Terms in International Economics

Absolute Advantage

A country's ability to produce a good more efficiently than another country using the same resources. It allows for specialization and trade, increasing global efficiency and output. Introduced by Adam Smith, it contrasts with comparative advantage, which considers opportunity costs.

Ad Valorem Tariff

A tariff imposed as a percentage of the value of an imported good, rather than a fixed amount per unit. For example, a 10% tariff on a $1,000 product results in a $100 duty. It adjusts automatically to price fluctuations.

Anti-Dumping Duty

A trade remedy imposed on imported goods sold below fair market value to prevent unfair competition. These duties protect domestic industries from dumping, where foreign companies sell at artificially low prices to undercut local producers.

Balance of Payments (BOP)

A record of all economic transactions between residents of a country and the rest of the world over a period. It includes the current account (trade balance) and the capital and financial account (investment flows).

Bill of Lading (B/L)

A legal document issued by a carrier to acknowledge receipt of goods for shipment. It acts as a shipping contract, receipt, and title of goods, crucial in international trade logistics.

Bonded Warehouse

A storage facility where imported goods can be kept without paying customs duties until they are sold or exported. It helps businesses defer duty payments and manage inventory efficiently.

Capital Account

A component of the balance of payments, tracking cross-border investments, loans, and financial transactions. It includes foreign direct investment (FDI), portfolio investments, and government borrowing.

Certificate of Origin (COO)

A document stating the country in which a product was manufactured. It is used for customs clearance, determining tariff rates, and proving compliance with free trade agreements.

Comparative Advantage

A country's ability to produce a good at a lower opportunity cost than another country. It justifies trade even when a country lacks absolute advantage, promoting specialization and efficiency.

Countervailing Duty (CVD)

A tariff imposed to offset subsidies given by foreign governments to their exporters. It ensures fair competition and prevents market distortions caused by subsidized imports.

Customs Union

A trade agreement where member countries eliminate tariffs on internal trade and adopt a common external tariff on non-members. The European Union is an example of a Customs Union.

Dumping

A practice where exporters sell goods below production cost or domestic prices in foreign markets to gain market share. It can lead to anti-dumping duties if deemed harmful to local industries.

Duty-Free Zone

An area where goods can be imported without paying duties or taxes, usually for re-export. Examples include free trade zones and special economic zones (SEZs).

Economies of Scale

Cost advantages gained when production scales up, reducing average costs per unit. It drives competitive pricing and is crucial in international trade competitiveness.

Export Subsidy

A financial incentive given by governments to encourage exports, often leading to trade disputes if it distorts global competition.

Ex-Works (EXW)

An Incoterm (International Commercial Term) where the buyer assumes responsibility for all transport costs and risks from the seller’s premises.

Foreign Direct Investment (FDI)

A long-term investment where a company or individual acquires significant control over a foreign business, often in manufacturing, real estate, or services.

Free Trade Agreement (FTA)

A pact between countries to eliminate or reduce trade barriers, such as tariffs and quotas. Examples include NAFTA (now USMCA) and the EU-Japan Economic Partnership Agreement.

Free Trade Zone (FTZ)

A designated area where goods can be imported, stored, processed, and re-exported without customs duties. It encourages trade facilitation and investment.

GATT (General Agreement on Tariffs and Trade)

A multilateral trade agreement (1947-1994) aimed at reducing tariffs and trade barriers, replaced by the World Trade Organization (WTO).

Global Value Chain (GVC)

A system where production is distributed across multiple countries, optimizing costs, efficiency, and specialization.

Harmonized System

The Harmonized System (HS) is a globally standardized classification system for traded goods that has been developed and maintained by the World Customs Organization (WCO). It provides a six-digit, internationally harmonized coding framework to classify products. By doing so, it facilitates customs procedures, tariff determination, and trade statistics.

Import License

A government-issued permit required to import specific goods, often used for regulating sensitive products.

Import Substitution

A policy aiming to reduce dependence on imports by promoting domestic industries.

Intellectual Property Rights (IPR)

Legal protections for inventions, trademarks, copyrights, and patents, preventing unauthorized trade and reproduction.

International Monetary Fund (IMF)

An international organization providing crisis support, and economic guidance to member countries.

Letter of Credit (L/C)

A bank guarantee ensuring that a seller receives payment once trade conditions are met, reducing risk in international transactions.

Mano River Union

The Mano River Union is a regional community in West Africa. It was founded by Liberia and Sierra Leone in October 1973 to expand productive capacity and trade, and named after the river that originates in the Guinean highlands and forms the border between the two founding countries. In 1980, Guinea joined the MRU, and in 2008 Côte d'Ivoire became the fourth member of the Organization.

Most Favored Nation (MFN) Status

A trade policy where a country receives the same favorable treatment as other nations in WTO agreements.

Non-Tariff Barrier (NTB)

Trade restrictions not involving tariffs, such as quotas, import bans, and licensing requirements.

Quota

A restriction on the quantity of goods that can be imported or exported.

Rules of Origin

Criteria determining a product’s national source, essential for tariffs and trade agreements.

Safeguard Measures

Temporary trade restrictions imposed to protect domestic industries from sudden surges in imports.

Sanitary and Phytosanitary Measures (SPS)

Health regulations ensuring food safety and disease prevention in agricultural trade.

Special Economic Zone (SEZ)

A designated area offering tax benefits, regulatory exemptions, and infrastructure incentives to attract foreign investment.

Tariff Escalation

A policy of applying higher tariffs to processed goods than raw materials, discouraging industrialization in exporting countries.

Tariff Rate Quota (TRQ)

A system allowing a specified quantity of imports at a lower tariff, with higher tariffs applying beyond that limit.

Trade Balance

The difference between a country's exports and imports.

Trade War

A cycle of escalating tariffs and trade restrictions between countries.

Voluntary Export Restraint (VER)

A self-imposed limit on exports by an exporting country to avoid trade retaliation.

WTO (World Trade Organization)

The global trade regulatory body overseeing trade agreements, dispute resolution, and trade liberalization.

Zero Tariff

A trade policy where imported goods are not subject to customs duties or tariffs. This is common in free trade agreements.

10% Rule

A foreign direct investment (FDI) benchmark, where an investor must hold at least 10% ownership in a foreign company for the investment to be classified as FDI rather than portfolio investment.

99-Year Lease

A common foreign investment agreement in land or infrastructure projects, where a foreign entity leases property for 99 years without direct ownership.