commit to resolving economic and trade frictions with China through dialogue and consultation and consider the possibility of a future China-EU FTA.

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Leading EXPORTERS in world trade
in merchandise, data from WTO, 2004

Rank

Country

Value
bn US$

Share %

annual %
change

1

Flag of Germany Germany

912,3

10,0

21

2

Flag of United States USA

818,8

8,9

13

3

Flag of People's Republic of China China

593,3

6,5

35

4

Flag of Japan Japan

565,8

6,2

20

5

Flag of France France

448,7

4,9

14

6

Flag of Netherlands Netherlands

358,2

3,9

21

7

Flag of Italy Italy

349,2

3,8

17

8

Flag of United Kingdom UK

346,9

3,8

13

9

Flag of Canada Canada

316,5

3,5

16

10

Flag of Belgium Belgium

306,5

3,3

20


Organisation of trade

Patterns of organising and administering trade include state control - trade centrally controlled by government planning and laws regulating Trade and establishing a framework such as trade law, tariffs, support for intellectual property, opposition to dumping. Guild control - trade controlled by private business associations holding either de facto or government-granted power to exclude new entrants.

In contemporary times, the language has evolved to business and professional organisations, often controlled by academia. For example in many states, a person may not practice the professions of engineering, law, law enforcement, medicine, and teaching unless they have a college degree and, in some cases, a license.

Free enterprise - trade without significant central controls; market participants engage in trade based on their own individual assessments of risk and reward, and may enter or exit a given market relatively unimpeded. Infrastructure in support of trade, such as banking, stock market, and technology in support of trade such as electronic commerce, vending machines.

International organisations:

- European Common Market
- GATT = General Agreement on Tariffs and Trade
- G8
- IMF = International Monetary Fund
- OPEC = Organization of the Petroleum Exporting Countries
- Free trade areas
- Free trade organizations or free trade area
- European Free Trade Association
- Free Trade Area of the Americas
- NAFTA (North American Free Trade Agreement)
- Union of South American Nations
- United Nations umbrella
- UNCTAD = United Nations Conference on Trade and Development
- WTO = World Trade Organization
- ITC = International Trade Centre

     
Types of trade: commodities, staple, luxurie, international trade, arms trade, wholesaling, retailer, stock exchange, fair trade.
Support for trade: infrastructure,
computers and Internet, e-commerce, search engine, critical infrastructure, accounting, banking, insurance, public services (police protection and postal services), public utilities (telephone, fax, telephone directory, translation), transport (highways, railroads, ship transport).
History of trade

Trade originated with the start of communication in prehistoric times. Trading was the main facility of prehistoric people, who bartered goods and services from each other when there was no such thing as the modern day currency. Peter Watson dates the history of long-distance commerce from circa 150,000 years ago. Trade is believed to have taken place throughout much of recorded human history. There is evidence of the exchange of obsidian and flint during the stone age.

Materials used for creating jewelry were traded with Egypt since 3000 BC. Long-range trade routes first appeared in the 3rd millennium BC, when Sumerians in Mesopotamia traded with the Harappan civilization of the Indus Valley. The Phoenicians were noted sea traders, travelling across the Mediterranean Sea, and as far north as Britain for sources of tin to manufacture bronze. For this purpose they established trade colonies the Greeks called emporia. Trading is important to the global economy. From the beginning of Greek civilization until the fall of the Roman empire in the 5th century, a financially lucrative trade brought valuable spice to Europe from the far east, including China. Roman commerce allowed their empire to flourish and endure. Their widespread empire produced a stable and secure transportation network that enabled the shipment of trade goods without fear of significant piracy.The fall of the Roman empire, and the succeeding Dark Ages brought instability to Western Europe and a near collapse of the trade network. Nevertheless some trade did occur. For instance, Radhanites were a medieval guild or group (the precise meaning of the word is lost to history) of Jewish merchants who traded between the Christians in Europe and the Muslims of the Near East.From the 8th to the 11th century, the Vikings and Varangians traded as they sailed from and to Scandinavia. Vikings sailed to Western Europe, while Varangians to Russia. The Hanseatic League was an alliance of trading cities that maintained a trade monopoly over most of Northern Europe and the Baltic, between the 13th and 17th centuries.Vasco da Gama restarted the European Spice trade in 1498. Prior to his sailing around Africa, the flow of spice into Europe was controlled by Islamic powers, especially Egypt. The spice trade was of major economic importance and helped spur the Age of Exploration. Spices brought to Europe from distant lands were some of the most valuable commodities for their weight, sometimes rivaling gold.

In the 16th century, Holland was the centre of free trade, imposing no exchange controls, and advocating the free movement of goods. Trade in the East Indies was dominated by Portugal in the 16th century, the Netherlands in the 17th century, and the British in the 18th century.

In 1776, Adam Smith published the paper An Inquiry into the Nature and Causes of the Wealth of Nations. It criticised Mercantilism, and argued that economic specialisation could benefit nations just as much as firms. Since the division of labour was restricted by the size of the market, he said that countries having access to larger markets would be able to divide labour more efficiently and thereby become more productive. Smith said that he considered all rationalisations of import and export controls "dupery", which hurt the trading nation at the expense of specific industries.

Development of money

The first instances of money were objects with intrinsic value. This is called commodity money and includes any commonly-available commodity that has intrinsic value; historical examples include pigs, rare seashells, whale's teeth, and (often) cattle. In medieval Iraq, bread was used as an early form of money. In Mexico under Montezuma cocoa beans were money.

Roman denarius

Currency was introduced as a standardised money to facilitate a wider exchange of goods and services. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. Numismatists have examples of coins from the earliest large-scale societies, although these were initially unmarked lumps of precious metal.
Ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade. The system of commodity money in many instances evolved into a system of representative money. In this system, the material that constitutes the money itself had very little intrinsic value, but none the less such money achieves significant market value through scarcity or controlled supply
.

In 1799, the Dutch East India Company, formerly the world's largest company, became bankrupt, partly due to the rise of competitive free trade. In 1817, David Ricardo, James Mill and Robert Torrens showed that free trade might benefit the industrially weak as well as the strong, in the famous theory of comparative advantage. In Principles of Political Economy and Taxation Ricardo advanced the doctrine still considered the most counterintuitive in economics: When an inefficient producer sends the merchandise it produces best to a country able to produce it more efficiently, both countries benefit.

The ascendancy of free trade was primarily based on national advantage in the mid 19th century. That is, the calculation made was whether it was in any particular country's self-interest to open its borders to imports.

John Stuart Mill proved that a country with monopoly pricing power on the international market could manipulate the terms of trade through maintaining tariffs, and that the response to this might be reciprocity in trade policy. Ricardo and others had suggested this earlier. This was taken as evidence against the universal doctrine of free trade, as it was believed that more of the economic surplus of trade would accrue to a country following reciprocal, rather than completely free, trade policies. This was followed within a few years by the infant industry scenario developed by Mill anticipated New Trade Theory by promoting the theory that government had the "duty" to protect young industries, although only for a time necessary for them to develop full capacity. This became the policy in many countries attempting to industrialise and out-compete English exporters.

The Great Depression was a major economic recession that ran from 1929 to the late 1930s. During this period, there was a great drop in trade and other economic indicators. The lack of free trade was considered by many as a principal cause of the depression. Only during the World War II the recession ended in United States. Also during the war, in 1944, 44 countries signed the Bretton Woods Agreement, intended to prevent national trade barriers, to avoid depressions. It set up rules and institutions to regulate the international political economy: the International Monetary Fund and the International Bank for Reconstruction and Development (later divided into the World Bank and Bank for International Settlements). These organisations became operational in 1946 after enough countries ratified the agreement. In 1947, 23 countries agreed to the General Agreement on Tariffs and Trade to promote free trade.

Free trade advanced further in the late 20th century and early 2000s:

  • 1992 European Union lifted barriers to internal trade in goods and labour.

  • January 1, 1994 NAFTA (North American Free Trade Agreement) took effect

  • 1994 The GATT Marrakech Agreement specified formation of the WTO.

  • January 1, 1995 World Trade Organization was created to facilitate free trade, by mandating mutual most favoured nation trading status between all signatories.

  • EC was transformed into the European Union, which accomplished the Economic and Monnetary Union (EMU) in 2002, through introducing the Euro , and creating this way a real single market between 13 member states as of January 1, 2007.

  • 2005, the Central American Free Trade Agreement was signed; It includes the United States and the Dominican Republic.