Spain’s accession into the EU Before accession into the EU, Spain’s economy was of a protectionist nature. It remained largely outside the international economic trading area. However in the 1980s, Spain decided to integrate with Western Europe, and was enthusiastic in accommodating to the EC trade customs and rules in order to secure accession. Spain joined the EMU because it was economically beneficial then as the majority of Spain’s trading partners are in the EU.
On January 1986, Spain joined the European community as a full member. Spain was a firm supporter of the European and Monetary Union from the very beginning and rushed to be a part of the European Monetary System (EMS) in 1989 (Sebastian Royo, 2003). The European Monetary Union was established with the purpose of creating and improves trade among European countries.
Based on the accession agreement, the taxation policy of Spain was transformed dramatically. Firstly, Spain had to gradually remove custom duties as well as industrial tariffs on EC goods (US Library of Congress). Spain’s tax rebate on exports had to be removed too. In addition, Spain had to impose a value-added tax (VAT) which had affected Spain negatively in the 1980s. For instance, the introduction of VAT makes Spain a more expensive destination for inbound visitors/tourists and this will affect the Spanish tourism industry.
2.1 Implications of European financial integration on Spain More importantly, membership in the Economic Monetary Union has many implications on Spain’s domestic economic policies. This is because Spain now loses control of monetary and exchange rate polices to fix problems in its economy and have to rely on the EMU’s monetary policy instead. The EMU is tasked with the objective to conduct policies to ensure and achieve stability and growth in the Euro zone (Trichet, 2005).
European financial integration kick-started a series of reforms aimed at liberalizing and modernizing the Spanish economy. Accession to ERM and then EMU membership resulted in the reform of the tax system. This reform of the Spanish tax system includes the introduction of VAT as well as a reduction of import duties. This was accompanied by a fiscal consolidation process (reducing government budget and debt deficits).
Membership in the EU which resulted in European financial integration has both positive effects and negative effects on the economy. The general consensus is that the economic outcome for Spain’s membership is still largely positive. For example, gross domestic product per capital (GDP) increased significantly from 1985 and 2005 (Elcano Royal Institute
The International Shipping Industry Economics Essay
Worldwide trade is strongly attached to the shipping industry. It is a fact that the vast majority of products are transported through seaborne trade. Nonetheless, China is regarded as the biggest global exporter. Therefore analyzing the impact of Chinese economic growth is of severe importance. Examining the recent history, Chinese growth rates were responsible for triggering the shipping crisis of 2008. Thus our analysis initially focuses on the components of the aforementioned crisis. Nevertheless our ultimate goal is to examine the relation between Chinese growth and the shipping industry, within a theoretical and a practical approach.
Introduction It is a matter of fact that the world trade rates are facing a major slump, compared to the years before 2008. Nevertheless this predicament couldn’t leave the shipping industry unaffected. The majority of world trade in this day and age is conducted in the line between Europe and Asia. Not to mention that China consists the fundamental stone of the Asiatic economy. Therefore the Chinese aggressive promotion of growth in 2008 lead to an overwhelming burst in the shipping industry, justified by the estimation of further higher rates of growth. Nevertheless, this estimation proved wrong and lead the shipping industry into a great recession.
By analyzing the hazardous impact of this crisis, we are driven to the conclusion that it was triggered by multiple factors. What are really worth examining though are the policies followed during, as well as after the burden of this crisis. Taking into consideration that the major players in this analysis are Europe and China. It is worth focusing on the impact of the implied strategies to each individual economy as well as in the international maritime sector.
In this analysis, we examine how the Chinese economic growth affects the international shipping industry. The fundamentals of our analysis are based on theoretical approaches set by distinguished scientists, as well as people close related to the maritime sector. Furthermore a quantitative analysis is to be made, regarding predictions on prospective transport capacity related to economic growth.
As earlier mentioned, the seaborne Asia-Europe trade is the major player, regarding the Chinese economy, and its trade line is constituted of many types of cargo. Although, according to Lloyd’s List the bulk and tanker sector appears to have the highest rates referring to Chinese trade. The sector which is more sensitive to the new market vacancies is the containerized products. Therefore in terms of simplicity and analytical reasons we will restrain our analysis in container transport.
As far as the world trade economy is concerned, China plays a vital role as a major importer as well as exporter. Thus assaying its current strategies is of major importance, in order to estimate the influence the Chinese growth has on the international shipping industry.
Chinese policies Based on a research provided by The Economist, situation in China is described as follows: ‘industrial output has slowed sharply; stocks of unsold goods are piling up; and Shanghai’s stock market is in a three year low’. However why these actions take place? Is China influenced by the world trade crisis or is it something deliberately done? The truth lies somewhere in the middle. China’s slowdown is not necessarily a problem. ICAP Shipping sees the situation as a “carefully engineered economic slowdown in order to avoid overheating’. Meaning that this recession is both understood and under control. The Chinese government has chosen not to aggressively promote growth as back in 2008, in the sake of rebalancing. According to Hou Zhenbo, a Chinese national and an economist working for the Nigerian presidency ‘China realized how important it is to emphasize the role of consumption-led growth as exports to EU/US continues to deteriorate in recent times’. Referring to this declaration, it is clearly seen that policies have started to re-orientate towards a consumer based economy. Especially by the time there is a steady and then accelerated appreciation of the remninbi before and after the crisis. Supplementing its previous policies, China imposes a set of export restrictions, including export quotas, export duties and additional requirements that limit the access to rare earths for companies outside China.
Nevertheless, being aware of its major problems, China proceeded in more radical changes. According to the Lloyd’s List: ‘The country has cut its key interest rates twice since the start of June, bringing the benchmark lending rate down to 6%, and reduced reserve requirements. The Asian giant has other tools at its disposal – enviable fiscal leeway, for example, or policy options such as lifting restrictions on speculation in the property market to reverse sluggishness in the sector’. We should not neglect the fact that this slowdown in the Chinese economy still involves growth that the West would kill to obtain. Therefore we can easily reach a conclusion that their economy will avoid any prolonged recession.
However according to Vivek Wadha, Centre for Entrepreneurs and Research Commercialization: ‘Chinas main disadvantage is that they haven’t cracked the nut yet of how to innovate’. Nevertheless, Chinese government aims in a ‘fully made in China era’. This arising era for exports involves starting designing and developing new products as well as manufacturing them. Nonetheless China aims on exploiting and evolving the technology factor in terms of long term growth.
We are easily been driven to the conclusion that even if the economy of China runs with a lower growth rate, the situation is under control. However how these trends and policies are going to affect the shipping industry?
Defining the model Trying to specify the impact of the Chinese growth rate to the shipping industry, two approaches are to be followed. First of all by following the theoretical approach, we aim to explain the impact of a restrain in Chinese growth rates would have on the shipping industry, using as a base the crisis of 2008.
Nonetheless, our next step is to explain through a practical analysis the relation between the China-Europe trade volume and the quantity of TEU in the market. Last but not least, our goal is to set up a fixed relation between the Chinese GDP and the percentage of transport capacity available.
Few assumptions have to be made:
We examine only the category of containerships, since containerized products are the vast majority of transported goods within the Asia-EU trade line.
All the data have been calculated through basic statistic tools; average, mean, simple-regression model
We assume that containerships of 8000 TEU are effective for this specific shipping line.
We sourced our data using the valid sources of Clarksons, Lloyd’s List as well as the World Bank.
As per the regression analysis, we took as an independent variable the percentage of Chinas GDP growth and defined the percentage of growth of TEU available in the market as dependent, within 2002 and 2011
Analysis 4.1) Theoretical approach Taking a close look at the facts, by the time China started slowing down on growth on 2008 the results were hazardous. As earlier mentioned the shipping industry, misleaded by the tremendous rates of growth, raised a lot of building orders and investments that soon appeared hard to handle. Therefore having a rapidly developing younger fleet, scrapping has lost its importance. As a result by the time the growth pace slummed, already a surplus of transport capacity was created. Additionally the overwhelming transport supply, lead the freights to reach devastating low rates. Bearing with this situation shipping firms proceed with order cancelations in order to avoid acquiring ships which would involve making losses from the first day.
Close related to shipping, the shipbuilding industry was heavily affected. Many of the well-known and well-respected shipyards faced major problems regarding their money flows. Most of them, even those with full order books, had difficulties to secure financial support. That was product of the shortage of liquidity in the banking market. As a result, shipyards did not have the proper amount of money for their operations and refund guarantee for their clients.
With peculiar minimal inputs the shipping industry had to act efficiently. Therefore, radical decisions were to be taken. First of all many of the newbuilding orders were agreed to be delayed, in order for the excess supply and the freight rates to be controlled. Furthermore many ship-owners decided to change routes in their high volume ships, in terms of profitability. As an example vessels where discharged from the Europe-Asia line to the Europe-Africa.
Another controversial issue is the implementation of slow steaming. Many firms decided to cut down on sailing speed, in order to gain from fuel expenses. This practice appeared detrimental for prosperity of the ships engines, in the long term. Furthermore it is a fact that triggered the shipbuilding industry to focus on more efficient and ‘green’ orientated projects. Nevertheless plenty of vessels were laid up in the essence of reducing costs and at the same time restraining the supply. However the most radical strategy was the one introduced by Maersk line. Their Triple-E project required building vessels of massive volume in order for economies of scale to be created. Furthermore the next step is to avoid moorage in numerous ports and follow a basic trade line within two or three ports. Additionally smaller vessels aparting an economy of hub and spoke would distribute the transported goods within smaller ports. This strategy would manage to deteriorate costs and increase efficiency.
Nevertheless, the ambitious projects and strategies implied, the condition in the shipping industry in this day and age is slightly diversified. There is still overcapacity raging within the market and freight rates are low. Being trapped in this predicament, the more likely is for the affected industries to engage in manufacturing as more local enterprises, sharing on transport costs. As a result, raw materials will be sourced nearby (e.g. North Africa) and therefore supply chains will face structural changes.
4.2) Practical approach It is a fact that China has become the second largest global economy and the biggest exporter worldwide. Not to mention EU’s biggest source of imports by far. Therefore we should first take a close look at the trade balance between China and Europe.
Albeit the economic crisis, the imports as well the exports follow a slightly ascending trend. As a consequence a trade deficit of billions is created. However, as per the estimation on Lloyds List: ‘European imports of containerized products from Asia (China) plummeted in July, with an unprecedented 13,2% year-on-year reduction in westbound volumes’.
Since the shipping industry is closely related to the world trade rates, analyzing the impacts of market trends along with Chinas growth rate is of major importance.
Although the excess transport capacity available and the crisis raging within the maritime sector, the findings are quite remarkable. By interpreting the graph, it is clearly seen that there is a steadily upwarding trend regarding TEU available in the market. However this comes in contrast to the total amount of container vessels being ordered. This trend line follows a steeply ascending route, until it reaches the year of crisis in the shipping industry in 2008.
Nonetheless, even if there are bumming numbers of transport capacity available in the market. Newbuilding orders fail to keep up with this trend, justified by the shortage of currency liquidity in the market.
Nevertheless, which is the role of China in these budding trends? Based on the data provided by the World Bank and Clarksons, we are implementing a regression analysis. Our ultimate goal is to investigate whether the two variables are related or not.
Proceeding in our analysis, we come up with the following regression line: Å· = 0,0166 0,0091x. This means that if Chinas GDP rate increases by one unit, there is going to be an increase of 0,0091 billion TEU in the shipping industry. This analysis involves a standard error: se = 0,0263. The low value of se allows as regard that our linear model is a relatively effective analytical and forecasting tool. Nonetheless, we come up with a surprising finding. The coefficient of determination in this model is low. By interpreting our findings only 28,39% of the variation of percentage growth of TEU available in the market is explained by the variation of Chinas GDP growth.
Conclusion In conclusion, in this day and age China has become the biggest exporter worldwide, as well as EUs biggest source of imports. As per the estimation of secretary of ISOA, Mr. Tony Mason 85% to 90% of global trade is conducted by seaborne transport. Therefore it can be concluded that economic strategies followed from the Chinese government are of vital importance for the international shipping industry.
Nonetheless, the major crisis of 2008 can highly be explained from the impact the false estimations of everlasting growth in the Chinese economy. Although shipping firms come up with solutions that deteriorated the burden of recession in the industry, the main components of the crisis are still to be solved.
By closely examining the graphs, it is clearly seen that there is strong trade bond between China and Europe, which can be justified by the high volume of imports and exports. Taking into consideration that the Asia-Europe is the main trade line, as far as seaborne transport is concerned. This trade deficit can partially explain the continuously rising numbers of transport capacity offered. However a surprising finding appeared by analyzing the relationship between the percentage of Chinese GDP growth and the percentage. By implying the technique of regression analysis, we were brought to the conclusion that there is not a high rate of dependency between the two variables.