The European Economic Community Economics Essay

In the twelvemonth 1957, the Treaty of Rome, which is an international understanding that was signed by six European provinces finally led to the initiation of the European Economic Community ( EEC ) . The intent of the pact was to concentrate on economic cooperation between provinces and to extinguish barriers, which divide Europe. Britain joined the European Community in 1973.

As Prime Minister, Margaret Hilda Thatcher had implemented Conservative policies known as Thatcherism. Thatcherism seeks to advance low rising prices and free markets through tight control of money supply and it is frequently described as libertarian political orientations, which decreased province intercession and pattern denationalization of industries. Margaret Thatcher ‘s greatest influences is her thought of get the better ofing the trade brotherhoods together with denationalization and her general free market attack to authorities that has brought immense influence on the British political and economic life. However, Britain faces two major recessions under Thatcher and the two chief grounds behind the rise in the idle sum are due to economic recession and the restructuring of industry ( Boyson, 1999 ) . In 1991, The Maastricht Treaty was signifier that leads to the creative activity of the individual European currency, which is the Euro, lead by Prime Minister John Major. European Union was form afterwards and begins officially in the twelvemonth 1993. In 1984, Britain practiced assorted economic system, an economic system which both the province and private sector direct the economic system.

United Kingdom is the 7th largest national economic system in the universe measured by nominal GDP. Today, the UK ‘s economic system has shifted more towards the service sector over the old ages, peculiarly insurance, touristry, concern services and banking. The UK besides has important oil, gas, and coal militias but they are steadily worsening over the old ages.

On the other manus, the booming state of Hong Kong is a big metropolis with an estimation of 7 million people. The metropolis is an indispensable trade portal that links China with the remainder of Europe, after the British released Hong Kong from the Chinese authorities of China. Hong Kong ‘s trading haven was one of the largest in the universe, in 1900, pulling a batch of foreign investing from companies in China and Europe. After China ‘s Communist Party won the civil war in the 1940s, this incident besides hike Hong Kong ‘s foreign direct investing, as 100s of Chinese merchandisers left China at that clip due to the fright that their concern would be ripped off them by the Communist authorities. This incident made a immense move of money to Hong Kong as many man of affairs opened up concerns in Hong Kong and this event, in return helped the metropolis revolve into Asia ‘s supreme industrial hub in 1960. The metropolis ‘s continual success in exercising copiousness sum of foreign investing made Hong Kong ‘s citizen to increasingly go richer. Hong Kong became one of the universe ‘s chief manufacturers in fabrics in the sixtiess and during that same period of clip and in the 19790s, the metropolis had an inexplicit monopoly on North American every bit good as European touristry to China. The changeless flow of wealth allowed Hong Kong to construct of import agencies of substructure, which includes metros, main roads and tower block towers at velocity of lightning. This besides altered the life life style of the citizen, as households were capable of directing their kids to school and the instruction system fleetly made the metropolis into a knowing state. Hong Kong besides became one of the premier subscribers in the universe for fabricating high tech goods, such as package ‘s, computing machine hardware and electronic goods like wireless, microwaves and telecastings. Hong Kong ‘s wealth boosted banking commercialism, which made the metropolis a major loaner to concerns in Asia. Hong Kong became one of the most dearly-won metropoliss in the universe to populate in, as the cost of life in the part, in the 1990s, was parallel to Europe and North America.

Hong Kong is besides known for its right wing market freedom that includes low revenue enhancements, extended market deregulating and strong belongings rights which contributed to the metropolis ‘s rapid rise to luxury. As cogent evidence, Hong Kong has been ranked the top in the universe for holding the most “ free economic system ” for near to 15 old ages of all time since the comparable survey began in 1995, and besides in the metropolis ‘s one-year Index of Economic Freedom, the conservative Heritage Foundation besides stated this as the factor to Hong Kong going richer as an Asiatic Tiger. The metropolis ‘s fleet growing was chiefly due to the metropolis ‘s strategic location, which made Hong Kong a sanctuary for foreign investing, despite the advantage of the metropolis prefering capitalist economy. Strategic geographics country plays a large function in development of a state, as proven by the rise of the Asiatic Tigers, as geographics location acts as an indispensable facet for economic growing in a part.

Economic Performance

The four methods, which are GDP, unemployment, rising prices and current history balance are used to mensurate economic public presentation.

United Kingdom ‘s first GDP was 2 per centum in twelvemonth 2002 and in 2003 ; the state accumulated the highest per centum GDP which was 3.4 per centum. The value, nevertheless, dropped boulder clay 2009, where the GDP in that twelvemonth was -4.62. UK was in heavy debt due to the economic universe crisis which led to the bead of GDP in the state. However, GDP of UK revived since twelvemonth 2011.

Harmonizing to Investopedia, “ rising prices is the rate at which the general degree of monetary values for goods and services is lifting, and, later, buying power is falling. ” When this occurs, cardinal Bankss try to halt terrible rising prices, together with terrible deflation, in an attempt to continue the utmost growing of monetary values to a lower limit ( investopedia, n.d ) . We can detect, from the graph, that the rising prices rate of UK was acquiring somewhat higher boulder clay 2008 whereby, it accumulated the highest rate within the last 10 old ages. Monetary values were lifting at an one-year rate of 5 % , during the planetary fiscal crisis in 2008. Oil monetary value rise, is the cause for nutrient monetary values to lift fast during that period of clip, and increase in oil monetary value besides made fertiliser and power more pricey, and the other factor that led to this was the drouths that occurred at that clip, and the addition on demand from the germinating economic systems and land that is used to run bio fuel ( BBC, 2013 ) .

The 3rd factor is unemployment rate. Percentage of people that do non hold a occupation, in a state will be determined via this method. The unemployment rate for UK was approximately 1 to 3 per centum for the past 8 old ages. In 2011, the unemployment rate rose to 4.48 per centum. Unemployment increased, in 2008, during recession. Unemployment rate was more than 5 per centum or about 1.6 million during the planetary fiscal crisis period. UK was resuscitating from its worst recession since the 1950s, towards the terminal of 2009, and the figure was near to a million higher at 2.5 million. Ever since so, companies have invariably sacked staff as the recovery was weakened. At the terminal of 2011, unemployment was at its extremum, which is 2.7 million, and it was the highest figure for the past 17 old ages ( BBC, Economy tracker: Unemployment, 2013 ) .

The 4th factor is current history balance. Since twelvemonth 2002, UK ‘s current history balance was in negative figure. In 2006, the current history augmented to its highest figure, which was -3.34. A significant bead from -3.34 to -2.52 can be observed in 2007 and the figure was easy worsening. In 2011, the figure rose back up to -3.33 and once more, it dropped in 2012, to -1.9. UK was in current history shortage due to several grounds. The first was shortage in goods which UK ‘s export was greater than import, and the 2nd ground was that UK ‘s offer on lower salvaging rate failed to pull its citizens to salvage money ( Pettinger, 2013 ) .

Index of Economic Freedom

Harmonizing to Index of Economic Freedom, Hong Kong is ranked No. 1 meanwhile United Kingdom is ranked No. 14 in 2013. There are some facets that can explicate why Hong Kong is more successful than United Kingdom.

The first facet would be freedom from corruptness. Transparency International ranks Hong Kong the least corrupted state in Asia. This is due to the cooperation of public every bit good as the Independent Commission Against Corruption ( ICAC ) . For illustration, 98 % supported ICAC ‘s anti-corruption work ( ICAC, n.d ) . In contrast, United Kingdom is ranked No. 17 over 176 states due to the struggle of involvements between public office and the private sector which, continues toA weaken trust in authorities ( Transparency International, n.d ) .

The 2nd facet is authorities outgo. Hong Kong ‘s authorities disbursement is lower than United Kingdom. There are several grounds that led to this. The first facet would be although United Kingdom is a richer state as compared to Hong Kong, the state ‘s outgo on societal public assistance such as wellness attention and instruction are besides higher than Hong Kong. As quoted in emarotta.com, “ revenue enhancement gross was 14.2 % of GDP and authorities disbursement was 14.5 % ” ( Marotta, 2010 ) . Hong Kong, on the other manus, strives to keep a balanced budget every twelvemonth. In contrast to United Kingdom, the state ‘s budget is ever away due to many struggles in the state, for case, one of the struggles are the issue with Bankss in United Kingdom that are confronting bankruptcy ( Whelan, n.d ) .

The 3rd facet is financial freedom whereby HK has 92.9 % of financial freedom meanwhile UK has 57 % . TheA managers of the IMF Executive Board wholly back up the safeguarding of the linked exchange rate system in Hong Kong. The managers depict the system as “ an of import ground tackle for economic stableness since 1983 and that it plays a critical function in showing the committedness to an independent pecuniary and exchange rate policy in Hong Kong and in keeping assurance in its position as an international fiscal centre ” ( HKMA, 1998 ) . In a state like the UK, it makes more sense to utilize financial policy to cut down any inflicting strains due to the state ‘s big budget shortage. In malice of this, during normal times of economic growing, deflationary financial policy may differ with other aims. For illustration inducements in the economic system would be affected due to increase in revenue enhancements. Lower outgo may unfavourably impact public services. Cuting public outgo can be a challenge for the intent of financial demand side direction.

The Forth facet is concern freedom. Hong Kong ranks 3rd in Forbes best states to make concern in 2012. Its economic system, which is extremely contingent on international trade and finance, every bit good as one of the liveliest in the universe, remains as it is. It is besides credited one of the universe ‘s lowest revenue enhancement loads and possesses high degree of pecuniary freedom. Hong Kong ‘s economic system grew 5 % terminal of last twelvemonth and the unemployment rate is a scarce 3.2 % ( Forbes, n.d ) . Hong Kong is listed Number One in Bloomberg ‘s Best states for concern 2013. On the other manus, conditions besides contributes as a factor to why business communities do non desire to get down up a concern in UK. Besides, the startup cost for a company is dearly-won and some other disbursals such as revenue enhancement or public-service corporations are expensive for concern ( retailthinkank, n.d ) .

The 5th facet is labour freedom. Minimum rewards act has been imposed in labour market of Hong Kong in 2011. Besides, there are a figure of ordinances that protects the labour market. For illustration, the maximal on the job hours per twenty-four hours is 8 hours and overtime employment, dark work and working on remainder yearss and statutory vacations are non allowed ( Labour section, n.d ) . As compared to labour market in Hong Kong, labour market in UK is mediocre. Even though the labour market is reasonably flexible, bing non-salary cost of using a worker and divider payments are slightly onerous ( the heritage foundation, 2013 ) .

The 6th facet is pecuniary policy. With pecuniary steps that aid the convenient usage of foreign currencies in assisting the demands of international investors and fundraisers in their international fiscal activities, domestic currency, which is the Hong Kong dollar, would play the function of money and go more domestically oriented ( Yam, 2012 ) . UK ‘s pecuniary stableness is good preserved ; yet, there are still some restrictions. Interest rates may impact some countries of the economic system more than others. For illustration, higher involvement rates raise the non reclaimable income of people with nest eggs. However, it could do belongings proprietors to be incapable to afford their mortgages ( economicshelp, n.d ) .

The 7th facet is trade freedom. Hong Kong has implemented an unfastened and trade policy, with zero duty and lowest trade limitations. As a member of WTO, HK has dynamically pursued Free Trade Agreements, which are similar with WTO ‘s political orientation and demands and can be a factor to many-sided trade liberalisation, which adds on to the involvement of HK and its people ( British Consulate General in Hong Kong, n.d ) . UK, on the other manus, made a trade shortage of 3201 GBP Million in December of 2012. In early June of 2102, UK ‘s shortage on trade in goods and services spread had been expanded to its worst province since 1997. The shortage, which tells how much imported goods and services surpass exports, rose to 4.3bn lbs in June from 2.7bn lbs in May ( tradingeconomics, n.d ) .

The 8th factor is fiscal freedom. Hong Kong is a planetary banking centre, hosting many of the universe ‘s largest Bankss. The strength of the banking sector is because Hong Kong is adept in fiscal activities such as trading currencies, and foreign exchange. Banks in Hong Kong are non-dependant of the authorities, and foreign Bankss are non bounded to steer with limited boundaries ( Deloitte, 2012 ) . Meanwhile, UK does non profit from more fiscal freedom thanks to authorities intercession, which arose due to the fiscal crisis that occurred a few old ages ago ( HM Treasury, n.d ) .

3.1 The Closer Economic Partnership Agreement

The Closer Economic Partnership Agreement ( CEPA ) , is an economic understanding between the authorities of Hong Kong and the Chinese mainland, and is served as an gas pedal to concern growing for Hong Kong jurisprudence houses. Through CEPA, attempts will be made by the HKSAR authorities to advance Hong Kong as both international fiscal Centre and international concern Centre. Following a recent study organize by the Hong Kong Trade Development Council ( HKTDC ) and the Law Society of Hong Kong, shows that about half of the canvassers ‘ houses in Hong Kong are expecting a pickup in concern in approximately 3 to 5 old ages clip as a consequence of the CEPA free-trade trade. Furthermore, China ‘s demand for high-quality professional legal advice for international concern minutess further accelerated the growing in concern. CEPA plans to hike Hong Kong ‘s economic system in three ways: reconstructing assurance, economic resurgence and occupation creative activity.

Under CEPA and committednesss made in its appendixes, Hong Kong ‘s Bankss are allowed to put up subdivisions or legal entities in the mainland with the exclusion that they have entire assets of no less than US $ 6 billion. For the insurance industry, Hong Kong is allowed to come in the mainland insurance market as a group companies after integrating or strategic amalgamation harmonizing to China ‘s market entree demands. The equity ratio of Hong Kong companies in mainland insurance companies may non transcend 25 % ( increased from 15 % to 24.9 % ) .

A As for the securities sector, Hong Kong Exchange and Clearing Ltd were given the permission to put up its representative office in Beijing, and processs for Hong Kong securities professionals to obtain mainland makings were simplified. Shanghai imposts governments has pointed out ( 2007 ) that all sorts of goods produced by Hong Kong are now eligible for zero duty in come ining the mainland under CEPA.