33.

Economic and social challenges to EU

EU now:
After years of crisis, the European economy has expanded in 2017 due to
• accommodative monetary policy
• mildly expansionary fiscal policy
• recovering global economy.
• Positive trends in consumption and the labor market have sustained the economic
recovery in the eurozone.
Main challenges:
The crisis is caused by expansion mismatch and deeper integration. Deepening the Single
Market is a key EU factor to enhance prosperity. A dynamic and large single market, that
stimulates competition and efficiency, is the EU’s main asset for productivity, investment
and economic growth. However, the single market remains fragmented, with barriers in key
areas, including services, transport, finance, energy and digital markets.
Long-term challenges:
• wellbeing disparities
• the UK vote to exit the EU
• low potential growth
• an ageing population
• technological development + innovation
• the confidence of all citizens. EU needs to focus on policies that support a stronger
and more inclusive growth.
• to boost competition
• business dynamism
• Global Trade conflicts and uncertainty
• European bureaucracy
Creating inclusive labour markets to raise living standards and potential growth. Some
central European countries are already facing labour shortages. Labour mobility between
EU countries has increased in recent years but still remains relatively low. To a large extent,
this reflects Europe’s linguistic and cultural diversity, difficulties in having qualifications
recognized and different social security systems.
Budget: There are new financing needs. Reforming the budget has become more urgent with
Brexit: the UK departure will lead to a gap of about 7% of the annual budget after 2020 that
could lead to significant cuts in some crucial European programs. Filling the UK gap will
require higher member states’ income - based contributions, new sources of revenue coming
from taxation, a reallocation of spending or a combination of these measures.

34. London Club

The London Club is an informal organization of creditor banks, created to settle the issues of
foreign borrowers' debts to the members of this club.
History and organization
The first meeting of the London Club took place in 1976 in response to Zaire's debt payment
problems, where the lender met to renegotiate commercial banks’ debt. There is no
permanent London Club membership and it has no formal mandate. At a debtor nation’s
request, a London Club meeting of its creditors may be formed, and the Club is subsequently
dissolved after the restructuring. In the London Club, the interests of the creditor banks’ are
represented by a steering committee composed of those banks with the greatest exposure to
the debtor country in question.
Structure
The London Club is a non - governmental organization that brings together nearly 1000 of
the largest private creditor banks. Banks-members of the club enter into agreement with the
government of the debtor country on the terms of debt restructuring. The London Club does
not have a permanent chairman or secretariat.
Debt restructuring agreements are based on three main provisions:
1) Discrimination of any of the creditors is unacceptable;
2) All loans are treated on an equal basis, which provides for equal rights to payment and
collateral, depending on the actual risk of banks.
3) In the case of early repayment of debt, funds are equally distributed among creditors.
At the London Club the commercial banks form a management committee - Banking
Advisory Committee (BAC)
Example of BACs: Deutshe Bank AG, Bank of America NA, JP Morgan, Bank Austria AG,
Industrial Bank of Japan.

35. Paris club

The 'Paris Club' is an informal group of creditor nations whose objective is to find workable
solutions to payment problems faced by debtor nations. The Paris Club has 19 permanent
members, including most of the western European and Scandinavian nations, the United
States of America, the United Kingdom and Japan. The Paris Club stresses the informal
nature of its existence and deems itself a "non-institution." As an informal group, it has no
official statutes and no formal inception date, although its first meeting with a debtor nation
was in 1956, with Argentina.
Understanding the Paris Club 
The members of the Paris Club meet each month in the French capital, except for the months
of February and August. These monthly meetings may also include negotiations with one or
more debtor countries that have met the Club's pre-conditions for debt negotiation. The main
conditions a debtor nation has to meet are that it should have a demonstrated need for debt
relief and should be committed to implementing economic reform, which in effect means
that it must already have a current program with the International Monetary Fund (IMF)
supported by a conditional arrangement.

The Paris Club has five key functioning principles:

– Solidarity: all Club members agree to act and respond as a group when dealing with any
debtor nation.

They all agree to be sensitive to the effect that the management of their specific claims may
have on other members’ claims.
– Consensus: Club decisions may only be taken following a general agreement (consensus)
among the participating creditor nations.
– Sharing Information: the Paris Club says it is a unique information-sharing forum. Its
members frequently share their views and debtor country information with each other. The
IMF and World Bank are also closely involved. However, all discussions are kept strictly
confidential.
– Case by Case: all decisions are taken on a case-by-case basis so that any actions are
tailored to each debtor nation’s individual situation. This case-by-case principle
was consolidated by the Evian Approach.
– Conditionality: the Paris Club only considers restructuring debts with debtor nations that
need debt relief, have adhered to stipulated economic and financial reforms, or their track
record shows that they implemented reforms under an IMF program.
– Comparability of Treatment: a debtor nation that signs an agreement with creditor
nations that are Paris Club members should not accept bilateral creditor terms with countries
that are not Paris Club members if those terms are less favorable.
In addition to 19 member nations, there exist observers, who are often international NGOs,
who attend but cannot participate in the meetings:
– Representatives of International Institutions: including the IMF, the Inter-American
Bank of Development, the World Bank, OECD
– Members with no Claims: these are representatives of Paris Club permanent members
that have no claims regarding debt treatment, for example creditors whose lending
are covered by the de minimis provision, or that are not owed money by the debtor nation but
nevertheless wish to attend the meeting.
– Non-Member Creditors: representatives from creditor nations that are not Paris Club
members. They only attend if the debtor country and permanent members agree.

36. Resource potential of the world economy

Resource potential includes the possibilities available to society for the creation of economic
benefits and their satisfaction. Consists of natural resource potential: financial resources;
labour resources; scientific resources.
The natural resource potential of the world economy is diverse. It contains energy, land and
soil, water, forest, biological (flora and fauna), mineral (minerals), climatic resources.
Financial resources are the totality of all the funds that are at the disposal of the state to form
the necessary assets in order to carry out all types of activities both at the expense of income
and capital, and at the expense of various types of income.
• 69% of people in extreme poverty live in resource driven countries
• Almost 80% of resource driven countries have per capita income levels below the
global average and more than ½ of these are not catching up
• The «resource curse» deal with countries that export fuel and energy resources and are
generally characterized by lower growth and higher macroeconomic instability.

Financial resources are divided into:

- centralized funds (state budget, extra-budgetary funds);

- decentralized financial resources (cash funds of enterprises).

The workforce is the part of the population that possesses the physical development and
intellectual abilities necessary for working life. The workforce includes both employed and
potential employees.
Scientific resources are determined by the capabilities of one country or another to carry out
research and development work. The scientific and technical potential of the country, its
state and development trends are influenced by two groups of factors. The first group
consists of quantitative reasons - the presence in the country of trained scientific researchers,
logistical support. The second group of factors (qualitative) includes the system of
organization, the value of scientific research.
37. TNC in the world economy

A transnational corporation (TNC) is "any enterprise that undertakes foreign direct

investment, owns or controls income-gathering assets in more than one country, produces
goods or services outside its country of origin, or engages in international production. One of
the most "transnational" major TNCs is Nestlé, the Swiss food giant; 91 percent of its total
assets, 98 percent of its sales, and 97 percent of its workforce are foreign-based.

TNCS AND THE GLOBAL ECONOMY

Although TNCs existed before the twentieth century (colonial trading companies such as the
East India Company), only since the 1960s have they become a major force on the world
scene. The phenomenal increase in transnational corporate activity in the latter part of the
twentieth century can be accounted for in large part by technological innovations in
transportation, communication, and information processing that have permitted corporations
to establish profitable worldwide operations while maintaining effective and timely
organizational control.

REASONS FOR BECOMING TRANSNATIONAL

The move toward integrated transnational investment can be seen as a logical and rational
decision by business enterprises to adapt to their environment.

Historically, there have been several distinct strategies: (1) expansion in the size of
operations to achieve economies of scale, (2) horizontal integration, or the merging of
similar firms to increase market share, (3) vertical integration, or the acquiring of firms that
either supply raw materials (backward integration) or handle output (forward integration) to
attain greater control, (4) spatial dispersion or regional relocation to expand markets, (5)
product diversification to develop new markets, and (6) conglomeration or mergers with
companies on the basis of their financial performance rather than what they produce.
Establishing an integrated TNC simply represents a new strategy in this evolutionary chain.
Furthermore, depending on how a corporation is set up and with recent innovations in
communications and information technology, a TNC can incorporate all these strategies so
that the newly structured enterprise has far greater control and a much less restricted market
than it had previously.

What makes a firm transnational?

Firms become multinational (or transnational) when they undertake FDI, have operations in
more than 2 countries, have not less than 25% of voting shares, have multinational
personnel, possess the certain volume of accumulated capital.
Статистика из презы:
• Large firms - mainly from developed countries, but more recently from developing
countries and transition economies
• 11% - foreign affiliates’ share in global GDP
• 90% of all FDI – made by TNCs
• 2/3 of the whole international trade (including intra-firm trade)
•  1/3 of total world exports of goods and services are exports by foreign affiliates of
TNCs
 •  50% - the share of TNCs in the world industrial production
• 90% of licenses, patents, etc. are controlled by TNCs
• 10% of employees in non-agricultural sectors work in TNCs
• High concentration. 100 top TNCs hold  9% of foreign assets, 16% of sales and
11% of employment of all TNCs.

38. Doha Round

The Doha Round is the latest round of trade negotiations among the WTO membership. Its
aim is to achieve major reform of the international trading system through the introduction of
lower trade barriers and revised trade rules. The Round was officially launched at the WTO’s
Fourth Ministerial Conference in Doha, Qatar, in November 2001. The Doha Ministerial
Declaration provided the mandate for the negotiations, including on agriculture, services and
an intellectual property topic, which began earlier.
In Doha, ministers also approved a decision on how to address the problems developing
countries face in implementing the current WTO agreements.
Doha Round lists 21 subjects, among them are: negotiations and other work on non-
agricultural tariffs, trade and environment, WTO rules such as anti-dumping and subsidies,
investment, competition policy, trade facilitation, transparency in government procurement,
intellectual property, and a range of issues raised by developing countries as difficulties they
face in implementing the present WTO agreements.

39. None tariff measures in the regulation of international trade.

The official definition of NTMs is broad: NTMs are policy measures other than ordinary
customs tariffs that can potentially have an economic effect on international trade in goods,
changing quantities traded, or prices or both. The classification of NTMs follows a taxonomy
of all measures considered relevant in today's international trade. It comprises technical
measures, such as sanitary or environmental protection measures. Moreover, it also includes
other measures traditionally used as instruments of commercial policy, e.g. quotas, price
control, exports restrictions, or contingent trade protective measures. 
Examples of NTMs:
 Technical barriers to trade (Refrigerators need to carry a label indicating their size,
weight and electricity consumption level)
 Price control measures (A minimum import price is established for fabric and apparel)
 Pre-shipment inspection (Requirement that goods must be shipped directly from the
country of origin, without stopping at a third country)
Types of NTMs by UNCTAD:
• para-tariff methods
In Russia - VAT and excise duties, Austria - gathering in the export development fund,
Denmark - collection for environmental protection; Sweden - a tax on the protection of
plants, Finland - collecting for fighting the rubbish;
• - control measures behind the prices (anti-dumping and compensatory);
• - financial measures (obligatory sale of part of the currency revenue received from
the foreign trade operations);
 • - measures of quantitative control (quoting or quantitative restrictions on import and
export of concrete goods);
• - measures of automatic licensing;
• - monopolistically measures. state established monopoly for foreign trade. In Austria
– tobacco, alcohol, salt; Finland – alcohol, grain; Iceland – alcohol, electric
equipments, means of communications, tobacco, fresh fruit; Japan – alcohol, grain,
butter, dairy powder, salt, silk; Mexico – dairy powder; New Zealand – fruit; Norway
– alcohol, grain, pharmaceutics; Sweden and Turkey – alcohol; France and Greece –
matches; Switzerland – butter, alcohol.
• - technical measures. In the WTO there is an Agreement on Technical Barriers to
Trade. Control of import goods on their compliance to national standards of safety and
quality. They are obligatory at the admission of separate types of goods through
customs border.
• dumping import, import subsidies
Measures to undertake:
• Untidumping investigation begins when it is proved that the imported goods are
shipped at a price below its normal value which is the cost of production and plus the
rate of return adopted for this industry and threatens to cause material damage to the
industry producing the same goods.
Subsidies - export subsidies to exporters
• Regular –funancial support of national enterprises by the state . It is provided for
everybody (on equal terms) for example preferential loans, tax cuts, subsidizing
interest payments .
• Specific - direct transfer of funds, preferential or non-refundable supplies of raw
materials, refusal to collect payments that must come to the budget

40. Russia in international economic relations

First steps of liberalization were taken place in 1991: The order of the President
“Liberalization of external economic activity in the territory” (november 1991). The order of
the President but not the Soviet law (before the break of the Soviet Union)
This order led not only to the liberalization of the foreign trade but also to the development
of FOREX market in Russia.
Shock-type transition:
 No precise regulation
 Great openness of the market
 Abolition of limitations on export of gas and oil
- (internal oil and gas prices are low but international prices were much higher).
Price difference was a great incentive for exportation of gas and oil but not the
consumption on internal market
 Import deteriorated the domestic market
- liberal import policies
- In 1992 no regulation of import
- Local producers were not protected
Consequences:
 Liberalization of trade coincided with the collapse of the Soviet Union
  New customs borders of Russia appeared, but new customs control was not ready
- Thousand km of new borders
Results:
- Russian economy suffered from deficit of consumer goods
- Decrease of GDP
- Import of consumer goods (sometimes goods of low quality)
- Distributors had high profits (over 100% up to 1000%)
- Decrease of GDP by 15-30%, though trade turnover reduced by 50%.
- Grey economy
- Smuggling
- Grey import (final goods are imported as raw materials or components)
- Re-export through Ukraine or Baltic states
- In 1992 Ukraine re-exported 8 mln tons of oil
- Extensive growth of trade (by increasing the volume of trade)
- Trade in energy and raw materials experienced a boost and compensated for the
decline in manufacturing trade
First legislation on trade
- Customs Code of Russian Federation 1993
- LAW “On the customs tariff” 1993
- LAW “On the Currency Regulation and Currency Control“ 1992
- LAW "On Value Added Tax“ 1991
- LAW "On Excise Tax“ 1991
- Federal Laws
- LAW “On foreign investments in RSFSR” 1991
- LAW “On investment activity in RSFSR” 1992
- Law "On Production Sharing Agreements “ 1995
- LAW "On State Regulation of Foreign Trade“ 1995
- LAW “On measures to protect the interests of the Russian Federation in trade in
goods“ 1998
- LAW “On export control” 1999
Discrimination of Russia on the international market:
Russia is one of the most discriminated economies. Sanctions goods - Goods prohibited to be
imported into Russia from the EU, the USA, Canada, Norway and Australia. The losses from
sanctions against Russia in the EU amounted to 76.7% of the losses from trade restrictions
with Russia. As a result, in April 2017, the EU lost$ 100 billion over the past three years,
which is about twice as much as Russia's losses.
Trade Wars:
Trade war - a negative side effect of protectionism that occurs when Country A raises tariffs
on Country B's imports in retaliation for Country B raising tariffs on Country A's imports.
Trade wars may be instigated when one country perceives another country's trading practices
to be unfair or when domestic trade unions pressure politicians to make imported goods less
attractive to consumers. Trade wars are also a result of a misunderstanding of the widespread
benefits of free trade.
Example: Gas conflicts, Meat and milk war with Ukraine, Wine war with Georgia and
Moldova
Situation in 2018:
- Turnover -688.15 bil.dol
 - Increase by 17.82% relatively to 2017
- Export 449.964bil.dol (increase by 26% )
- 2.6% of the global export
- Import -238 bil.dol (increase by 4.9%)
- Trade balance + 211.8 bil.dol
Russian foreign trade declined significantly in 2015-16 due to lower oil prices and economic
recession and started to restore in 2017-18. But it hasn’t reached maximum levels of 2013
Russian exports are strongly dependent on commodity products. Oil & gas, metals contribute
to about ~80% of total Russian exports. High share of commodity exports haven’t changed
despite numerous efforts by the Government to diversify the economy and stimulate
manufacturing/high tech industries.
Russian imports consist mainly of machinery, vehicles and other consumer goods.
Trading partners:
54.5% of Russian exported goods by value were delivered to European countries while
36.8% were sold to Asian importers. Smaller percentages were shipped to Africa (3.8%),
North America (3.4%) and Latin America (1.2%) excluding Mexico but including the
Caribbean.
TOP-3 partners:
- China: US$56 billion (12.5% of total Russian exports)
- Netherlands: $43.5 billion (9.7%)
- Germany: $34.1 billion (7.6%)

Since early 2010s Russia officially started to support international trade in national
Currencies and expanding reserve currencies.
Specific measures that were implemented to support trade in national currencies:
1. Stronger economic integration with neighbor countries by creation EEU.
2.Special financing instruments and Bodies to facilitate foreign trade in national currencies
including export-import agency, development bank, trade financing in RUB.
3.Direct FX trade in CN Y/RUB and BYN/RUB organized In Moscow Exchange (MOEX).
In 2017 total value of CNY/RUB spot market was $5.8 bln.
4. Trade in commodity markets in national currencies. Since 2017 SPIMEX commodity
exchange organized spot and futures trade for URALS crude.