International Trade Vocabulary Answers

Voluntary export restraint F. Limits on exports usually imposed by the exporting country at the importing country’s request. More costly to the importing country than a tariff that limits imports by the same amount. Example: In the 1970’s Japanese automakers were asked to limit the number of automobiles exported to the U.S. This action is taken to protect an industry that sells a similar product at a higher price or possibly an inferior product.

Ad valorem tariff D. A charge levied as a fraction of the value of the imported good (e.g., 25% on imported trucks). Example: Durable goods frequently have import tariffs based on the value of the product (cars, trucks, machinery and equipment, etc.). The higher the product value, the higher the tariff. The tariff is imposed to raise domestic prices of the protected product.

Tariff B. A tax levied when a good is imported. Example: Many countries use import tariffs to increase the domestic price of the protected commodity. The U.S. uses tariffs on sugar and steel and Chinese agricultural products among others.

Specific tariff C. A fixed charge for each unit of goods imported (e.g., $3 per barrel of oil). Example: A fixed charge per barrel of oil, ton of steel, hundred weight of sugar or bale of cotton. The purpose is to protect a commodity by making the domestic price higher than the world price.

Comparative advantage A. Countries that can produce a product or good more efficiently and cost-effectively have an advantage for that good compared to other countries. Example: In Brazil, patent rights are often not enforced, so farmers there do not pay a royalty for Roundup herbicide. The cost for that product in Brazil is approximately half the cost that U.S. farmers pay for using Roundup herbicide, resulting in lower costs of producing soybeans.

Import Quota E. Limits the quantity of a good that can be imported, which raises the domestic price of the imported good. Example: Many countries restrict the amount of foreign products that enter their country in order to maintain higher domestic product prices. For example, Japan restricts meat imports and Ukraine restricts sugar imports.

National procurement I. Purchases by the government, or strongly regulated firms, directed toward domestically produced goods even when these goods are more expensive than imports. Example: The dairy and cheese program in the United States is a national procurement program. The European Union procures grains. These programs are intended to support prices through governmental purchases.

Export subsidy G. Payment to a firm or individual that ships a good abroad. This subsidy can either be fixed or ad valorem. Example: The United States government reimburses companies that ship food to underdeveloped countries. The reimbursement allows the countries to pay less for the food.

Currency appreciation M. When a higher amount of another currency is able to exchange for another unit of domestic currency. An increase of exchange rates of 0.6 pounds per dollar to 0.8 pounds per dollar is an increase in the value of the dollar.

Currency depreciation L. Happens when a lower amount of another currency is able to exchange for one unit of a domestic currency. A drop of exchange rates of 0.8 pounds per dollar to 0.6 pounds per dollar is a drop in the value of the dollar.

Exchange rate K. The price of one currency in terms of another. Example: To purchase a $1 item from the United States, Brazilian purchasers would have to exchange 3 reals if the exchange rate was 3:1.

Export credit subsidy H. Similar to an export subsidy except that it takes the form of a subsidized loan to the buyer. Example: The United States sells food to underdeveloped countries on credit. The credit allows the countries to purchase food without having the cash. Often these loans are not paid back in full.

Red-tape barriers J. Restricting imports through normal health, safety, and custom procedures so as to place substantial obstacles in the way of trade. Example: These restrictions are based on real or perceived concerns such as GMO, mad cow disease, hoof and mouth disease or salmonella. The affect is that domestic industries are protected through lower foreign competition and is often used as a retaliatory action for other trade restrictions.

World Trade Organization O. An organization established in 1995 to promote fair trade among its members. It uses a system of trading rules to resolve trading disputes. When a country has been found to be in violation, most often the offending country changes it trade policy to come into conformance.

General Agreement on Tariffs and Trade N. An agreement established in 1947 and last ratified in 1994 between 23 countries on a set of rules for trade between them.

European Union Q. An organization of 25 countries that agreed to remove all tariffs with respect to each other and formed one export subsidy program known as the Common Agricultural Policy.

North American Free Trade Agreement P. An agreement established in 1993 between Canada, the United States and Mexico on a set of rules for trade between them.

Credits 1 Source: 2003. Krugman, Paul R. and Maurice Obstfeld. International Economics: Theory and Policy. Boston: Addison Wesley. Various pages.