The world of international trade requires a common set of technical terms and acronyms to be used. This article will provide an overview of the main international trade terms and acronyms that are most commonly used.
1. Letter of Credit (L/C): A letter of credit is a document from a bank that guarantees forfeiture of payment in the event that the goods or services specified in the contract are not delivered according to the agreed-upon terms. This is an essential document for businesses that sell products or services to foreign customers as it ensures that payment will be received even if the buyer does not follow through with payment.
2. Incoterms: Incoterms are standardized agreements between the buyer and seller of goods that outline who is responsible for shipping and other related costs. These terms help to reduce misunderstandings and disputes between the two parties regarding the payment of the goods. There are currently 11 different types of Incoterms applicable to international transactions: EXW (EX Works), FCA (Free Carrier), FAS (Free Alongside Ship), CIF (Cost Insurance Freight), CPT (Carriage Paid To), DES (Delivered Ex-Ship), CIP (Carriage and Insurance Paid To), DAT (Delivered At Terminal), CFR (Cost and Freight), DAP (Delivered At Place), and DDP (Delivery Duty Paid).
3. Harmonized System (HS): The Harmonized System is an international classification system for goods used by customs authorities around the world. It categorizes goods by type, value, origin, destination, and other factors. This makes it easier for countries to identify, assess, and manage the movement of goods into and out of their countries.
4. World Trade Organization (WTO): The World Trade Organization is an international organization that works to promote and protect international trade by establishing a global rule of law for trade agreements between member countries. It sets rules and guidelines for trade between countries, including trade tariffs, dispute resolution procedures, and various other policies.
5. Antidumping Duty: An antidumping duty is a tariff imposed by governments on imported goods when those goods are sold below cost in the importing country. The goal of this type of duty is to protect domestic industries from unfair competition.
6. Export License: An export license is a document issued by a government that grants permission to an exporter to send specific goods to a specific country or group of countries. Export licenses may be required by certain countries when exporting certain goods for security reasons or due to import restrictions.
7. Transfer Pricing: Transfer pricing is the practice of setting prices for goods or services exchanged between associated companies in different countries. These prices are typically used to minimize the overall tax liability of the parent company and transfers profits from high-tax jurisdictions to low-tax jurisdictions.
8. Export controls: Export controls are laws that regulate the export of certain goods and technologies from one country to another. These laws are typically intended to protect a countrys security interests or to protect domestic industries from unfair foreign competition.
9. Rules of Origin: The Rules of Origin are regulations that indicate the country of origin of a product. These rules are used by customs authorities to determine if a product is eligible for preferential tariff treatment under certain trade agreements or international law.
10. International Chamber of Commerce (ICC): The International Chamber of Commerce (ICC) is an international organization that works to promote international commerce, trade, and investment between businesses, governments, and other organizations. It seeks to reduce trade barriers, foster a positive business climate, and develop international commerce standards.
11. Foreign Trade Zone (FTZ): A Foreign Trade Zone (FTZ) is an area located in a country that is treated as if it is outside the customs area of that country. This allows companies in the FTZ to engage in activities that would normally be subject to customs duties or taxes without having to pay them.
12. Subsidies & Dumping: Subsidies and dumping are two market distortion techniques used by governments to protect their domestic industries. Subsidies are financial benefits or incentives provided to companies to help them compete with foreign companies, while dumping is the practice of selling exported goods at prices below their normal value.
This list is by no means exhaustive and many other international trade terms and acronyms exist. However, these are the most common and important ones that are most likely to be encountered by those involved in international trade.
