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European Business
Introduction
This assignment has been split into two parts, Part A and Part B.
Part A of the assignment I have been asked to produce a report for Eurotown on the general trading conditions that exist between the UK and France, Germany and Italy.
Part B of the assignment I have been asked to write a report on one of the new countries joining the European Union about its economic profile, the impact of enlargement on UK businesses and the implications for the EU Single Market.
Part A
As a local industrial journalist I feel I have invaluable information in which I can offer to Eurotown involving the general trading conditions that exist between the UK, France, Germany and Italy.
When a company from the UK or any other country, is thinking off trading with another company from another country, there are many factors that are too be considered. These factors are the balance of payment of their own country and off the country they are trading with, the exchange rate of their own country compared to the country they are trading with, the interest rates between the companies and countries and the current account of each country.
As we are aware, the countries we are dealing with are the UK and France, Germany and Italy. As all four countries are in the European Union, there is a free trade area for importing and exporting that exists between each of the four countries. A free trade area exists when there is no restriction on the movement of goods and services between the four countries. This also applies to the remaining eleven countries in the European Union. However, if one of the four countries decided to operate with another country that was outside the European Union, say the USA, and then there would be International Trade Barriers.
We need to take into consideration the balance of payment of each of the four countries. The balance of payment is a measure of whether the country is selling (exporting) more abroad than it is buying (importing) from abroad (a surplus) or the other way round (a deficit). If the UK has a surplus, this will tend to make the pound worth more to the Euro, so that imports become cheaper, for example a UK dealer in German cars. A deficit will have the reverse effect. Basically if a company wishes to operate with another company in a different country they will have to look at the balance of payment very carefully. This can be done by looking at the exchange rate. Even though the UK is in the European Union, it still operates by using the £ Stirling. Unlike France, Germany and Italy who have all now adopted the single currency the Euro. This means France, Germany and Italy do not have their own balance of payment. When looking at the exchange rates of the four countries, France, Germany and Italy have a distinct advantage over the UK when deciding to operate with each other. This is because they all use the same currency so there is no exchange rate between them. Companies in the UK will have to evaluate the exchange rate between the £ Stirling and the Euro. Factors that will affect a country’s exchange rate are importing and exporting and supply and demand. For example the more the country exports the stronger the currency becomes and vice versa.
Part B
I have decided to write my report on the Czech Republic
Czech Republic
Political System: Republic
Capital City: Prague
Total Area: 79,000 km2
Population: 10.3 million
Currency: Czech Koruna
Over the past decade, the Czech society has undergone dramatic changes. After the political changeover in November 1989, the Czech Republic quickly became a pluralist democracy, the centrally planned economy was turned into a functioning free-market economy. Almost 75 years after its foundation, former Czechoslovakia split up peacefully in 1992 and gave birth to an independent Czech Republic.
After 1989, the EU has become Czech Republic’s largest trading partner with more than 65% share of its foreign trade and EU member states are now the largest investors in the country. Czech Republic’s proximity to the Union is clearly shown not only by the fact that the country shares its longest part of the border with EU member states. More importantly, the Czechs have always shared the European civilisation and cultural values, they have been a substantial part of European history. It is therefore no surprise that since 1989, the accession to the EC (later EU) has been perceived by a majority of the Czech population as a historic necessity and full integration into the EU is supported by all parliamentary parties in the Czech Republic.
Economic Overview: Basically one of the most stable and prosperous of the post-Communist states, the Czech Republic has been recovering from recession since mid-1999. Growth in 2000-02 was led by exports to the EU, especially Germany, and foreign investment, while domestic demand is reviving. Uncomfortably high fiscal and current account deficits could be future problems. Unemployment is gradually declining as job creation continues in the rebounding economy. Inflation is moderate. The EU put the Czech Republic just behind Poland and Hungary in preparations for accession, which will give further impetus and direction to structural reform. Moves to complete banking, telecommunications, and energy privatisation will encourage additional foreign investment, while intensified restructuring among large enterprises and banks and improvements in the financial sector should strengthen output growth.
The national economy has been going through many positive structural reforms, which is reflected by the increasing volume of FDI inflow (over 7 bil. EURO in 2002), low inflation at just over at less than 1% (July 2003) and growing GDP (despite the downturn in the world economy).
The table below shows the economic profile of the Czech Republic
Agriculture – products:
Wheat, potatoes, sugar beets, hops, fruit; pigs, poultry
Agriculture – value added:
4.27%
Aid (% of GDP):
0.9%
Budget (expenditures):
$18 billion
Budget (revenues):
$16.7 billion
Child poverty:
5.9%
Debt – external:
$24.6 billion
Debt service:
11.2%
Exports:
$38 billion f.o.b.
Exports – commodities:
Machinery and transport equipment 44%, intermediate manufactures 25%, chemicals 7%, raw materials and fuel 7%
Exports – commercial services:
$26.9 billion (0.5%)
Exports – goods and services:
71%
Export growth:
3.7%
Export growth (1993-2002):
9.3%
Exports – high technology:
8%
Exports – manufactured:
88%
Exports – merchandise:
$26.9 billion
Exports of goods and services (% of GDP):
71.05%
Exports – partners:
Germany 35.4%, Slovakia 7.3%, UK 5.5%, Austria 5.3%, Poland 5.2%,
Exports – primary:
11%
Exports to US:
$313000000
GDP:
$155.9 billion
GDP – composition by sector (agriculture):
4%
GDP – composition by sector (industry):
41%
GDP – composition by sector (services):
56%
GDP growth (1998-2002):
1.7%
GDP (PPP):
$143.7 billion
GDP – real growth rate:
2.6%
Gender income ratio:
0.58 %
Gross National Income:
$54.30985 billion
Imports:
$41.7 billion f.o.b. (2002) [31st of 222]

Imports – commodities:
Machinery and transport equipment 40%, intermediate manufactures 21%, raw materials and fuels 13%, chemicals 11% (2000)
Imports – commercial services:
$28.8 (0.5%)
Imports from US:
$155000000
Imports – goods and services:
75%
Import growth:
4.1%
Import growth (1993-2002):
10.8%
Imports – merchandise:
28.8 %
Imports of goods and services (% of GDP):
73.79%
Imports – partners:
Germany 32.9%, Slovakia 6.4%, Russia 6.0%, Italy 5.8%, Austria 4.6%
Imports ratio of GDP:
64%
Income distribution (poorest 10%):
4.3% (income)
Income distribution (poorest 20%):
10.3% (income)
Income distribution (richest 10%):
22.4% (income)
Income distribution (richest 20%):
35.9% (income)
Industries:
Metallurgy, machinery and equipment, motor vehicles, glass, armaments
Industrial production growth rate:
3.5%
Infrastructure:
38.289
Inflation (1990-2000):
7.8% (shorter period)
Inflation rate (consumer prices):
2.2% (2002 est.
Male to female earnings:
22%
Net foreign investment:
9.0%
Overall productivity (PPP):
$31,822.60
Policy competitiveness:
39.693
Share of household income (highest 10%):
22%
Share of household income (lowest 10%):
4%
Trade balance with US:
$-158000000
Trade in goods:
123.87%
Trade Statistics
The Czech Republic’s top four suppliers are Germany, Slovakia, Russia and Italy and its top four export markets are Germany, Slovakia, Austria and Poland.
UK exports to the Czech Republic grew by some 250% between 1993 when the Czech Republic came into existence and 1997, when they reached £709 million. UK exports have been consistently following an upward trend reading £714 million in 1998, £739 million in 1999, £930 million in 2000, £1,078 billion in 2001 and £1,031 in 2002.
Czech companies still do not have much experience of acting as an agent, distributor or representative for foreign companies is still developing. It is therefore essential not to rush into a long-term agreement without first having developed a good working relationship with your potential representative. Commission agents are not very common and can be difficult to identify.
Now that the Czech Republic will be part of the European Union it changes the way that UK companies deal with them. By this I mean exchange rates will now be operated with £ Stirling to the Euro and not the Koruna, the Czech Republic will loose its individual balance of payment and current account.
Due to the Czech Republic joining the European Union it can cause many problems for its member states. First, the level of economic development of the Czech Republic is much lower of that of the UK, and when they become members they would require huge transfers from the UK, France Germany and other members from the European Union’s so-called Structural Funds. Second, there is the political question of whether the Czech Republic can live to the requirements of ‘attachment to the principle of liberty, democracy and respect for human rights and fundamental freedoms and the rule of law’ found in the preamble to the Treaty on European Union. Third, there is the question of how further enlargement would affect the structure of decision-making in the institutions of the European Union.
Bibliography
Books used
• Global Monetary Economics, Emil-Maria Claassen, 1996, Oxford University Press
• The European Union Economic & Policies, Ali M. El-Agraa, 6th edition 2001, Prentice Hall Europe imprint
• Currency Risk & Business Management, Alfred Kenyon, 1993, Basil Blackwell UK
• For Another Europe, Guglielmo Carchedi, 2001, Verso
• Exchange Rate Economics, Peter Isard, 1995, Cambridge University Press
• An Economic Analysis of the EU, J.D. Hansen & J.U. Nielsen, 2nd edition, McGraw-Hill Publishing
• HND Organisation, Competition & Environment, August 2002, BPP Publishing UK
Websites used
• www.europa.eu.int/cezchrepublic
Site engines used
• www.yahoo.com
• www.google.com