International Trade Terminologies: An Overview
The international trade system is a complex structure that involves a variety of different practices, methods, and procedures. One of the most important aspects of this system is understanding and being familiar with the common terms and expressions used in the international trade business. These terms are not only important in understanding the trade process, but they can also help to facilitate smoother transactions and therefore increase profits. In this article, we will provide an overview of some of the most commonly used international trade terminologies.
1. Incoterm: An incoterm, also known as an “International Commercial Terms,” is a set of global trading term used to define the responsibilities of buyers and sellers when importing and exporting goods, as well as the related costs. These terms are typically used by large multinational companies and governments, and they fall into four standard categories: Ex-Works, Free Carrier (FCA), Free on Board (FOB), and Cost & Freight (CFR).
2. Harmonized System of Tariff Nomenclature (HSN): The Harmonized System of Tariff Nomenclature (HSN) is an internationally standardized system of names and numbers to classify products for export, import, and domestic trading purposes. This system is used to identify and monitor the movement of goods, and it also helps customs authorities in countries to determine the tariffs and taxes levied on a product when it enters or leaves a country.
3. Tariff: A tariff is a type of tax or duty that is imposed on imported goods or services and is typically based on an amount per unit of goods or services being imported. Tariffs can be set based on a variety of factors such as volume, volume bonuses, or the value of goods being imported.
4. Duty: Duty is the legally mandated amount of money that is paid to the government in order to import goods or services into a country. This is typically based on the quantity and value of goods that are being imported, and it is typically expressed as a percentage of the value of the goods or services that are being imported.
5. Export Credit Insurance: Export credit insurance (ECI) is a type of coverage that provides security and relief to businesses that are trading goods and services internationally by protecting them from potential commercial risks associated with international payments.
6. Exchange Rate: Exchange rates are the prices at which different currencies of the world are exchanged for one another and are usually expressed as an exchange rate between two different currency pairs. These exchange rates are important for international trade as it allows traders to account for the cost of a product in foreign currency and adjust their prices accordingly.
7. Letter of Credit: A letter of credit (L/C) is a type of financial instrument that allows a bank to guarantee payment to an exporter or importer. The L/C is typically issued by the importer’s bank and provides assurance that the importer will be able to pay for the goods or services that they have contracted to receive.
8. Trade Finance: Trade finance is a form of financing that seeks to provide financial solutions to businesses that are engaged in the importation and exportation of goods and services. The most common types of trade finance include documentary letter of credit, export credit insurance, documentary drafts, documentary collections, and structured finance.
9. Trade Barriers: Trade barriers are government-imposed measures that are put in place to regulate the flow of goods and services between countries. These measures can either be tariffs or non-tariff barriers and their purpose is to protect the economy and industries of a country from outside competition.
10. Value-Added Tax (VAT): A value-added tax (VAT) is a type of tax that is applied to goods and services at every stage of the supply chain. This type of tax is levied in order to generate revenue for a country and to incentivize domestic production and consumption.
These are just some of the most commonly used international trade terms. It is important to understand these terms and how they can affect the conduct of international trade, as well as the different regulations that apply for each type of trade transaction. By having a good understanding of these terms and the laws that affect international trade, you will be better equipped to make sound decisions in order to make your international trade experience as successful and profitable as possible.
