Glossary of Trade Terms

Below is a list of government investment promotion agencies in various countries. These agencies can be valuable resources for organizations looking to enter these markets through foreign direct investment. Please note that this list is not exhaustive, and there may be other relevant agencies depending on your target market:

• ​Absolute Advantage: The ability of a country to produce a good or service more efficiently, using fewer resources, than another country. A country with an absolute advantage can produce a product at a lower cost per unit than its trading partner.
• Ad Valorem: A Latin term meaning “according to value,” used to describe taxes or duties that are calculated as a percentage of the value of imported goods.
• Anti-dumping Duty: A tariff imposed on imported goods to protect domestic industries from foreign products sold at unfairly low prices, or below their cost of production.
• Balance of Payments (BOP): A record of a country’s economic transactions with the rest of the world over a given period, including trade in goods and services, investment flows, and transfers. The BOP is an important indicator of a country’s financial stability and external economic position.
• Balance of Trade: The difference between a country’s total exports and imports of goods and services. A positive balance (trade surplus) occurs when exports exceed imports, while a negative balance (trade deficit) occurs when imports exceed exports.
• Bilateral Trade: Trade between two countries, often governed by a bilateral trade agreement or treaty that establishes the terms and conditions of trade, such as tariffs, quotas, and other trade barriers.
• Bill of Lading: A document issued by a carrier (e.g., a shipping company) to a shipper, detailing the type, quantity, and destination of the goods being carried. It serves as a receipt, a contract of carriage, and a document of title for the goods.
• Certificate of Origin: A document that certifies the country in which a product was manufactured. It is often required by customs authorities to determine the eligibility of goods for preferential tariff treatment under trade agreements.
• CIF (Cost, Insurance, and Freight): A trade term that requires the seller to pay for the cost of goods, marine insurance, and transportation to the named port of destination. The risk of loss or damage to the goods is transferred from the seller to the buyer once the goods are loaded on the vessel at the port of shipment.
• Commercial Invoice: A document prepared by the exporter or seller, which provides detailed information about the goods being shipped, their value, and the terms of sale. It is used by customs authorities to assess duties and taxes, as well as by the buyer and seller for record-keeping and payment purposes.
• Commodity: A basic good or raw material, such as oil, grains, or metals, that is produced and traded in large quantities and used as inputs in the production of other goods or services.
• Comparative Advantage: An economic concept that suggests countries should specialize in the production and export of goods and services for which they have the lowest opportunity cost, relative to other countries, in order to maximize efficiency and global welfare.
• Countertrade: A form of international trade in which goods or services are exchanged directly for other goods or services, without the use of money as a medium of exchange. Countertrade can include barter, counter-purchase, and offset arrangements.
• Country of Origin Labeling (COOL): Requirements imposed by some countries that mandate the labeling of products with information about their country of origin, to inform consumers about the source of the goods and to facilitate the enforcement of trade and safety regulations.
• Currency Risk: The potential for financial losses resulting from fluctuations in exchange rates, which can affect the value of assets, liabilities, and cash flows denominated in foreign currency. Businesses engaged in international trade can manage currency risk through various hedging strategies, such as forward contracts or currency options.
• Customs Broker: A licensed professional who specializes in handling the customs clearance process for importers and exporters, ensuring that goods meet all necessary requirements and documentation is correctly completed.
• Customs Duty: A tax levied by a government on imported or exported goods, usually calculated as a percentage of their value or based on their weight, quantity, or specific characteristics.
• Customs Union: An agreement between two or more countries to eliminate customs duties and other trade barriers on goods traded among them and to adopt a common external tariff on goods imported from non-member countries.
• DDP (Delivered Duty Paid): A trade term that requires the seller to deliver goods to the buyer at the named place of destination, covering all costs and risks of transportation, as well as any applicable duties and taxes.
• Digital Trade: The exchange of goods, services, and data that is enabled or facilitated by digital technologies, such as e-commerce, digital services, or cross-border data flows. Digital trade has become an increasingly important driver of international trade and economic growth, but also raises issues related to privacy, cybersecurity, and the digital divide.
• Dumping: A practice in international trade where a company exports a product at a price lower than the cost of production or the domestic market price, often with the intention of gaining market share or driving competitors out of business. Anti-dumping measures, such as tariffs or quotas, may be imposed by importing countries to counteract the negative effects of dumping on their domestic industries.
• E-commerce: The buying and selling of goods and services, or the transfer of funds or data, over the internet or other electronic networks. E-commerce has transformed international trade by enabling businesses to reach new markets and customers more efficiently, but also raises challenges related to taxation, consumer protection, and digital trade barriers.
• Economic Integration: The process of coordinating the economic policies and activities of countries or regions to create a single market, often involving the reduction or elimination of trade barriers, the coordination of monetary and fiscal policies, and the harmonization of regulations and standards.
• Exchange Rate: The price at which one currency can be exchanged for another, determined by supply and demand in the foreign exchange market. Exchange rates can have a significant impact on the competitiveness of a country’s exports and the cost of its imports.
• Export Cartel: A group of competing firms that collaborate to coordinate their export activities, such as by fixing prices, allocating markets, or restricting output, with the aim of increasing their collective market power and profits. Export cartels can distort international trade and may be subject to anti-trust laws or trade remedies in the importing countries.
• Export Credit Agency (ECA): A government agency or financial institution that provides financing, guarantees, or insurance to support the export activities of domestic companies, helping them to compete in international markets.
• Export License: A government-issued document that authorizes the export of specific goods or services to a particular destination, often required for controlled or restricted items.
• Export Processing Zone (EPZ): A designated area within a country where companies involved in the production and export of goods can benefit from tax incentives, streamlined customs procedures, and other forms of government support, in order to promote economic development and attract foreign investment.
• Export Promotion: Government policies and programs aimed at encouraging and supporting domestic firms to expand their export activities, such as trade missions, export financing, or marketing assistance. Export promotion can help to diversify a country’s export base, create jobs, and stimulate economic growth.
• Export Subsidy: A financial incentive provided by a government to support the export activities of domestic firms, such as cash payments, tax rebates, or low-interest loans. Export subsidies can help to promote exports and boost economic growth, but may also lead to trade distortions and tensions with trading partners.
• Export-Import Bank (Exim Bank): A government-owned financial institution that provides financing, guarantees, and insurance to support the export activities of domestic companies and promote international trade. Exim Banks can help exporters to overcome financial and market barriers and to compete more effectively in foreign markets.
• EXW (Ex Works): A trade term that requires the seller to make goods available to the buyer at their premises or another specified location, with the buyer responsible for all costs and risks of transportation, customs clearance, and import duties.
• FOB (Free on Board): A trade term that requires the seller to deliver goods on board a vessel at the named port of shipment, with the buyer responsible for all costs and risks of transportation, customs clearance, and import duties from that point onwards.
• Foreign Direct Investment (FDI): An investment made by a company or individual from one country into a business or assets located in another country, with the aim of establishing a lasting interest or control over the enterprise.
• Foreign Exchange Market: A global market for the buying and selling of currencies, in which participants can trade one currency for another, either for immediate delivery (spot market) or for a specified future date (forward market). The foreign exchange market plays a critical role in facilitating international trade by enabling businesses to convert their domestic currency into foreign currency for transactions with overseas partners.
• Free Trade Area: An agreement between two or more countries to eliminate customs duties and other trade barriers on goods traded among them, while each country maintains its own external tariff on goods imported from non-member countries.
• Free Trade Zone (FTZ): A designated area within a country where goods can be imported, stored, and processed without being subject to customs duties or other taxes. FTZs are often used to promote economic development and facilitate international trade.
• GATT (General Agreement on Tariffs and Trade): A multilateral agreement signed in 1947 that aimed to reduce trade barriers and promote international trade. The GATT was replaced by the World Trade Organization (WTO) in 1995.
• Global Value Chain: A series of activities, from the sourcing of raw materials to the production, distribution, and sale of finished goods, that are carried out by multiple firms across different countries. Global value chains have become increasingly important in international trade as companies seek to optimize production and reduce costs.
• Harmonized System (HS) Code: A standardized numerical method for classifying traded products, developed by the World Customs Organization (WCO). The HS code is used by customs authorities worldwide to identify and categorize goods for tariff and statistical purposes.
• Import License: A government-issued document that authorizes the import of specific goods or services from a particular country, often required for controlled or restricted items.
• Import Substitution: An economic strategy aimed at reducing a country’s reliance on imported goods and services by encouraging the development of domestic industries and promoting self-sufficiency.
• Incoterms: A set of internationally recognized rules, published by the International Chamber of Commerce (ICC), that define the responsibilities of buyers and sellers in international trade transactions, including the delivery, transportation, and insurance of goods. Familiarity with Incoterms can help businesses to avoid misunderstandings and disputes in their cross-border transactions.
• Intellectual Property Rights (IPR): Legal rights that protect the creations and innovations of individuals or organizations, including patents, copyrights, trademarks, and trade secrets. In international trade, IPR protection is an important consideration to prevent unauthorized copying or use of products and services.
• International Investment Agreement (IIA): A treaty between countries that establishes the rules and principles governing foreign investment, including the protection of investors’ rights, the settlement of disputes, and the promotion of investment flows. IIAs can help to create a stable and predictable investment climate, thereby encouraging cross-border investment and economic development.
• Intraregional Trade: Trade that takes place within a specific region, such as between countries in the European Union or within the Asia-Pacific region. Intraregional trade can be promoted through regional trade agreements and other forms of economic integration, with the aim of fostering economic growth and cooperation among neighboring countries.
• Letter of Credit (L/C): A financial instrument issued by a bank on behalf of a buyer, guaranteeing payment to the seller upon presentation of specified documents that prove the goods have been shipped or delivered according to the agreed terms.
• Market Access: The ability of a country’s products or services to enter and compete in a foreign market, which can be affected by factors such as tariffs, quotas, and non-tariff barriers.
• Most-Favored-Nation (MFN) Treatment: A principle in international trade that requires a country to extend the same favorable trade terms, such as tariffs and import regulations, to all its trading partners without discrimination. The MFN principle is a cornerstone of the World Trade Organization (WTO).
• Multilateral Trade: Trade involving multiple countries, typically governed by multilateral trade agreements or the rules and principles of the World Trade Organization (WTO), which aim to promote open, fair, and non-discriminatory trade among member nations.
• Multinational Corporation (MNC): A large company that operates and has assets in multiple countries, often involved in the production, distribution, and sale of goods and services on a global scale.
• National Treatment: A principle in international trade that requires a country to treat foreign products and services no less favorably than it treats domestic products and services. National treatment is a key commitment under the World Trade Organization (WTO) and many trade agreements.
• Non-Tariff Barriers (NTBs): A range of policy measures, other than tariffs, that can restrict or impede international trade, such as import quotas, licensing requirements, technical standards, or subsidies. NTBs can be used by governments to protect domestic industries or to achieve other policy objectives, but may also distort trade and reduce economic efficiency.
• Offshoring: The relocation of a business process or operation, such as manufacturing or customer service, from one country to another, often to take advantage of lower labor or production costs, favorable tax regimes, or other competitive advantages.
• Parallel Import: The importation of a genuine product, without the consent of the intellectual property owner, from a country where it is sold at a lower price, to a country where it is sold at a higher price. Parallel imports can create price competition and benefit consumers, but may also raise concerns about the protection of intellectual property rights or the quality and safety of products.
• Preferential Trade Agreement (PTA): A trade agreement between two or more countries that grants preferential treatment, such as reduced tariffs or simplified customs procedures, to certain products or services originating from the participating countries.
• Quota: A government-imposed limit on the quantity or value of a specific product that can be imported or exported within a given period.
• Rules of Origin: Criteria used by customs authorities to determine the national source of a product, which can affect the eligibility for preferential tariff treatment or the application of trade remedies. Rules of origin can be based on factors such as the location of production, the value of inputs, or the percentage of local content.
• Safeguard Measures: Temporary restrictions on imports, such as tariffs or quotas, imposed by a country to protect its domestic industries from serious injury caused by a sudden surge in imports. Safeguard measures are allowed under World Trade Organization (WTO) rules, subject to certain conditions.
• Sanitary and Phytosanitary Measures (SPS): Government measures aimed at protecting human, animal, or plant life or health from risks associated with pests, diseases, or contaminants in food, beverages, or feedstuffs. The World Trade Organization (WTO) has established rules to ensure that SPS measures do not create unnecessary barriers to trade.
• Special Economic Zone (SEZ): A geographic area within a country that is subject to different economic regulations and policies than the rest of the country, often offering tax incentives, infrastructure improvements, and other benefits to attract investment and promote economic growth.
• Tariff Rate Quota (TRQ): A trade policy that combines elements of both tariffs and quotas, allowing a specified quantity of a product to be imported at a reduced or zero tariff rate, while higher tariffs are applied to imports exceeding the quota limit. TRQs can be used to protect domestic industries while allowing a limited degree of market access for foreign competitors.
• Tariff: A tax imposed by a government on imported or exported goods, usually calculated as a percentage of their value or based on their weight, quantity, or specific characteristics.
• Technical Barriers to Trade (TBT): Regulations, standards, or other requirements that restrict international trade by creating technical obstacles, such as product specifications, testing procedures, or certification requirements. The World Trade Organization (WTO) has established rules to minimize the negative impact of TBT on international trade.
• Terms of Trade: An economic indicator that measures the ratio of a country’s export prices to its import prices. The terms of trade can provide insights into a country’s competitiveness and purchasing power in the global market.
• Trade Adjustment Assistance (TAA): A government program designed to provide support and assistance to workers, firms, or industries that have been adversely affected by increased imports or other consequences of trade liberalization. TAA can include retraining, job search assistance, or income support for displaced workers, as well as financial assistance for firms to adapt and compete in the global market.
• Trade Adjustment: The process by which an economy adapts to changes in its trade environment, such as the liberalization of trade barriers, the emergence of new competitors, or the development of new technologies. Trade adjustment can involve the reallocation of resources, the retraining of workers, or the adoption of new business strategies to maintain competitiveness and capture new opportunities.
• Trade Agreement: A formal arrangement between two or more countries to regulate and promote trade among them, often including the reduction or elimination of tariffs, quotas, and other trade barriers.
• Trade Balance: The difference between a country’s total exports and imports of goods and services, expressed as a net figure. A positive trade balance indicates a trade surplus, while a negative trade balance indicates a trade deficit.
• Trade Barrier: Any government policy or regulation that restricts or impedes the flow of goods and services between countries, including tariffs, quotas, and non-tariff barriers.
• Trade Bloc: A group of countries that enter into a regional trade agreement to promote economic integration and cooperation among member states, which can take various forms, such as a free trade area, customs union, or common market.
• Trade Capacity Building: Efforts to assist developing countries in enhancing their ability to participate in and benefit from international trade, by improving their trade-related infrastructure, institutions, and human resources. Trade capacity building can include technical assistance, training, and funding to support trade policy formulation, export promotion, or the implementation of trade agreements.
• Trade Credit: A short-term financing arrangement between buyers and sellers, in which the buyer is allowed to purchase goods or services on credit, with payment due at a later date. Trade credit can help to facilitate international trade by reducing the need for upfront cash payments.
• Trade Deficit: A negative trade balance, where a country’s imports exceed its exports.
• Trade Diplomacy: The use of diplomatic channels, negotiations, and other forms of engagement to advance a country’s trade interests and to resolve trade disputes or conflicts with other countries. Trade diplomacy can involve bilateral, regional, or multilateral discussions and agreements, as well as participation in international organizations such as the World Trade Organization (WTO).
• Trade Dispute Settlement: Mechanisms and procedures for resolving conflicts or disagreements between countries over trade-related issues, such as violations of trade agreements or the use of unfair trade practices. Trade dispute settlement can involve negotiation, mediation, or adjudication by an impartial third party, such as the World Trade Organization (WTO) dispute settlement system.
• Trade Distortion: Any policy or practice that alters the pattern of trade from what it would have been under free market conditions, such as subsidies, tariffs, or non-tariff barriers. Trade distortions can lead to inefficiencies and welfare losses, as resources are diverted away from their most productive uses and towards protected or favored industries.
• Trade Diversification: A strategy aimed at reducing a country’s reliance on a limited number of trading partners or products, by expanding its export markets and product mix, in order to mitigate risks and enhance growth opportunities.
• Trade Elasticity: A measure of the responsiveness of the quantity of goods or services traded to changes in factors such as price, income, or exchange rates. Trade elasticity helps to understand the potential impact of changes in economic conditions on trade flows.
• Trade Facilitation: Measures and initiatives aimed at simplifying and streamlining customs procedures, reducing trade costs, and improving the efficiency and transparency of cross-border transactions. Trade facilitation can help to reduce the time and expense involved in international trade, benefitting both importers and exporters.
• Trade Finance: The provision of financial services, such as loans, guarantees, or insurance, to support the export and import activities of businesses. Trade finance helps to reduce the risks and costs associated with cross-border transactions and to improve the efficiency of the international trade process.
• Trade in Services: The exchange of services, rather than goods, across national borders, including services such as transportation, finance, tourism, and telecommunications. Trade in services has become an increasingly important component of international trade, as countries shift from manufacturing-based to service-based economies.
• Trade in Value Added (TiVA): A measure of the value added by each country in the production of a good or service that is traded across borders, taking into account the complex and interconnected global value chains that underpin modern trade. TiVA can provide a more accurate picture of a country’s trade performance and its integration into the global economy than traditional gross trade statistics.
• Trade Liberalization: The process of reducing or eliminating trade barriers, such as tariffs, quotas, or non-tariff measures, to promote the free flow of goods and services between countries. Trade liberalization can lead to increased trade, economic growth, and global welfare, but may also create adjustment costs for certain industries or workers.
• Trade Preference Programs: Special arrangements that grant preferential market access, such as lower tariffs or duty-free entry, to certain goods originating from developing or least-developed countries. These programs aim to encourage economic growth, poverty reduction, and development in beneficiary countries by promoting exports and diversifying their economies.
• Trade Remedy: A legal measure, such as an anti-dumping duty, countervailing duty, or safeguard measure, that can be imposed by a country to counteract the negative effects of unfair trade practices or sudden import surges on its domestic industries.
• Trade Retaliation: Measures taken by a country to respond to what it perceives as unfair or harmful trade practices by another country, such as the imposition of higher tariffs, import restrictions, or other trade barriers. Trade retaliation can escalate into trade wars and damage the global trading system, unless disputes can be resolved through negotiation or dispute settlement mechanisms.
• Trade Sanctions: Economic measures, such as trade embargoes, import restrictions, or asset freezes, that are imposed by a country or group of countries against a target country, with the aim of achieving specific political or policy objectives, such as the promotion of human rights, democracy, or non-proliferation.
• Trade Surplus: A situation in which the value of a country’s exports of goods and services exceeds the value of its imports, resulting in a positive trade balance. A trade surplus can indicate a competitive advantage in international trade, but may also lead to trade tensions and accusations of currency manipulation.
• Trade-Related Aspects of Intellectual Property Rights (TRIPS): An agreement under the World Trade Organization (WTO) that establishes minimum standards for the protection and enforcement of intellectual property rights, such as patents, copyrights, and trademarks, in the context of international trade. TRIPS seeks to balance the interests of creators and users of intellectual property, while promoting innovation and the diffusion of knowledge.
  Trade-Weighted Exchange Rate: An exchange rate index that takes into account the relative importance of different trading partners, by weighting their individual exchange rates according to the share of trade with each partner. The trade-weighted exchange rate can provide a more accurate measure of a country’s external competitiveness than a simple bilateral exchange rate.
• Trading Bloc: A group of countries that have entered into a regional trade agreement, such as a free trade area or customs union, to promote economic integration and cooperation among member states.
• Value-added Tax (VAT): A tax levied on the value added to a product at each stage of production and distribution, ultimately borne by the end consumer. In the context of international trade, VAT is often applied to imported goods.
• Voluntary Export Restraints (VERs): Agreements between exporting and importing countries in which the exporter voluntarily agrees to limit the quantity of a specific product exported to the importing country, often to avoid the imposition of more restrictive trade barriers.
• World Trade Organization (WTO): An international organization that deals with the rules of trade between nations, aiming to promote fair and open trade by reducing trade barriers, resolving disputes, and providing a forum for trade negotiations.