Terms of Trade

Following are basic terms of trade to help guide you through any international trade deal!

Ad Valorem Tariff

A tariff calculated “according to value,” or as a percentage of the value of goods cleared through customs; for example, 15 percent ad valorem means 15 percent of the value of the entered merchandise

ATA Carnet

An ATA Carnet (a. k. a. "Merchandise Passport") is a document that facilitates the temporary importation of products into foreign countries by eliminating tariffs and value-added taxes (VAT) or the posting of a security deposit normally required at the time of importation.

Commodity

Any article exchanged in trade but most commonly used to refer to raw materials, including such minerals as tin, copper, and manganese, and bulk-produced agricultural products such as coffee, tea, and rubber.

Consumers

Individuals or groups that use economic goods and services, thus deriving utility from them.

Consumer Goods

Goods that directly satisfy human desires (as opposed to capital goods). An automobile used for pleasure is considered a consumer good. An automobile used by a business person to deliver wares is considered a capital good.

Consumption

The purchase and utilization of goods or services for the gratification of human desires or in the production of other goods or services. The consumer may be an individual, a business firm, a public body, or other entity.

Countervailable Subsidy

Foreign governments subsidize industries when they provide financial assistance to benefit the production, manufacture or exportation of goods. Subsidies can take many forms, such as direct cash payments, credits against taxes, and loans at terms that do not reflect market conditions. The statute and regulations establish standards for determining when an unfair subsidy has been conferred. The amount of subsidies the foreign producer receives from the government is the basis for the subsidy rate by which the subsidy is offset, or "countervailed," through higher import duties.

Countervailing Duties (CVD)

Specific duties imposed on imports to offset the benefits of subsidies to producers or exporters in the exporting country.

Demand

The quantity of an economic good that will be bought at a given price at a particular time in a specific market. Demand in a market economy is strongly influenced by consumer preference or the individual choices of many independent buyers, based upon their perceptions of value for price.

Dumping

Dumping occurs when a foreign producer sells a product in the United States at a price that is below that producer's sales price in the country of origin (home market), or at a price that is lower than the cost of production. The difference between the price (or cost) in the foreign market and the price in the U.S. market is called the dumping margin. Unless the conduct falls within the legal definition of dumping as specified in U.S. law, a foreign producer selling imports at prices below those of American products is not necessarily dumping.

Exports

Goods and services produced in one country and sold in other countries in exchange for goods and services, gold, foreign exchange, or settlement of debt. Countries devote their domestic resources to exports because they can obtain more goods and services with the international exchange they earn from the exports than they would from devoting the same resources to the domestic production of goods and services.

Free Trade

A theoretical concept that assumes international trade unhampered by government measures such as tariffs or nontariff barriers. The objective of trade liberalization is to achieve “freer trade” rather than “free trade,” it being generally recognized among trade policy officials that some restrictions on trade are likely to remain in effect for the foreseeable future.

Goods

Inherently useful and relatively scarce articles or commodities produced by the manufacturing, mining, construction, and agricultural sectors of the economy. Goods are important economically because they may be exchanged for money or other goods and services

Harmonization

The process of making procedures or measures applied by different countries—especially those affecting international trade—more compatible, as by effecting simultaneous tariff cuts applied by different countries so as to make their tariff structures more uniform.

Imports

The inflow of goods and services into a country’s market for consumption. A country enhances its welfare by importing a broader range of higher-quality goods and services at lower cost than it could produce domestically. The expansion of world trade since the end of World War II has therefore been a principal factor underlying a general rise in living standards in most countries.

Incoterms

Incoterms are 13 standardized definitions of commonly used shipping and trade terms that cover control of goods and financial responsibilities such as payment of cargo insurance and freight. Incoterms provide traders with a common set of rules outlining each party’s obligations, thus reducing misunderstandings.

Brief Descriptions of Incoterms:

Departure	EXW: EX Works
Main carriage not paid by seller	FCA: Free Carrier
	FAS: Free Alongside Ship
	FOB: Free On Board
Main carriage paid by seller	CFR: Cost and Freight
	CIF: Cost, Insurance and Freight
	CPT: Carriage Paid To
	CIP: Carriage and Insurance Paid to
Arrival	DAF: Delivered At Frontier
	DES: Delivered Ex Ship
	DEQ: Delivered Ex Quay
	DDU: Delivered Duty Unpaid
	DDP: Delivered Duty Paid

The International Chamber of Commerce (ICC) establishes and publishes the Incoterms. To use the terms correctly, trade practitioners should consult the ICC for the complete, authorized Incoterm definitions.

Market Access

The ability of domestic providers of goods and services to penetrate a related market in a foreign country. The extent to which the foreign market is accessible generally depends on the existence and extent of trade barriers

Market Economy

The national economy of a country that relies on market forces to determine levels of production, consumption, investment, and savings without government intervention.

Market Forces

Shifts in demand and supply that are reflected in changing relative prices, thus serving as indicators and guides for enterprises that make investment, purchase, and sales decisions.

Services

Economic activities — such as transportation, banking, insurance, tourism, telecommunications, advertising, entertainment, data processing, and consulting—that normally are consumed as they are produced, as contrasted with economic goods that are more tangible. Service industries, which are usually labor intensive, have become increasingly important in domestic and international trade since at least the 1920s. Services account for about two-thirds of the economic activity of the United States and for a rapidly increasing percentage of U.S. exports.

Subsidy

An economic benefit granted by a government to domestic producers of goods or services, often to strengthen their competitive position.

Supply

The quantity of an economic good that sellers will make available at a given price at a certain time in a specific market. A supply schedule indicates the quantity of an economic good that might enter the market at all possible prices at a particular time. Supply in a market economy is principally determined by the response of many individual entrepreneurs and firms to their perceptions of opportunities for earning profits.

Surplus

The amount of a commodity that cannot be absorbed in a given market at the existing price.

Tariff

A duty (or tax) levied upon goods transported from one customs area to another either for protective or revenue purposes. Tariffs raise the prices of imported goods, thus making them generally less competitive within the market of the importing country unless that country does not produce the items so tariffed.

Trade Barriers

Government laws, regulations, policies, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products.