Dec 1

The proposed free trade association between the EU and Russia

Posted in Politics

Free trade is a business policy that allows businesses or persons of business to operate or transact financial endeavors with little or no interference from the government, providing profits from goods and services. Under a free trade association the benefiting individuals, companies, regions, states, or countries engage in a contractual trading agreement while enjoying the comparative advantages. Benefits includes: free tariffs, subsidies, non tariff barriers, free entry and exit etc.; an example of which is the Canadian – United States- Mexican NAFTA free trade agreement. Another example that is still in the offing is the proposed EU and Russian free trade agreement. According to the Prime minister of Russia Vladimir Putin – he wishes to see the commencement of a free trade zone between the European Union and Russia; he expressed his vision in a German newspaper as a “unified continental market with a capacity worth trillions of euros”. Will this vision see the light of day, what will be the likely deterrent to this vision?

Before commencing with the possibility of a trade agreement between EU and Russia, the features of trade zone will be elucidated to create a better understanding of the term free trade.

The idea of free trade did not start with the prospect of the EU and Russia; it has been in existence for as long as the 5 centuries in Europe, in form of mercantilism which was opposed by two great economists: David Ricardo and Adam Smith. Inasmuch as, the story of free trade is long and old, one fact remains – it is still obtainable and highly effective today. Below are some features that free trade agreements have.

  • Trading of goods or services without taxes or trade barriers.
  • Nonappearance of trade bias policies that offers undue advantage to domestic business more than other businesses in the same market, for example: taxes and regulations.
  • Free access to markets.
  • Open access to market information.
  • Discouragement of monopoly and oligopoly.
  • Free mobility of labor between the contractual entities.
  • Easy mobility of capital between the entities concerned.

The above are some of the characteristics and motivations behind any free trade proposition. With this knowledge the Russian prime minister’s free trade is clear. The question still stands; will this intent become successful?

The gains or benefits that this proposal stands to gain are very enormous. According to the Several EU and Russian officials the free trade coalition will deliver a new wave in industrialization throughout the European continent in aspects regarding the car, shipping, aviation, space technology, pharmaceuticals, medical technology and nuclear energy industries.

It is a lofty goal to establish free trade agreements between these two entities. Merkel, the German chancellor who on Thursday 25th of November 2010, asserted the concept of free trade, but went on to say: “I have to pour a bit of cold water on it”. Her reason for dampening the free trade motive is generated from the fact that “the steps that Russia has taken recently do not point in the right direction”, referring to the Tariff policy from Russia and the trading bloc in Moscow with Kazakhstan and Belarus posing a possible obstacle to the idea.

Well nothing good has ever manifested without barrages of disagreement, with much push and correction the Russian Prime minister’s Vision might just turn to reality.

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Dec 1

China’s economy, and their principal attempts to take over gold and Forex markets

Posted in Forex, Politics

Sixty three years ago China labored under the heavy burden of, what then economist described as, hyperinflation. A condition signaled by a high cost of living in the face of degrading currency. Today, due to resilience, series of economic growth, strategy implementation and focus; China is a country that has grown to be one of the richest country in the world, with a purchasing power parity per capital income of $31,834, and a gross domestic product of $735,997 billion (2009 estimates), and a consistent 8% economic growth for over five years. In-line with the economic goals of China, this is a  country on the dawn of 2010 disclosed its economic blue print, which is to target and maintain the growth rate of 8% per annum. The blue print includes: buying up gold reserves with the goal of ousting the United State’s currency from her present state of glory. Can this ever be achieved? To answer this, the Chinese galloping economic trend will be evaluated alongside the United States’.

For a country that has fought and won the war of economic depression rising to a full blown stable economy, surely achieving the goal of positioning the Yuan to cannibalize the USD shouldn’t be difficult, especially in the face of the crumbling economy the US faces.

Chinas gold reserve target

Gold reserve is one of the targets that China has adopted to achieve its aim of usurping the USD from the number one position and replacing it with the Yuan. By embarking in an aggressive intent to build up its gold reserves the country is set to achieve its aim. Before then, it must be mentioned that India had previously purchased two hundred tons of gold from the IMF (international monetary fund). This perhaps gingered the Chinese goal and it is speculated that with their current move they will eventually buy off the remaining gold from the IMF just to upgrade their reserves. The strategy to achieve this lofty goal is attached to allowing private companies purchase gold from the international market. The question now is, will the Chinese succeed in their quest of ousting the present world power (USA) from their position?

The answer to that question is yes. The answer is not meant to be Chinese bias, but based on the concept of change. Nothing really lasts forever and the United Nation’s attractive position is one of them. Looking at recent world history, about 5 super nations have come and gone; so also have countries like the United Kingdom (that formerly occupied the lofty position that US is presently occupying) overtaken and pushed out by others like the USA. What does this trend signify? Replacement; a country somewhere, somehow is set to take over this desired position, but the question is: which country? No one knows which country will achieve this for sure; however, China is certainly angling itself to be the prima Madonna.

Set China side by side with the USA, the tell tale signs will be magnified almost to a reality. While China is recording constant increase in their economy, the US is experiencing a plummeting economy, which is suffering from severe labor hemorrhage. And although  China’s economy is producing an increasing 4% employment rate and is found wanting in many regards in comparison with the US, but with the evidence of China’s resilience, and obvious increase in economic stature along with other international agendas, China is set to take the world by storm.

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