Core
Module
19
World Trade
Foundation Part: Trade: Conditions,
Gains and Disputes
 Why is there trade?
 Why are there always demonstrations against
meetings of the World Trade Organization?
 Does trade protection policy protect all the
citizens?
 Are the prospects for external trade in Hong
Kong promising?
1
Worksheet (1) ：Stimulation Game- Why is there trade?
Dear students:
Why do countries trade with each other? Is trade really mutually
beneficial? Is free trade really beneficial to everyone involved? Let’s
find out the answers together through a simulation game!
Guidelines:
Grouping
Divide into two groups of around 18-20 students. Students of each group become
the people of “Womm Republic”and “Hamm Statelet”respectively.
Game Rules
The people of both countries will go through two rounds of production under the
instructions given by their governments, record the outputs and discuss whether
they should trade with their neighboring country.
Products to be
produced
Garments, bead strings
The following is the background information of the two countries:
Hamm Statelet
Womm Republic
Population: 1 million
Population: 0.5 million
People’s average education level:
primary education
People’s average education level:
senior secondary education
Major occupations of the People:
farmer, factory worker, driver, etc
Major occupations of the people:
factory worker, clerk, salesperson,
waiter, etc.
Womm Republic is self-sufficient
with rich natural resources. It seldom
communicates and trades with other
countries.
Hamm Statelet seldom
communicates with other countries
because of its remote location. It is
also a self-sufficient country.
These two countries are self-sufficient, while garments and bead strings are the products that their
people need most in their daily life. Therefore, the governments wish to start production
immediately!
2
Activity Worksheet 1: Round 1 Production
Activity of “Womm Republic”
Note:
Manpower should be equally allocated. Half of them should produce garments
and half of them should produce bead strings. All people must produce goods
in accordance with the design made by the government and no personalised design will be allowed.
The products will go through a final quality control process, by which only those meeting the
specification given by the government will be counted.
Time limit: 8 minutes
Form teams of 4 people, and each team will have the following tools:
Garment Production Team
Bead String Production Team
•
•
•
Scissors x 2
Glue x 1
Garment paper mould (A4) x 4
•
•
•
Fishing line x 1 roll
Beads in different colours
Paper ruler x 2
•
Heart -shaped paper mould (A4 Orange in
colour) x 1
Sample of garment x 1
•
Sample of bead string x 1
•
Record the output of each team in the following table:
Garment Production Team
Number of
Participants
Output of
Round 1
Production
3
Bead String Production Team
Summary:
Calculate the total outputs of garments and bead strings of “Womm Republic” and “Hamm Statelet”
when they are self-sufficient.
Output of Garments
Output of Bead Strings
Womm Republic
Hamm Statelet
Total Outputs of the Two
Countries
Suppose the people of “Womm Republic” and “Hamm Statelet” wish to enhance their living quality.
Can you suggest any method, with resources remain unchanged, to increase the total outputs of
garments and bead strings of the two countries?
4
Activity Worksheet 1: Round 1 Production
Activity of “Hamm Statelet”
Note:
Manpower should be equally allocated. Half of them should produce garments and half of them
should produce bead strings. All people must produce goods in accordance with the design made by
the central government. No personalised design will be allowed. The products will go through a final
quality control process, by which only those follow the specification given by the central government
will be counted.
Time limit: 8 minutes
Form teams of 4 people, and each team will have the following tools:
Garment Production Team
Bead String Production Team
•
•
•
Scissors x 3
Glue x 2
Heart-shaped paper punch x 1
•
•
•
Needle and thread x 1box
Beads in different colours
Paper ruler x 1
•
•
•
Garment paper mould (A4) x 4
Orange paper x 1 piece
Sample of garment x 1
•
Sample of bead string x 1
Record the output of each team in the following table:
Garment Production Team
Number of
Participants
Output of
Round 1
Production
5
Bead Chain Production Team
Summary:
Calculate the total outputs of garments and bead strings of “Womm Republic” and “Hamm Statelet”
when they are self-sufficient.
Output of Garments
Output of Bead Chain
Womm Republic
Hamm Statelet
Total Outputs of the Two
Countries
Suppose the people of “Womm Republic” and “Hamm Statelet” wish to enhance their living quality.
Can you suggest any method, with resources remain unchanged, to increase the total outputs of
garments and bead strings of the two countries?
6
Suppose the people of “Womm Republic” and “Hamm Statelet” wish to enhance their living quality.
Can you suggest any method to increase the total outputs of garments and bead strings of the two
countries, with resources remain unchanged?
7
Activity Worksheet 2: Round 2 Production
Activity of “Womm Republic”
Note:
According to the conclusions in Worksheet 1, you need only to specialise in the production of bead
strings in this round.
All people must produce goods in accordance with the design made by the central government. No
personalised design will be allowed. The products will go through a final quality control process, by
which only those follow the specification given by the central government will be counted.
Time limit: 8 minutes
Form teams of 4 people, and each team will have the following tools:
Bead String Production Team
•
•
•
•
Fishing line x 1 roll
Beads in different colours
Paper ruler x 2
Sample of bead string x 1
Record the output in the following table:
Bead Strings
Number of Participants
Output of Round 2 Production
Summary:
Calculate the total outputs of garments and bead strings of “Womm Republic” and “Hamm Statelet”
when there is international division of labour.
Output of Garments
Womm Republic
Hamm Statelet
Total Outputs of the Two
Countries
8
Output of Bead Strings
Activity Worksheet 2: Round 2 Production
Activity of “Hamm Statelet”
Note:
According to the conclusion in Worksheet 1, you need only to specialise in the production of
garments in this round.
All people must produce goods in accordance with the design made by the central government. No
personalised design will be allowed. The products will go through a final quality control process, by
which only those follow the specification given by the central government will be counted.
Time limit: 8 minutes
Form teams of 4 people, and each team will have the following tools:
Garment Production Team
•
•
•
•
•
•
Scissors x 3
Glue x 2
Heart-shaped paper punch x 1
Garment paper mould (A4) x 4
Orange paper x 1
Sample of garment x 1
Record the output in the following table:
Garments
Number of Participants
Output of Round 2
Production
Summary:
Calculate the total outputs of garments and bead strings of “Womm Republic” and “Hamm Statelet”
when there is international division of labour.
Output of Garments
Womm Republic
Hamm Statelet
Total Outputs of the Two
Countries
9
Output of Bead Strings
Activity Worksheet 3: Discussion after
Round 2 Production Activity
1.
Review the whole process of the activity. What are the conditions for trade to take place?
2.
Answer the following questions with reference to the following context and data.
Source 1: Outputs of both countries when they are self-sufficient
Outputs of
Garments
Outputs of Bead
Strings
Womm Republic
5
20
Hamm Statelet
20
5
Total
25
25
Source 2: Outputs of both countries with international division of labour
Outputs of
Garments
Outputs of Bead
Strings
Womm Republic
0
40
Hamm Statelet
40
0
Total
40
40
10
a.
What are the changes in the total outputs of garments and bead strings of the two counties with
international division of labour?
b.
If both countries distribute the outputs with international division of labour equally. Explain
how “Womm Republic” may benefit from the trade compared to that of self-sufficient situation.
Womm Republic
Amounts of Garments
Amounts of Bead Strings
5
20
0
40
Outputs when self-sufficient
Amounts available for consumption
(self-sufficient)
Outputs with international division
of labour
Amounts available for consumption
(with trade)
Benefits from trade
c.
Based on the above information and what you know, what are the benefits of international
trade?
11
Discussion Activity: Problems Caused By Trade
3.
Read the comments of the following persons. What are the harmful effects caused by trade?
Since we have traded with “Womm Republic”, my business
performed much poorer than before. The government hopes that we
can switch to the production of garments, but my workers only have
the experience and skills for producing bead strings. It’s very
difficult for them to learn for it and cope with the change!
A bead string manufacturer
in Hamm Statelet
My family insists on passing the art and cultural heritage in our
country by making the bead string in local family factory.
However, the bead strings from “Womm Republic” have
flooded into our country at a lower price after the opening-up
A craftsman in Hamm
Statelet
of our market. We have lost a lot of customers! Should we keep
working on this craftsmanship?
Although we have access to more products and
enjoy a better living quality after trading with
“Womm Republic”, the unstable political situation
in “Womm Republic” may affect our trade.
Citizens of Hamm Statelet
12
: What is Trade?
Trade is an activity where a buyer and a seller are involved to exchange products or services in the
market. In modern world, the buyer in a trade will usually pay money to the seller for goods or
services. The buyer and the seller in a trade may be an individual, an institution or a country. With
technological advancement, trade may be taken place at a global or multinational level with the
support of global logistics and internet. A country will specialise in its production of goods that they
have competitive advantage. It makes good use of its resources and the benefit of mass production so
as to increase its total output and enhance economic efficiency.
Benefits of Trade
Through trade, production unit may specialise in the production of goods in accordance with their
own competitive advantages. Generally, there are three benefits of trade:
13
1) Enhancing production efficiency: Through trade, a country produces products that it has
competitive advantage. They do not need to produce all goods. They will have specialisation in
production and production efficiency will be enhanced.
2) Providing more choices for consumers: Through trade, a country may obtain more variety of
goods. So, consumer can have more choices.
3) Fostering economic development: Through trade, countries have to compete in the market. They
have to improve product quality or production technology for competing customers. This will foster
economic growth and economic development.
Harmful effects of Trade
In the process of trade, a country will specialise in producing goods or services with competitive
advantage. In global competition, both labour and countries have to face many challenges from trade.
In summary, there are three harmful effects of trade:
1) Risk of Unemployment: In global competition, a country will centralise its resources for the
industries with competitive advantage. This will lead to the concentration of job opportunity in
these industries. If labour engaged in other disadvantaged industries cannot switch to the
industries with competitive advantages, they will become unemployed.
2) Less competitive industries will be displaced: For industries that are less competitive, as their
production cost are higher than that in other countries, these industries can hardly exist in the
domestic market due to the competition of the imported products. Many of these industries are
embedded with local cultural heritage which would then be affected.
3) “Unfair Trade” affects social stability: In terms of national power, there has been a large gap
between countries due to historical and economic reasons. Those powerful countries may set the
terms of trading agreements in their own interest and harm the interest of the disadvantaged
countries. Such trading relation would widen the gap between the rich and the poor, which
destabilises the global community.
14
Worksheet (2): Common Trade Protection Policies and
their effects on different stakeholders
1.
Recently, many people of Hamm Statelet have joined a street protest, as they have lost their jobs
after trading with “Womm Republic”. The livelihoods of the people were seriously affected.
Suppose you were the Director of the Trade Development Department, what measures would
you take to deal with this issue?
In respect of the requests of the people, I will
_________________________________________________________
_________________________________________________________
_________________________________________________________
The Director of the
Trade Development
Department of
Hamm Statelet
15
2.
In order to ease the discontent of the people, the Director has established an ad hoc committee
to study the practices of other countries before making decision. The committee members have
visited some countries and have studied a number of cases. With reference to the following
information, match the cases with the relevant trade protection policy.
Import
tariff
Import
quota
Export
subsidy
Embargo
Case 1
The US government provides cotton farmers with a subsidy of around US$4 billions every year to
help them to install huge mobile sprinklers and advanced tractors for maintaining the
competitiveness of exported cotton. This measure may secure the attractive yield of cotton of the US
every year and lower the global price of cotton. Meanwhile, this measure causes harmful effects to
the livelihood of 11 million cotton farmers in West Africa and directly cut the number of rivals.
Source: Oxfam Hong Kong
Trade Protection Policy:
Case 2
In order to protect the local automobile industry in Brazil, the Brazilian government has imposed a
tax on imported cars at a rate of 55%, which eventually led to an increase of 25% in the prices of
imported cars. Following the implementation of the new tax policy that aims to protect the local
automobile industry, consumers’ preference for buying imported cars slumped and the sales of local
mobile industry increased.
Source: news round-up
Trade Protection Policy:
16
Case 3
Hong Kong became the leading exporter of garment and textiles in the 1970s. The garments made in
Hong Kong had taken a large market share in the US for their low price and high quality. In order to
protect the domestic garment industry, the US government had decided to impose an import quota on
garments made in Hong Kong. The import quota on textiles and garments was abolished on 1
January 2005. Following the abolishment, textile products and garments from Hong Kong can be
freely imported to markets like the US, EU, Canada,etc.
Source: news round-up
Trade Protection Policy:
Case 4
The US government imposed a trade embargo against Cuba in 1962 to attain its political objective
against the Cuban government. Enterprises in the US were not allowed to trade with Cuba.
Meanwhile, economic sanctions were imposed on Cuba. Cuba simply could not sell sugar, which is
its major output and source of income, as a result of these sanctions. During the 50 years embargo
period, the Cuban government provided daily necessities to its people through rationing due to the
tight supply of goods. The situation remained the same until October 2000, when the U.S. President
Clinton allowed the sales of US agricultural goods and medical supplies to Cuba for solving its food
shortage. However, the US government did not announce to lift the embargo entirely.
Source: news round-up
Trade Protection Policy:
17
Challenge
The Director of the Trade Development Department of Hamm Statelet has not made any decision
after studying the trade protection policies in other countries. He hopes that the proposal adopted can
attain the following objectives in addition to improving the quality of life of the people of Hamm
Statelet. With reference to the trade protection policies mentioned in the previous two pages, what
are your suggestions?
 Objective 1: avoid the retaliatory measures taken by other countries
 Objective 2: reduce the amount of imports immediately
 Objective 3: may increase the tax revenue of Hamm Statelet at the same time
 Objective 4: may enhance the quality of imported goods
3.
After careful consideration, the Director of the Trade Development Department of Hamm
Statelet has decided to advise the Hamm Government to impose an import quota on bead strings
from “Womm Republic” with immediate effect. Following the implementation of an import
quota, the monthly exports of bead strings from “Womm Republic” to Hamm Statelet has been
limited to 50.
I believe that following the import quota imposed on bead
strings from Womm Republic, the quality of life of our
people will be enhanced!.
Director of the Trade Development
Department of Hamm Statelet
After implementing the import quota for three months, the Director has interviewed the general
public for collecting their views on this policy. Analyse the comments of the people carefully. What
are the effects of this policy to different stakeholders?
18
Following the import quota, the quality and style of the imported
bead strings become better than before. However, the quantity of
imported bead strings reduced and the price increased.
Consumers are forced to buy more local bead strings now!
Black Pearl
Bead string buyer
Following the implementation of the import quota, the sales of
my bead strings have increased and backed to the level in the
past. Before that, I was worried about my business and had
Mr. Black
Local bead string
manufacturer
considered ways of competing with the distinctive bead strings
from the Womm. But I do not face any competition now. I
think the government should further tighten the import quota
to limit the imports of bead strings from other countries, in
supporting “local people using local goods”!
How wonderful it is! I have been a bead string craftsman for
more than 20 years. Before implementing the import quota, I
have well prepared to look for another job as the bead strings
from the Womm were flooding into our country! The import
quota imposed by our government can now protect the
development of our bead string industry and I can work in
this industry till retirement!
Black Bull
Local worker
Most of the bead strings I sold are imported from “Womm
Republic”. Many local residents like buying those bead
Dark Plum
Bead string importer
strings from Womm as they are very distinctive. My
business has been badly hit by the implementation of the
import quota. The volume of imports of bead strings from
Womm decreased and the price of the imported goods kept
rising. My business has suffered a drastic decline. Does the
government think of the impact of it on our lives?
19
It seems that the implementation of an import quota on
bead strings would have nothing to do with me. However, I
am worried that “Womm Republic” will revenge and
impose a high tariff on our exported garments. The
government should also protect our interests!!
Black Ian
Local garment
exporter
According to the comments of these five people of Hamm Statelet, do they support the import quota
imposed on the bead strings from “Womm Republic” by their government? What are the reasons for
their opinions?
Stakeholder
Support/Object
Reason
Black Pearl
(Bead string buyer)
Mr. Black
(Local bead string
manufacturer)
Black Bull
(Local worker)
Dark Plum
(Beading string
importer)
Black Ian
(Local garment
exporter)
20
Challenge
Faced with the trade protection policy by “Hamm Statelet”, what would be your ways to deal with it
if you were a government official of “Womm Republic”?
: Common Trade Protection Policies
Common Trade Protection Policies
In order to protect the interests of certain domestic industries and stakeholders, such as those less
competitive industries in global markets, the government will usually introduce some trade
protection policies to support the development of those disadvantaged industries. Common trade
protection policies include import tariff, import quota, export subsidy and embargo.
Import tariff: It refers to the duties imposed on certain imported goods for raising the prices of
imported goods and protecting the similar local products.
Import quota: It refers to the limit on quantity of imports for the purpose of protecting the products
produced domestically.
Export subsidy: It is a financial subsidy for some exported goods with an aim to support the local
exports in the competitive global market.
Embargo: It refers to a restriction imposed on the imported goods of foreign countries. A country
may restrict the import of particular goods due to its sub-standard in areas such as health, safety and
environmental protection. The embargo may even be extended to all products from a certain country.
These four trade protection policies are different in terms of flexibility. Among them, import tariff
and export subsidy are relatively flexible. The former one can earn more tax revenue, while the later
21
one can help to provide more trade opportunities. On the other hand, import quota and embargo are
of a lower flexibility. The maximum limit for imports has been fixed beforehand. Also, the imported
goods must meet certain specified standards before they could be imported. Accordingly, the
government may have a greater control on the imported goods. A government may implement
appropriate trade protection policies according to its different policy objectives.
The Effects of Trade Protection Policies on different stakeholders
The trade protection policies may have different effects on local manufacturers, consumers and
importers. Generally, the purpose of various trade protection policies is to protect domestic
industries.
Effects on local producers: trade protection policies may help to reduce the competition facing the
local producers, protect local industries and create more job opportunities for those industries.
Effects on local consumers: the price of a product made in overseas countries may rise due to the
difficulty in importing it. As a result, consumers will have to pay more to buy the goods and have
fewer choices.
Effects on local importers: local importers may have to buy overseas products at a higher price.
That could lead to a higher operating cost and thus lower competitiveness. So, their revenues will
decrease as local consumers may spend less on imported goods.
Ways to Deal With Trade Protection Policies
To deal with trade protection policies, countries or regions may revenge, negotiate or participate in
international organizations. Taking revenge measures means a country may impose the same or more
rigid trade protection policies against the country that implements trade protection policies. Holding
negotiation is that two countries or territories may discuss over the arrangements for trade through
negotiations. It aims at reducing the effects of trade protection policies on both sides. Through
participating in international organizations, the countries involved can negotiate on an international
platform. Agreements in trade may be reached and some trade protection policies may be abolished
as a result.
Functions of the World Trade Organization
The World Trade Organization is an international organization which is responsible for formulating
trade agreements and ensuring the rules of international trade are correctly applied and enforced
among its member states. It also provides a platform for mediation of international trade disputes.
The World Trade Organization has been working in eliminating trade barriers among countries to
ensure that global trade can be made in a free and open environment.
22
Worksheet (3): An Overview of Trade of Hong Kong
After investigating the situation in Hamm Statelet, the Hong Kong Government also wants to look
into its present situation of trade, including the trading of goods and services, for seeking ways for
trade development. The Chairman of the Hong Kong Trade Development Council has invited you to
analyse the situation and give advice.
: What are the trends of Hong Kong’s external
merchandise trade in recent years?
Source 1: Hong Kong’s External Merchandise Trade between 1980 and 2010
HK$ million
Imports
Domestic exports
Re-exports
Source: The Census and Statistics Department of the Hong Kong Government
1.
With reference to Source 1, describe the trends of imports, domestic exports and re-exports in
Hong Kong between 1980 and 2010.
23
: Calculation of Merchandise Trade Balance
Merchandise Trade Balance is the difference between the values of total exports (including domestic
exports and re-exports) and total imports of a country (territory) in a period.
Merchandise
Trade Balance
Value of Total
=
Domestic Exports of
Value of Total
+
-
Re-exports of goods
goods
(Revenue)
(Revenue)
Value of Total
Imports of goods
(Expenditure)
A deficit in merchandise trade balance means that the total imports is greater than the total exports in
the territory. On the contrary, a surplus in merchandise trade balance means that the total exports is
greater than the total imports in the territory.
2.
The table below shows the information of Hong Kong’s external merchandise trade between
2002 and 2010. Read carefully and answer the following questions.
(HK$ billion)
Year
2002
2004
Imports
1,619
2,111
131
126
2006
(a)
2008
2010
3,025
3,365
Domestic
135
91
2,327
2,733
Exports
Re-exports
Merchandise
Trade Balance
1,430
(b)
(c)
-92
(d)
-138
a.
Fill in the above blanks based on the equation on top of this page.
b.
Describe the Merchandise Trade Balance of Hong Kong in recent years.
The Merchandise Trade Balance of Hong Kong is always
that there has been a trade
(e)
2,962
-333
than zero. It means
in Hong Kong’s merchandise trade for the years. It
reflects that the revenues from
and
less than the expenditures on buying
.
24
have been
3.
Based on question 2 and your knowledge of Kong Kong’s economy, explain for the situation of
Hong Kong’s Merchandise Trade Balance in the past two decades.
.
: What are the trends of Hong Kong’s external
merchandise trade in recent years?
Source 2 : Top merchandise suppliers of Hong
Kong in terms of value for 2003 and 2010
Source 3 : Value of External
Merchandise Trade by End-use
Categroy - Imports (2010)
Source: The Census and Statistics Department of the Hong Kong Government
25
1.
Compare the figures of 2003 and 2010. What is/are the change(s) in Hong Kong’s total imports
of goods?
2.
With reference to the above chart, which country/territory is the biggest supplier for Hong
Kong?
3.
Hong Kong is a place with limited land and natural resources but accommodating a population
of over 7 million. Source 3 reveals that foodstuffs only account for 4% of the total imports of
2010 when both capital goods and raw materials and semi-manufactures account for over 30%.
Why?
26
Source 4 : Total Exports of Goods to Main Destinations of
Hong Kong in terms of value for 2003 and 2010
According to the information published by the Census and Statistics
Department, Hong Kong’s exports of principal commodity divisions
include plastics, electrical machinery, apparatus and appliances, and
electrical parts thereof, medicinal and pharmaceutical products,
telecommunications and sound recording and reproducing apparatus
and equipment and articles of apparel and clothing accessories, which
account for 47% of Hong Kong’s total exports of goods.
Source: The Census and Statistics Department of the Hong Kong Government (2011)
4.
Which countries / region are the two main destinations of Hong Kong’s exports of goods?
5.
Compare the figures of 2003 and 2010. Which country/region has a marked decline in imports
of goods from Hong Kong? Explain the reason(s).
27
: What are the trends and present situation of
Hong Kong’s trade in services?
Source 5 : Total Exports and Total Imports of Services between 1980 and 2010
Source 6: Major destinations for Hong
Kong’s exports of services in 2010
Source 7: Percentages of value of exports
of services by Service Group in 2010
Source: The Census and Statistics Department of the Hong Kong Government
28
: Calculation of Balance of Invisible Trade
The balance of invisible trade is the difference between total value of exports of services and total
value of imports of services of a country (territory) in a period.
Balance of invisible trade = Total value of exports of services – Total value of imports of services
(Revenue)
(Expenditure)
Invisible trade deficit means that the total value of imports of services is greater than the total value
of exports of services in the territory. On the contrary, an invisible trade surplus means that the total
value of exports of services is greater than the total value of imports of services in the territory.
1. Calculate the invisible trade balance for the following years and indicate whether they are deficit
or surplus.
Year
Invisible trade balance
(HK$ million)
Surplus/Deficit
1990
1995
2000
2005
2010
29
2.
With reference to the above table and Source 5, describe the trends of invisible trade of Hong
Kong between 1990 and 2010.
3.
According to Source 6, which country is the main destination for Hong Kong’s exports of
services? Suggest one possible reason for that.
4.
According to Source 7, which two service groups are the most important pillars of present
invisible trade of Hong Kong? What are the industries included in these service groups? Give
one example for each group.
30
: Why is external trade important to Hong Kong?
Based on the above analysis, we can see that Hong Kong has frequent trade with all parts of the
world. Comment the overall situation of Hong Kong’s external trade and what kind of production do
we enjoy competitive advantage. Why is external trade important to Hong Kong?
31
Worksheet (4): Challenges facing Hong Kong’s
External Trade and the Ways to Deal with them
Economic structure of Hong Kong has shifted towards increasingly service orientated, Hong Kong is
currently an important hub for trading of services. However, there are many challenges facing Hong
Kong’s external trade. Read the information below carefully. Analyse the problems facing Hong
Kong and give some suggestions for improvement.
: World’s Top Four Ports by Throughput
Rank
2000
2005
2010
1
Hong Kong
Singapore
Shanghai
2
Singapore
Hong Kong
Singapore
3
Pusan
Shanghai
Hong Kong
4
Kaohsiung
Shenzhen
Shenzhen
Source: Forbes (The world busiest ports 2011)
The competition in port facing Hong Kong is mainly due to the rapid development of ports in the
mainland. In recent years, ports in Shanghai and Shenzhen reached a rapid growth of nearly 30% per
year in their container throughput. Together with the Yantian Port in Shenzhen, which is close to
Hong Kong, have posed great challenges to Hong Kong. With a rapid development of the maritime
sector in the mainland, Hong Kong’s re-exports and exports will be adversely affected.
Source: Hong Kong Trade Development Council
32
: Global Economic Environment
“Hong Kong’s economy is likely to be affected by the external environment. Hong Kong’s exports
are adversely affected by the recession of the global economy. European debt crisis, economic
problems in the USA and the slowdown of the mainland’s economic growth reduce Hong Kong’s
exports. The economic prospect is even worse than that during the financial turmoil in 2008.
According to a survey conducted by the Hong Kong Trade Development Council in 2012 for Hong
Kong manufacturers and traders, most respondents thought that Hong Kong’s performance in export
orders is disappointing. Reasons that had been suggested by most of the respondents are as follows:
Weak purchasing power among target markets(e.g. Western Europe, the USA)
89%*
The products are not competitive
87%
Fierce competition from industry players
83%
Change in demand or market structure, or other reasons
60%
*Respondents may choose more than one reason.
Source: News roundup (2012), HKTDC (“Hong Kong exporters seeking solutions in tough times”.
14 June, 2012)
: Ranking of Commercial Shopping Avenues for Hong Kong
According to data published by the Travel Industry Council of Hong Kong, the Hong Kong Tourism
Board and the Consumer Council during 2011, 3,344 complaints were received from tourists visiting
Hong Kong. These complaints were mainly related to shopping, accounted for 2,325 cases (70% of
the total number of complaints). These scandals will scare off potential tourists.
Source: the Commerce and Economic Development Bureau
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In view of the present difficult business environment of Hong Kong, an economist of the Hong Kong
Trade Development Council (HKTDC) responded that as the production cost has been rising, Hong
Kong manufacturers can relocate their production bases to lower-cost locations. Moreover,
manufacturers may also launch new products and enhance the quality of the products to stand out in
the competitive environment.
In addition to enhancing products quality, Hong Kong exporters may also strengthen their marketing
in exploring new markets, particularly the mainland of China and emerging markets. Many Hong
Kong companies have developed good relationships and trust with importers from all parts of the
world.
Furthermore, as more and more businesses have been negotiating with the clients and manufacturers
directly, Hong Kong’s role for intermediaries diminished. Though Hong Kong merchants are facing a
tough time, they have been actively seeking better material suppliers and providing more
value-added services on the other hand. For example, Hong Kong merchants help overseas clients in
inspecting goods produced by manufacturers and supervising the manufacturing schedules.
Source: HKTDC (“Hong Kong exporters seeking solutions in tough times”, 14 June 2012,);
(“Overview of Import and Export Trade Industry in Hong Kong”, 9 May, 2011)
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Summarise the information in Source 1 to Source 3. What are the problems facing Hong Kong’s
external trade? With reference to Source 4 and to your own knowledge, give some suggestions for
improvement.
Source
Problems facing Hong Kong
Suggestions
1
2
3
4
: Overview of Trade in Hong Kong
The Importance of Trade to Hong Kong
Trade has been one of the most important economic activities in Hong Kong. For a hundred years of
development, Hong Kong had been turned into a key trading centre in the world. Trade is very
important to the economic development of Hong Kong. Strengthening trade connections, shipping
and logistics facilities can foster the economic development of Hong Kong. Trade can also be the
35
driving force of the development of industries associated with trade, e.g. finance, insurance and
shipping industry. This can enhance Hong Kong’s status as an important trading centre in the world.
Trade and its related industries can attract professionals from all parts of the world. By attracting
talents, Hong Kong may enjoy stronger economic growth and develop into a diverse and
international city.
Challenges facing Hong Kong and the ways to deal with them
1.
Enhance its efficiency.
Hong Kong cannot compete with other cities in terms of price as its production and operating costs
have been very high. Therefore, Hong Kong has to enhance quality of services, efficiency and
productivity or strengthen the promotion of creativity to compete with other territories. Offer goods
or services that are not available in other territories and strengthen training of local talents may also
help to keep the competitiveness of its trading industries in the world market.
2.
Restructure of Trading Services
The mainland of China, the USA and Japan have been the main trading partners of Hong Kong.
However, the rapid development of cities and ports in the mainland has resulted in the diminishing
roles of Hong Kong as an entrepot. Therefore, Hong Kong has to seek other trade partners in
responding to its economic restructuring. Accordingly, there is a change in Hong Kong’s external
trade from visible, physical imports/exports or re-exports to offshore trade in order to provide trading
services for merchants from the mainland and other countries.
3.
Explore the Emerging Markets
In addition to its traditional trading partners (e.g. the mainland of China, USA and Japan), Hong
Kong has to explore new markets for business opportunities. It expands the territory for its trading
services and enhances its competitiveness.
4.
Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)
The mainland and Hong Kong signed the CEPA in 2003. It opens up huge markets for Hong Kong
goods and services, greatly enhancing the close economic cooperation and integration between the
mainland and Hong Kong. Under CEPA, some goods of Hong Kong origin importing into the
mainland enjoy tariff free treatment while Hong Kong service suppliers enjoy preferential treatment
in various areas. CEPA provides a window of opportunity for Hong Kong businesses to gain greater
access to the mainland market.
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Concept Map of World Trade
Conditions for trade
Comparative
to take place
advantage
Factors that promote trade
Trade barriers
Common trade
WTO
protection policies
Eliminate／Reduce trade
Reach trade
Import tariff
barriers
Import quota
agreements
Export subsidy
Embargo
Hong Kong’s External Trade
The effects on
Challenges
competition from ports
and cities in the mainland
and other territories
Ways to improve the situation
Polices: Eliminate trade barriers
Economic development: Explore
comparative advantage
Mainland and Hong Kong Closer
Restructure of trading services,
Economic Partnership
explore emerging markets,
Arrangement (CEPA)
enhance efficiency
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38
Heart-shaped punch
Scissors & Glue
Garment and Heart-shaped (orange) paper
mould
Beads in different colours
Sample of garment
Sample of bead string
39
40
(should be orange in colour)
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