Harmony Trade Network

Glossary of International Trade Terms

Absolute Advantage - The ability of a country or company to produce a good more efficiently than another entity. This means it can produce the good using fewer resources.

Anti-Dumping Duty - A protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.

Arbitrage - The simultaneous purchase and sale of the same asset in different markets to profit from tiny differences in the asset's listed price. It exploits short-term variations in the price of identical or similar financial instruments.

Back-to-Back Loan - A loan in which two companies in different countries borrow each other's currency for a specific period of time, and repay the other's currency at an agreed-upon maturity.

Balance of Trade - The difference between the monetary value of a nation's exports and imports over a certain period. A positive balance is known as a trade surplus, and a negative balance as a trade deficit.

Bilateral Agreement - An agreement involving two countries or parties. In trade, it refers to agreements regarding trade tariffs and barriers between two countries.

Bilateral Trade - Trade exchange between two nations.

Bill of Lading (B/L) - A legal document between the shipper of goods and the carrier detailing the type, quantity, and destination of the goods being carried. It serves as a shipment receipt when the carrier delivers the goods at the predetermined destination.

Bonded Warehouse - A secured warehouse facility where imported dutiable merchandise may be stored, manipulated, or undergo manufacturing operations without payment of duty for up to five years from the date of importation.

Cabotage - The transport of goods or passengers between two places in the same country by a transport operator from another country. It's often restricted by local laws to protect domestic transport industries.

Cartel - An agreement between competing firms to control prices or exclude entry of a new competitor in a market. In international trade, cartels can control the supply and prices of certain exports.

Commercial Invoice - An important document in international trade that provides information about the goods being shipped, typically used for customs declaration.

Commodity - A basic good used in commerce that is interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services.

Comparative Advantage - The ability of a country to produce a particular good or service at a lower marginal and opportunity cost over another.

Consignment - The process of sending goods to another person or agent to sell on behalf of the sender. The ownership of these goods remains with the sender until they are sold.

Countertrade - A reciprocal form of international trade in which goods or services are exchanged for other goods or services rather than for hard currency.

Countervailing Duties (CVDs) - Tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country. CVDs are meant to level the playing field between domestic producers and foreign subsidized goods.

Country of Origin - The country where goods were manufactured or produced. It is often the basis for tariffs and trade statistics.

Cross-Border Trade - The buying and selling of goods and services between businesses in neighboring countries, with the seller being in one country and the buyer in the adjacent country.

Customs Broker - A professional who assists businesses in navigating the complexities of customs regulations.

Customs Duty - A tax levied on imports (and sometimes exports) by the customs authorities of a country.

Customs Union - An agreement between two or more neighboring countries to remove trade barriers, reduce or abolish customs duty, and eliminate quotas. Members of a customs union also adopt a common external tariff on goods from non-member countries.

Devaluation - A deliberate downward adjustment to the value of a country's currency relative to another currency, group of currencies, or standard. It makes a country's exports more competitive in global markets.

Drawback - A refund of customs duties, taxes, and fees paid on imported merchandise that is subsequently exported or used in the manufacture of exported goods.

Dumping - The act of a country or business selling products at a price lower than the cost of production, typically to gain market share and damage competition.

Economic Integration - The unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration.

Economic Sanctions - Domestic penalties applied by one or more countries against a targeted self-governing state, group, or individual. They are generally considered less severe than military interventions.

Exchange Controls - Governmental restrictions on the purchase/sale of currencies. These controls can vary from basic exchange rate controls to complete bans on the movement of currency.

Exchange Rate - The value of one country's currency in terms of another currency.

Export - The act of sending goods or services from one country to another country for sale or trade.

Export Control - Government measures to regulate or restrict exports for the sake of national security and foreign policy objectives.

Export Credit Agency (ECA) - Private or quasi-governmental institutions that act as intermediaries between national governments and exporters to issue export financing.

Export License - A government document that authorizes the export of specific goods in specific quantities to a particular destination.

Export Management Company (EMC) - A company that helps other companies export their products and services by handling the export operations.

Export Processing Zone (EPZ) - Areas within developing countries that offer incentives and a barrier-free environment to promote economic growth by attracting foreign investment for export-oriented production.

Export Quota - A restriction imposed by a country on the volume or quantity of a specific product that it exports.

Factor Endowment - The extent to which different countries possess various factors of production like land, labor, and technology. This concept is used in explaining the reasons for trade according to the Heckscher-Ohlin theory.

Fiscal Policy - The use of government spending and taxation to influence the economy. When the government decides on the goods and services it purchases, the transfer payments it distributes, and the taxes it collects, it is exercising fiscal policy.

Foreign Direct Investment (FDI) - Investment made by a firm or individual in one country into business interests located in another country.

Foreign Exchange Control - Regulations that restrict or limit the buying/selling of foreign currencies by residents or the buying/selling of the local currency by nonresidents.

Foreign Exchange (Forex) - The market in which participants are able to buy, sell, exchange, and speculate on currencies. Forex markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

Foreign Exchange Reserves - Assets held on reserve by a central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy.

Foreign Trade Zone (FTZ) - A designated area within a country where goods can be imported, stored, handled, manufactured, or reconfigured, and re-exported under specific customs regulation and generally not subject to customs duty.

Franchise - A form of business operation where a company (franchisor) licenses its brand and operational methods to an individual or group (franchisee).

Free Trade Agreement (FTA) - A pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

GATT (General Agreement on Tariffs and Trade) - A legal agreement between many countries whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas.

Globalization - The process by which businesses or other organizations develop international influence or start operating on an international scale.

Greenfield Investment - A form of foreign direct investment where a parent company creates a subsidiary in a different country, building its operations from the ground up.

Grey Market - A market where a product is bought and sold outside of the manufacturer's authorized trading channels. It's legal, unlike black market, but it often lacks the support and warranty services of the official channels.

Gross Domestic Product (GDP) - The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Gross National Product (GNP) - The total value of all finished goods and services produced by a country's citizens in a given year, regardless of where they reside.

Hawala - An informal method of transferring money, typically across borders, without any physical money actually moving. It relies on a network of money brokers.

Hedging - A risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities.

Import - The act of bringing goods or services into a country from abroad for the purpose of selling.

Import License - A document issued by a national government authorizing the importation of certain goods into its territory.

Import Quota - A type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.

Incoterms - Short for "International Commercial Terms," these are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) related to international commercial law.

Intellectual Property Rights (IPR) - Legal rights that result from intellectual activity in the industrial, scientific, literary, and artistic fields.

International Monetary Fund (IMF) - An international organization that aims to promote global economic growth and financial stability, encourage international trade, and reduce poverty.

Intra-Industry Trade - The exchange of similar products belonging to the same industry. For example, a country might both import and export cars.

Invisible Trade - Trade in services, as opposed to goods. It includes services like banking, insurance, and tourism.

Joint Stock Company - A business entity where different stocks can be bought and owned by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership).

Joint Venture - A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.

Keynesian Economics - An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.

Landed Cost - The total cost of a product once it has arrived at buyers' hands. It includes the original cost of the product, all transportation fees (both within the originating country and internationally), customs, duties, taxes, insurance, currency conversion, crating, handling and payment fees.

Letter of Credit - A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.

Letter of Indemnity (LOI) - A letter written by one company to another acknowledging a willingness to indemnify, or compensate, the other party for losses incurred.

Licensing Agreement - A legal contract whereby a firm (the licensor) allows another firm (the licensee) to use its property (like patents, trademarks, copyrights) under specified conditions.

Logistics - The overall process of managing how resources are acquired, stored, and transported to their final destination.

Market Economy - An economic system in which economic decisions and pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning.

Mercantilism - An economic theory that advocates government regulation of international trade to generate wealth and strengthen national power.

Most Favored Nation (MFN) - A status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must nominally receive equal trade advantages.

Multilateral Trade - Trade between more than two nations.

Multimodal Transport - The transportation of goods under a single contract, but performed with at least two different means of transport.

Multinational Corporation (MNC) - A corporate organization that owns or controls production of goods or services in one or more countries other than their home country.

Non-Discrimination - In trade, the principle that a country treats its trading partners equally. For example, the most favored nation (MFN) status is a form of non-discrimination.

Non-Tariff Barriers (NTBs) - These are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs. Examples include licenses, quotas, embargoes, sanctions, and levies.

Non-Tariff Measures (NTMs) - Policies that countries use to control imports and exports which are not tariffs. They include quotas, embargoes, sanctions, levies and other restrictions.

Offshore Banking - The housing of deposit accounts in jurisdictions outside the depositor's country of residence, typically to gain advantages like tax reduction, privacy, or freedom from regulation.

Offshoring - The relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, like accounting.

Predatory Pricing - The act of setting prices low in an attempt to eliminate the competition. Predatory pricing is illegal in many countries and is considered anti-competitive behavior.

Protectionism - The economic policy of restricting imports from other countries through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations.

Quota - A limit on the quantity of goods that can be imported into a country. Quotas are used to protect domestic industries from foreign competition.

Regional Trade Agreement (RTA) - An agreement among countries in a geographic region to reduce and eliminate tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other.

Special Drawing Rights (SDR) - An international type of monetary reserve currency created by the International Monetary Fund (IMF) that operates as a supplement to the existing reserves of member countries.

Subsidy - A benefit given by the government to groups or individuals, usually in the form of a cash payment or tax reduction. In trade, subsidies are used to bolster domestic industries against foreign competition.

Supply Chain - The sequence of processes involved in the production and distribution of a commodity. It often spans multiple countries and involves several companies.

Tariff - A tax imposed on imported goods and services. It is used to restrict trade, as it increases the cost of imported goods and services, making them less attractive to consumers.

Trade Adjustment - Changes in trade policies or economic conditions that necessitate changes in industry practices or worker retraining.

Trade Adjustment Assistance (TAA) - A federal program providing American workers who have lost their jobs as a result of foreign trade with job training and other support.

Trade Agreement - A wide-ranging taxes, tariff, and trade treaty that often includes investment guarantees. It exists when two or more countries agree on terms that help them trade with each other.

Trade Barrier - Any regulation or policy that restricts international trade, especially tariffs, quotas, import licenses, and other requirements.

Trade Bloc - A type of intergovernmental agreement, often part of a regional intergovernmental organization, where barriers to trade are reduced or eliminated among the participating states.

Trade Credit - An agreement in which a buyer can purchase goods on account (without paying cash), paying the supplier at a later date.

Trade Cycle - The cycle of economic activity typically characterized by periods of boom and recession in international trade.

Trade Deficit - A situation where a country's imports exceed its exports, indicating that it is buying more from other countries than it is selling to them.

Trade Deflection - The rerouting of exports to a country with lower tariffs, which are then re-exported to the intended destination country.

Trade Diversification - The process by which a country expands its trading relationships to reduce its economic dependence on any single market.

Trade Elasticity - A measure of how the quantity demanded of one good responds to a change in price of another good. In international trade, it often refers to how demand for imports or exports changes in response to price changes.

Trade Embargo - A government order that restricts commerce or exchange with a specified country or the exchange of specific goods. These are generally imposed for political reasons.

Trade Facilitation - The simplification, modernization, and harmonization of export and import processes. It includes activities, practices, and formalities involved in collecting, presenting, communicating, and processing data required for the movement of goods in international trade.

Trade Finance - Financing for trade, and it concerns both domestic and international trade transactions. A trade transaction requires a seller of goods and services as well as a buyer.

Trade Policy - A government's policy governing international trade. Trade policies determine tariffs and other trade restrictions.

Trade Sanctions - Penalties imposed by one nation onto one or more other nations. These can take the form of tariffs, trade barriers, import duties, and import or export quotas.

Trade Surplus - The opposite of a trade deficit, it occurs when a country's exports exceed its imports.

Trade War - A situation where countries restrict each other's trade by imposing tariffs or quotas on imports. This is often done as a retaliatory measure.

Transfer Pricing - The setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise.

Transit Trade - Trade where goods are transported through one country en route to another country, without being processed or substantially changed in the first country.

Transshipment - The shipment of goods or containers to an intermediate destination, then to another destination. It's commonly used in shipping and air transport industries.

Value-Added Tax (VAT) - A type of consumption tax that is placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale.

Vertical Integration - A strategy where a company expands its business operations into different steps on the same production path, such as when a manufacturer owns its supplier and/or distributor.

Voluntary Export Restraint (VER) - A self-imposed restriction by an exporting country on the volume of its exports of a particular good to a particular country.

Wholesale Trade - The business of selling goods to retailers, industrial, commercial, institutional, or other professional business users, or to other wholesalers.

World Bank - An international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects.

World Economic Forum (WEF) - An international organization for public-private cooperation that engages the foremost political, business, cultural, and other leaders of society to shape global, regional, and industry agendas.

World Trade Organization (WTO) - World Trade Organization (WTO): An international organization that regulates international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement.