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II.  ECONOMIC & COMMERCIAL CONCEPTS & TERMS

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Absolute Advantage. The ability of a country to supply a particular product or class of goods at lower costs than competing nations. See also comparative advantage and competitiveness.

 

Adjustment Costs. The economic and social costs of reallocating resources from .domestic industries forced to contract as a result of international competition. Although conventional international trade models assumed that adjustment costs would be minimal --leading to prescriptions of jree trade and even unilateral trade liberalization --) industries employing highly specialized production factors can face substantial adjustment costs.

 

Administered Pricing. A condition in which prices of certain goods or services are determined by government agencies, producer cartels, or industry associations, rather than freely through market forces. Examples include price controls imposed by governments during periods of short supplies or high inflation; setting of shipping rates or fares; and collusion among suppliers or importers of a commodity to maintain price stability.

 

Administrative Guidance (Gyosei-Shido). A system of industrial policy used in Japan since the early 1960s. The term refers to official or unofficial pronouncements from government officials, which serve as guidelines to business concerning the application of Japanese law or regulations. Such guidance may take the form of a written opinion or a spoken remark. The informal character ofgyosei-shido tends to exclude foreign firms from inside information.

 

Airbus. Refers to commercial aircraft produced by Airbus Industry, a government- backed consortium comprising Aerospatiale (France), Daimler (Germany), British Aerospace (United Kingdom), and Construcciones Aeronauticas SA (Spain). Currently Airbus accounts for about one-third of the world market for large commercial jets.

 

Allocation Cartel. An agreement among firms in a particular industry by which each participant is assigned certain customers or areas within which it will be the exclusive or primary supplier.

 

Antitrust. Government regulation intended to maintain competitive market structures, in order to protect trade and commerce from monopolies and restraints on competition such as collusive price-fixing and vertical restraints. Antitrust in its modern form is primarily, a North American invention. Other Western countries have been slower to adopt such regulation, but in recent years most industrialized countries have enacted laws broadly similar to those in the United States. See competition policy.

 

Arbitrage. The purchase of commodities or foreign exchange in one country or market, followed by promptly re-selling in another market for a higher price.

 

Arm's Length Pricing. The price at which a particular product or service would sell in a transaction between unrelated buyers and sellers. It is the functional opposite of "transfer pricing," in which the buyer and seller are related --for example, as affiliated units of a multinational corporation --and the price is influenced accordingly.

 

Autarky. A policy that attempts to create a self-sufficient national economy entirely insulated from international trade, usually for ideological or strategic reasons. (A related concept, applying to absolute sovereignty in political relations, is referred to as autarchy.) Until the collapse of communism, many former East Bloc countries pursued policies of autarky relative to the capitalist world. The concept essentially denies or ignores the possibility of mutually-beneficial international trade grounded on the principle of comparative advantage.

Balance of Payments. The composite record of international transactions --i.e., trading, borrowing, and lending --in which a country is involved during a given time period, such as a calendar year or quarter. The balance of payments includes commercial and government transactions for goods and services, international direct investment and bank transactions, and sales or purchases of foreign currencies (or "official reserves"). The two main components of the balance of payments are the current account and the capital account. A third component --the official settlements balance --records the net increase or decrease in a country’s holdings of official reserves; it bridges any remaining gap between the current account and capital account balances, and is normally very small relative to them.

 

Barter. The direct exchange of goods or services for other goods or services, without the use of money as a medium of exchange. Various forms of international transactions involving barter are referred to as countertrade (Sec. I).

 

Beggar- Thy-Neighbor Policy. Unilateral measures taken by a country to improve internal economic conditions --such as through massive import barriers or competitive devaluations --without regard for adverse effects on its trading partners. Such policies tend to provoke retaliation, and were endemic in the period leading up to World War II. See discussion under mercantilism.

 

Bilateralism. See discussion under multilateralism.

 

Buffer Stocks. Commodity stocks managed by countries or international organizations to moderate market price fluctuations. When prices rise above a pre-set ceiling, buffer stocks are sold, lowering market prices. When prices fall below an established floor price, buffer stocks are purchased, raising prices. Buffer stocks can limit price fluctuations in the short run, but are less effective and expensive to maintain during long- term price declines. Buffer stocks are a common feature in various countries' farm programs as well as in some international commodity agreements (Sec. I).

 

Bundling. See tying contract.

Cabotage. In shipping, the transport of goods or persons between ports within a single country.

 

Capital Account. A summary of a country's international borrowing and lending transactions, including its foreign borrowing (investments by foreigners in the home country) as well as its lending or investments in other countries. Along with the current account, it is one of the principal components of the overall balance of payments.

 

Cartel. A group of producers (or producing countries) entering into a collusive arrangement to regulate pricing, production, or marketing of goods by members. The aim of a cartel is to restrict output in order to raise prices; cartel members thereby gain the profit advantages of a single monopoly, but --since they continue to function as separate entities --without the offsetting efficiency gains a monopoly may achieve through economies of large-scale production. Cartels are illegal in the United States, but more common in other countries (see competition policy). The Organization of Petroleum Exporting Countries, or OPEC (Sec. Ill) is a prominent example of an international producer cartel. See also allocation cartel.

 

c.i.f. An abbreviation (for "costs, insurance, and freight") used in international trade statistics and sales contracts. Transactions on c.i.f. basis mean the purchase price includes all costs of moving the goods from the point of embarkation to their destination. Until recently, most import data were given in c.i.f. terms; increasingly, they are being reported in f.o.b. terms.

 

Commercial Risk. An exporter's risk that a foreign customer may be unable to pay for merchandise purchased under open account terms. Such risk contrasts with political risk, which arises from government actions and is unrelated to the financial condition or creditworthiness of the foreign customer. See Foreign Credit I insurance Association (Sec III).

 

Commodity. Broadly defined, any article exchanged in trade, but most commonly used to refer to raw materials, including minerals and bulk-produced agricultural products.

 

Comparative Advantage. Relative efficiency in production of one particular product or class of goods over another class of goods. Differences in comparative advantage among countries are the basis for mutually beneficial specialization and trade. (Not to be confused with absolute advantage, in which comparison is made with other countries; for, even if a country were absolutely more efficient than others in producing every product, it could still benefit by specializing’ in --and exporting --products in which its comparative advantage is highest, and importing the other products.) In principle, an international trading system organized around the concept of comparative advantage should increase worldwide efficiency and standards of living. In this sense, it is the basis for viewing international trade as a "win-win proposition" rather than the "winners and losers" model assumed by mercantilism. See also terms of trade; free trade, industrial policy; and inter/intra-industry trade.

 

Competition Policy. A broad category encompassing antitrust and other policies to remedy the imperfectly competitive nature of key industries. Includes what is termed "antitrust policy" in the United States and "antimonopoly policy" in most other countries, as well as regulation of state aids to industry .Competition policy seeks to affect market structure and market conduct, in order to achieve market performance goals. Trade- related competition policy issues include the impact on international trade of restrictive business practices including intrafirm agreements of multinational corporations (e.g., transfer pricing); strategic partnerships, cartels and private restraints on bilateral trade; distribution monopolies and the procurement practices of private monopolies; and the impact on market structures of mergers and acquisitions across borders. One approach to competition policy seeks establishment of uniform antitrust rules in all major countries. Short of such an ideal, other advocates argue, competition policy should focus on elements in countries' economic institutions that impede domestic and international, competition and negotiate for their removal, along with multilateral negotiation of new policy codes for the behavior of governments and firms. See managed trade, strategic trade policy, and restrictive business practices; see also Export Trading Company Act (Sec. IV).

 

Competitive. As applied to internationally traded goods, refers to a country's or a firm’s products being preferred by a significant share of the world's consumers over competing products from other sources, because of lower price, higher quality, superior performance characteristics, more effective marketing, association with better services such as delivery terms or guaranteed repairs, or some combination of these factors (see competitiveness).

 

Competitive Advantage. (Not the same as comparative advantage.) A market position established either by providing comparable buyer value more efficiently than competitors, or by performing activities at comparable cost but in unique ways that create more buyer value through differentiation.

 

Competitive Performance. The measurable results of competitiveness --i.e., the outcome of a country's or a firm's efforts in selling competitive goods or services in international trade. Frequently-used measures of competitive performance are market share (share of total sales from all sources in a given country, or of total world exports of a particular product); trade balances (or export-import ratios, which permit comparisons among industries of different sizes); and revealed comparative advantage. Most measures of competitive performance are flawed for purposes of policy analysis if used in isolation (see discussion under terms of trade). Some writers use the terms competitiveness and competitive performance interchangeably, thereby confusing the cause with the effect.

 

Competitive Policies and Practices. Actions by governments or firms to affect their competitive performance in international markets. Such actions can be legal (e.g., government-to-government lobbying or export promotion) or illicit (e.g., bribery or deceptive trade practices), and some are subject to multilateral agreements (e.g., tied aid or concessional trade finance). Such practices may be undertaken by nations or firms to compensate for or bolster their underlying competitiveness. Illicit practices on the part of individual firms are usually termed "unfair business practices," as distinguished from unfair trade practices (Sec.l) which are actionable under multilateral trade rules.

 

Competitiveness. The ability of a nation or firm to sell competitive goods or services in international trade. Several aspects of competitiveness are involved in shaping international trade patterns, and can be categorized as:

* Price Competitiveness --determined by the interaction of four factors leading to competitive prices on world markets: real input costs (material prices, wage rates, and the cost of capital); productivity; profit margins; and the exchange rate. Most firms have some control over the first three factors but have no control over the exchange rate. Government monetary and fiscal policies may directly or indirectly affect the first and fourth factors, while industrial targeting seeks to influence the second and third. Changes in competitive factors do not always occur in unison; shifts in one of the factors can be offset by movements in the opposite direction by another factor .

* Technological Competitiveness --representing the ability to provide leading-edge technical capabilities, superior performance characteristics, fuel economy, or reliability. Technological competitiveness can sometimes be more important than price competitiveness in international trade, particularly in advanced-technology industries such as telecommunications equipment and aerospace.

* Commercial Competitiveness --reflecting the vigor, creativity, and effectiveness of firms' entrepreneurial activities, including marketing and distribution and the provision of associated services that increase buyer value.

 

Apart from such fundamental aspects of competitiveness, firms and governments sometimes try to manipulate competitive outcomes by engaging in competitive policies and practices, or in unfair trade practices ( Sec .I ). See also competitive performance and terms of trade .

 

Complementary Exporting. An arrangement in which a manufacturer markets products internationally through the distribution channels of another firm, usually a producer of similar but noncompeting products.

 

Concessional Sale. A sale on terms that are more generous than normal commercial conditions would otherwise dictate. Such terms may include reduced sales prices, special low-interest financing or extended payment terms, or acceptance of a "soft" currency in settlement of the transaction. Concessional sales are often made in conjunction with foreign aid programs, but they may also be an aspect of governmental or corporate competitive policies and practices .

 

Consortium. A joint venture involving three or more participating entities.

 

Conventional International Law. International law arising from formal agreements among nations, as contrasted with customary international law, or international law that has developed through custom and usage over time.

 

Convertibility. The ability of a nation's currency to be exchanged for other currencies without governmental restriction in settlement of current account transactions. Currencies are convertible in varying degrees; a currency that cannot be freely purchased or sold by nonresidents is said to be inconvertible. See exchange controls (Sec. I).

 

Cost of Capital. For any given level of corporate risk, the cost of capital faced by f1rn1s in a given country --a key element of their competitiveness --is essentially determined by four factors: (1) interest rates, or the cost of borrowing, prevailing in the country; (2) tax policies, including tax credits, depreciation schedules that mayor may not be faster than the true rate of economic depreciation, and the tax deductibility of interest costs; (3) .the firms' capital structure or financial leverage --since they may raise funds not only from borrowing but from equity, i.e., retained earnings and new stock issues, which normally has a higher cost that debt financing; and (4) the financial structure of industry - -including "risk pooling" among affiliated firms and banks --and firms' access to domestic and international capital markets.

 

Cross-licensing. An arrangement in which a firm grants a license to another firm to exploit proprietary rights in its patents, trademarks, or trade secrets, in exchange for similar licensure to use intellectual property rights of the recipient firm.

 

Cross-subsidization. The use of financial resources accumulated by a multinational f1rn1 in one part of the world to fight a competitive battle in another region or country .See globalization.

 

Current Account. The portion of a country's balance of payments that records "visible" trade (exports and imports of goods), "invisible" trade(income and expenditures for services), interest payments, and transfer payments such as foreign aid. A current account deficit is essentially offset and financed by a capital account surplus -- representing a net inflow of investment funds --and conversely, a current account surplus will be matched by a capital account deficit. Any gap remaining between the current and capital accounts is bridged by changes in official reserves (recorded in the official settlements balance).

 

Customary International Law. International law that has arisen from custom and usage, and that is recognized and accepted as binding even though not codified. See also conventional international law.

 

Cutthroat Competition. Predatory or discriminatory pricing practices intended to drive out competition and establish market power. Such practices are proscribed by antitrust 4 laws in the United States, but they are often employed in other countries. See predation.

Deadweight Loss. The net cost to society due to market imperfections or government interventions such as trade restrictions --i.e., losses by consumers or producers that are not offset by gains elsewhere, such as increased government revenues.

 

Defensive Investment. An investment undertaken in order to protect larger commercial interests rather than for the return that the investment itself generates.

 

Deindustrialization. A term denoting a negative impact of international competition on the overall size of a country's manufacturing sector (also known as "hollowing-out"). Generally refers to an absolute decline in industrial output or employment rather than simply a decline relative to other sectors of the economy (i.e., structural change).

 

Depreciation. A decline in the purchasing power of a currency, relative to one or more .other currencies, as a result of market forces rather than government action. See also devaluation.

 

Devaluation. The lowering of the value of a currency, relative to one or more other currencies, as a result of deliberate government action. Both depreciation and devaluation tend to boost demand for the country's exports by reducing their prices in .terms of foreign currencies, and to reduce domestic demand for imports by raising their prices in terms of the home currency. Devaluation can provide a short-term boost to an economy encountering balance of payments imbalances --by altering its price competitiveness --but generally has inflationary consequences.

 

Differentiation. A key element in firms' competitive advantage. Refers to market conditions in which a product can vary in some significant way from firm to firm producing it, and purchasers demonstrate preferences about which supplier to patronize in terms of these non-price differences. Factors contributing to product differentiation include quality and performance variations, special service conditions, and advertising.

 

Direct Foreign Investment. The acquisition of productive resources such as factories, mines, or transport facilities in a foreign country. For an investment to be considered "direct," it must be large enough to give the investor control or significant influence over the foreign operation. (Under US Commerce Department regulations, the threshold for such a determination is acquisition of 10 percent or more of the voting stock or capital in a foreign venture.) Investments falling below the threshold of active participation in management of the foreign entity are regarded as "portfolio" investments.

 

Dual-Use Goods (or Technology). Refers to products or the technology embodied in those products that are intended primarily for use as civilian goods but which may be used or adapted for military purposes.

Economic Nationalism. A policy that places highest priority on increasing the economic strength and competitiveness of national firms and reducing economic, vulnerability, if necessary at the expense of trading partners' political and economic interests, or at the risk of damage to international trading relationships. See also beggar- thy-neighborpolicies, and mercantilism.

 

Economic Profit. The amount by which a producer's income exceeds total operating costs, including the cost of capital provided by the firm's owners. A zero economic profit means a firm is earning the normal, economy-wide rate of profit in the accounting sense, with investors receiving a rate of return no greater than the return their capital could earn elsewhere in the economy. Positive economic profits will typically attract new entrants (domestic and/or foreign) to the industry .Protectionism may be the response of domestic firms seeking to prevent such entry by foreign competitors, transforming a competitive industry to an oligopoly. Persistent negative economic profits can lead to a shakeout.

 

Economic Rent. The gain to a producer or resource owner resulting from a trade barrier or other restriction of supply that leads to a higher price than otherwise would occur. The existence or prospect of economic rents may promote unproductive rent-seeking activities by individuals or firms seeking to take advantage of them. See also quota rent.

 

Economic Vulnerability. In the context of trade relations, the proportion of a country's GNP accounted for by exports and imports is sometimes interpreted as a measure of its vulnerability to foreign events and economic conditions. (It is also used as a measure of economic "interdependence" with other states.) Since countries generally try to avoid being subject to the leverage of their suppliers, many make efforts to diversify their supply sources, even at the cost of higher prices. Political relationships with trading partners are an imponant element in determining vulnerability, since even a high level of trade dependence on a friendly ally is likely to create less vulnerability than trade with unfriendly states.

 

Economies of Agglomeration. Cost savings that occur when industrial flm1s are located in close proximity to each other and are able to share a common infrastructure network, such as transportation facilities, communications, and energy supplies.

 

Economies of Scale. (Also known as increasing returns to scale.) Cost savings that occur in production processes where higher output levels allow a firm to employ more productive technology --so that doubling inputs, for example, will result in more than a doubling of output. Economies of scale can be a source of international trade flows apart from comparative advantage if product differentiation exists and individual countries are unable to produce a full range of differentiated manufactures themselves (see intra- industry trade).

 

Economies of Scope. Cost savings that occur when reductions in average total costs can be achieved by increasing the number of distinct products manufactured by an enterprise. Economies of scope are possible when specialized inputs (e.g., expensive machinery or highly skilled labor) can be shared among different production processes --as, for example, when fighter aircraft and cruise missiles are produced in the same facility.

 

ECU. See European Currency Unit.

 

Effective Rate of Protection. The overall effect of a nation's tariff system on a specific domestic product, after taking into account the impact of trade restrictions on the industry's inputs. The effective rate of protection is the proportionate increase in value- added in an industry that is possible as a result of the whole structure of protection, on both the output and the inputs of the industry.

 

Entente. In commercial usage in Continental Europe, a synonym for a price-fixing agreement or cartel.

 

European Currency Unit (ECU). A unit of value based on a "currency basket" comprising specific amounts of the currencies of the EC member states. Each currency's share in the basket is weighted in line with the respective country's GNP and foreign trade. The ECU is issued by the European Monetary Cooperation Fund against the gold and US dollar deposits made by the member states' monetary authorities.

 

Excess Capacity. Occurs when a firm or industry is operating below cost-minimizing levels of output. "Permanent excess capacity" is said to exist in industries requiring very large physical plants for which the size of the domestic market may be inadequate to fully absorb the output --limiting firms in the industry to production levels where economies of scale will not be fully exploited. Such conditions may set the stage for international trade conflict, since firms experiencing excess capacity may resort to unfair trade practices (Sec.l) to expand markets for their output in other countries. At the same time, excess-capacity firms generally have higher unit costs than necessary , making them vulnerable to predation by foreign competitors.

 

Exclusive Dealing. See vertical restraints.

 

Export-Led Growth. A macroeconomic strategy focusing on expansion of the export sector --such as through export subsidies or competitive devaluation --as a way of boosting economic growth while avoiding the inflationary consequences of higher domestic spending. Especially if coupled with higher import barriers, such an approach can be a form of beggar-thy-neighbor policy. Moreover, by targeting export industries for expansion, resources are diverted from industries producing for the home market, with the result that industrial self-sufficiency may be delayed.

 

Export Management Company. See export trading company.

 

Export Platforms. Refers to countries such as Mexico, Taiwan, Singapore, Malaysia, and South Korea that established incentive programs beginning in the late 1960s to attract foreign direct investment oriented toward offshore production operations by corporations based in the United States and other industrialized countries. Incentives included import reductions on components, tax-free treatment of exports, and tax holidays. See globalization.

 

Export Trading Company. (Also known as an export management company.) A private firm that provides related-related services to other firms, usually smaller and mid- sized manufacturers that could not afford to maintain a separate export department on their own. Services provided by an export trading company can include locating foreign customers, arranging shipping and financing for exported goods, and performing foreign marketing functions. Compensation may be made on a commission basis, or through direct purchase and resale of the exported merchandise.

 

Externalities. Spillover benefits or costs arising from an economic activity that are not taken into account by producers, resulting in levels of production that are inappropriate from the standpoint of the economy as a whole. The presence of "positive externalities" or external benefits means that insufficient resources will be devoted to producing the product in question unless incentives (e.g., subsidies) are given to producers. For example, one of the imponant positive externalities affecting trade in high-technology products involves private research and development (R&D) activities, since firms may be unable to completely appropriate for themselves the payoffs from their R&D investments. In contrast, negative externalities (sometimes called "diseconomies") imply overproduction unless the activity is appropriately taxed or otherwise constrained by governmental authorities. Unchecked pollution by manufacturers is a commonly cited example of negative externalities.

 

Fair Trade. International trade involving shipments that do not benefit from government assistance. Fair trade --and the related concept of unfair trade practices ( Sec .I) --is almost always used in the context of policies or practices affecting exports, while free trade usually refers to the absence of barriers to imports. See also level .playing field.

f.a.s. An abbreviation (for "free alongside") used in international trade statistics and t sales contracts; a method of valuing traded goods that does not include the cost of shipment from the exporting to the importing country.

 

f.o.b. An abbreviation (for "free on board") used in international trade statistics and sales contracts; a method of valuing traded goods that includes the cost of transportation to the port of embarkation and the cost of loading the goods on a vessel, but does not include further shipment or insurance costs. Export data are usually reported in f.o.b. terms.

 

Forfeiting. A means of financing foreign trade based upon the transfer of debt obligations arising from the sale of goods and services, usually exports.

 

Free Trade. International trade that is unhampered by restrictive measures such as tariffs or non-tariff barriers. An ideal concept that plays a role in economic theory similar to that of the "perfect vacuum" in physics, since, except within economic unions, virtually no international trade is genuinely free of governmental interference. In practical terms, trade policy deliberations in all countries do not normally concern questions of whether free trade should be pursued, but rather of how much and what kind of government intervention is needed to serve the national interest. See also fair trade.

 

Futures Contract. A contract for goods, foreign exchange, or financial assets to be delivered at a certain future date on terms and at prices set in the contract. A large number of raw materials as well as some processed goods are commonly traded internationally in futures contracts.

Globalization. The process of dispersing elements of a firm is production and marketing across several countries. Historically, trade in globalized industries followed a hub-and- spokes pattern, with components and end-products moving between the home country and "offshore" manufacturing subsidiaries or affiliates. More recently, components and end-products have begun to be shipped among specialized production facilities in several countries, in order to take advantage of economies of scale, to circumvent trade barriers, or to match distinct activities with local competitive advantages. Globalization poses substantial scheduling, technical, and process coordination problems, as well as risks of supply being disrupted by national trade policies. It can result in a trade pattern in which many countries can have both imports and exports in the same product category (see intra-industry trade), depending on how they fit into the overall production network. In such an environment, attributing national origin to a product can be difficult, complicating international trade negotiations conducted on a traditional, country-to- country basis.

Heckscher-Ohlin Model. A theory for explaining international trade patterns in tern1S of differences in countries' supplies of productive factors (e.g., human and physical capital, raw material resources). The model was named for Swedish economists Eli Heckscher and Benil Ohlin. See also Ricardian Model.

 

High Technology. Products that embody relatively intensive research and development , (R&D) inputs, either directly at the final manufacturing stage or through the intern1ediate ..components used in their production. Numerous classification schemes have been proposed in academic studies and international discussions to designate high-technology industries, but all have shortcomings. (For example, technologically "mature" products such as industrial chemicals and consumer electronics make up a significant proportion of high technology as delineated by some R&D-based definitions; see discussion under product cycle.) As a rule of thumb, high-technology industries can be designated as those producing microelectronics, computers, telecommunications equipment, machine tools and robotics, aerospace equipment, scientific and precision instruments, medicine and biological compounds, and specialty chemicals including certain advanced materials.

 

Hollowing-out. See deindustrialization.

 

Horizontal Integration. The merger of two or more firn1s producing essentially the same product or service. See also vertical integration.

Imperfect Competition. When an industry is marked by imperfect competition, market prices send "incorrect signals" regarding resource availability and purchasers' needs. See market imperfections.

 

Import Substitution. A policy of promoting domestic production of goods that otherwise would be imported. Such programs may involve a combination of domestic subsidies and import restrictions, and are often justified on grounds of conserving foreign exchange. See also infant industry protection.

 

Increasing-Returns Industry. An industry requiring an exceptionally large or expensive physical plant, so that economies of scale (also known as increasing returns to scale) still exist at output levels saturating the firm's domestic market. Examples often cited are steel, aircraft, and many defense industries. Such industries --which may also be referred to as pern1anent excess-capacity industries, or natural monopolies --pose particular problems for international trade policy (see discussion under excess capacity).

 

Industrial Policy. A program of selective government interventions designed to change the sectoral composition of a country's economy by influencing the development of particular industries or sectors. Targeted sectors or industries may be aided through some combination of government loans and equity participation; tax incentives to promote investment; trade protection and export subsidies; preferential government procurement practices; or relief from regulatory constraints such as antitrust and environmental laws. Advocates claim that industrial policy can "shape comparative advantage" --recognizing that, even if all countries may gain through international trade, a country will gain most if it specializes in high-value-added, high-growth sectors. Critics claim that governments cannot do a better job than market forces in "picking winners," and that misguided attempts to do so --as occurred in the foI1I1er East Bloc countries --could make matters worse.

 

Industrial Targeting. Selection by a government of industries deemed imponant to the evolution of the economy, and encouraging their development through explicit policy measures. The teI1I1 usually connotes a more narrow spectrum of industrial policy measures focused specifically on increasing competitiveness in export markets.

 

Infant Industry Protection. Temporary import protection intended to help an industry that is not fully developed become established and competitive in world markets. The economic justification for infant industry protection is the prospect of decreasing costs as output expands and experience in production is acquired, which puts start-up firms at a competitive disadvantage vis-ŕ-vis established world producers in the industry. Article 18 of the GATT permits LDCs to protect infant industries, but the restricting country may be required to compensate other GATT members that are adversely affected. See also import substitution.

 

Innovation. Putting into operation new techniques and other economically useful knowledge in a way that leads to commercial success. Innovation is not necessarily linked to the process of invention or discovery --it can, for example, involve putting into operation techniques invented or discovered elsewhere. Along with capital accumulation, the rate of innovation in an economy is crucial for expansion of its productive capacity and, hence, for its economic growth, improved standards of living, and international competitiveness.

 

Innovation Systems. The network of public- and private-sector institutions that initiate or import, modify, and diffuse new technology in a country .In current OECD discussions, the term encompasses ways in which a country organizes its systems of education, scientific research, and technological diffusion, and --in conjunction with macroeconomic and competition policies --their combined impact on the rate of innovation. Associated with the term is the concept that "technological trajectories" shaped by countries' differing innovation systems may set the stage for future trade conflict or collaboration.

 

Inter-Industry and Intra-Industry Trade. Inter-industry trade involves exchanges between countries that link complementary industries, such as steel and automobiles, reflecting differences in the trading partners' economic resources (i.e., differences in comparative advantage and consequent specialization). In contrast, intra-industry trade involves two-way international trade flows within a single industry --such as electronics --and often consists of highly specialized components and subassemblies in transactions between affiliated firms in different countries. About one-quarter of world trade consists of intra-industry trade, which plays an especially prominent role in trade in manufactured goods among the industrial nations (see globalization).

 

Internationalization. See globalization.

 

Invisibles. Items such as insurance and financial services that are included in a country's current account but are not recorded as merchandise imports or exports. See services.

Joint Venture. An international business undertaking involving a long-term commitment of funds, facilities, and services --as well as joint management and sharing of risks and profits --between two firms from different countries. Many countries impose restrictions on joint ventures, such as foreign equity limits, local control legislation, and restrictions on repatriation of dividends. If joint ownership of capital is involved, the partnership is known as an equity joint venture. If more than two companies are involved, it is usually called a consortium.

 

J-Curve. The expected adjustment path in a country's trade balance following a currency depreciation or devaluation. Because a change in the exchange rate alters the prices of exports and imports "in the pipeline" before it affects the volume of trade, the immediate impact on the trade balance is negative (as in the downward slope of a "1"). Eventually, after the change in prices begins to affect purchasing decisions, the volume of imports and exports should move in the desired direction and the trade balance will improve (the upward slope of the "1").

Laissez-Faire. See rules-oriented trade policy. The term originated in a French idiom essentially meaning "hands-off."

 

Learning Curve. A technological regularity observed in many leading-edge industries, in which the marginal cost of production tends to fall as output increases, due to firms' growing experience with innovative processes (sometimes called "learning by doing"). Because of the learning curve, substantial economies of scale are characteristics of high- technology industries --in which competitive advantages accrue to firms that are among the first to enter a promising new area --constituting a major premise for various countries' technology policy.

 

Level Playing Field. A concept or slogan employed by those calling for efforts to secure both free trade and fair trade. The term alludes to perceived inequities --including protectionism or unfair trade practices (Sec. I) --that "tilt" the conditions of international trade competition in favor of one or another of the participants.

 

Liberalism. In the context of trade policy, "liberal" usually means freedom from import controls or government restraints. Liberalism connotes a preference for reducing existing barriers to trade --in contrast with protectionism, or a preference for retaining or raising barriers to import competition. See also mercantilism and economic nationalism.

 

Liner Conference. In maritime transport, a group of shipping companies that jointly ..determine freight charges, sailing frequencies, and shipping capacity within a given geographic area.

Managed Trade. A trade policy approach that denies the practicability of traditional "laissez-faire" approaches to trade, and instead seeks to promote the development and international competitive position of key industries. The managed-trade approach has two main elements. First, it asserts that other governments --through various forms of industrial policy --actively subsidize, protect or otherwise support certain domestic industries in carving out a share in world markets, and concludes that any country failing to follow suit will place its own firms at a disadvantage relative to their foreign rivals. Second, it envisages a series of international agreements codifying "rules of the game" for such interventions. A third element suggested by some advocates of managed trade -- who argue that conventional trade agreements are ineffective in such an environment --is to set quantitative targets for imports or exports in various key industries, coupled with the use or threat of trade sanctions to enforce those outcomes. Sometimes referred to as "results-oriented trade policy," in contrast with rules-oriented trade policy.

 

Market Conduct. In a particular industry or market, refers to practices which, individually or in combination, shape the market performance characteristics that are the objective of competition policy. Market conduct is affected by the market structure of the industry, and is reflected in sellers' and buyers' pricing policies and practices, overt ~ and tacit interfirm cooperation, product line and advertising strategies, R&D commitments and innovation, legal tactics --in enforcing patent rights, for example -- and investment in production facilities.

 

Market Imperfections or Market Failure. Often refers to two sources of departure from perfect competition, i.e., externalities and increasing returns to scale. Traditional international trade models do not take market imperfections fully into account, but are based on assumptions that perfect competition and constant returns to scale prevail in every market. Such models consequently may be inadequate for analyzing trade in such key sectors as aircraft, telecommunications equipment, semiconductors, and pharmaceuticals --where oligopolistic competition and substantial economies of scale frequently occur --as well as in other industries in which accrued knowledge, the learning curve, and R&D play an important role. See strategic trade policy.

Market Performance. The principal focus of competition policy, market performance refers to the degree to which a particular industry or market meets national objectives for production and allocative efficiency, technical progress, full employment, and promotion of equity in income distribution. Indicators of market performance include the size of gaps between actual and minimum feasible unit costs, price-cost margins, rates of change in output per hour of work, and the variability of employment over the business cycle. Instruments of competition policy --such as taxes and subsidies, international trade policies, price controls, and antitrust regulation --shape market performance through their effects on market structure and market conduct.

 

Market Power. The ability of an individual firm to exert control over prices prevailing in the markets for its products or services. The highest degree of market power is associated with a monopoly, although all firms except those in perfectly competitive markets possess some degree of market power. Countries' competition policies generally are aimed at curbing the perceived economic and political costs associated with market power.

 

Market Structure. Refers to the structure of an industry or market, as reflected in the number and size distribution of sellers and buyers, the degree of physical or subjective differentiation distinguishing competing sellers' products, the presence or absence of barriers to the entry of new firms, the degree to which firms are vertically integrated from raw material production to retail distribution, the extent of firms' product line diversification, and cost structures. Market structure affects market conduct, which in turn determines market performance characteristics that are the goal of competition policy.

 

Mercantilism. A once-prominent economic philosophy that equated national wealth and prowess with the accumulation of gold and other international monetary assets, and hence with running a persistent trade surplus. The mercantilist viewpoint has been discredited by modem economics, which has shown that national economic security and well-being are not necessarily related one way or another with trade surpluses or deficits (see discussion under trade balance). Nonetheless, mercantilist ideas continue to exert a powerful political hold in many countries, leading to demands for policies --such as tariff protection for domestic industries as well as export subsidies --designed to foster trade surpluses as keys to national economic strength. Since all countries cannot run .trade surpluses simultaneously, widespread pursuit of mercantilist policies tends to produce an unstable and conflict-ridden international trading system.

 

Multilateralism. An approach to trade policy focusing on multilateral negotiations (as opposed to bilateral negotiations or regional trade arrangements) as the most effective way of liberalizing trade in an interdependent global economy. Because concessions in one bilateral or regional deal may undermine concessions made to another trading partner in an earlier deal, basing a country's trade regime on a sequence of bilateral arrangements can be both technically demanding and politically divisive. In principle, multilateralism broadens the scope of possible deal-making by enabling "cross-trades" (e.g., concessions by country A that benefit country B, enabling country B to make concessions favoring country C, which then may be in a position to make concessions sought by country A.) In the absence of such cross-trades, liberalizing deals may be possible only if two countries each happen to be willing to offer the precise concessions that the other is seeking.

National Champions. Firms that are the focus of government efforts to consolidate a national industry through industrial targeting. Such policies may be prompted by a global shakeout --aimed at regrouping marginal companies around a "champion" as a counter to consolidation into multinational corporations --or as an alternative to permanent protection of noncompetitive firms.

Offshore Production. Manufacturing activities and assembly operations of foreign subsidiaries or affiliates. Beginning in 1963, US customs regulations --under Items 806.3 and 807 of the US Tariff Schedules, applying to imported articles assembled in whole or in part from US-fabricated components --provided a significant incentive to firms in the electronics and other industries to adopt an offshore assembly strategy, by applying duties only to the extent of the value added abroad. (Offshore production usually implies re-exports to the home country or to third-country markets, while the term screwdriver assembly refers to operations within the country where the completed products are to be sold.) See also export platforms and globalization.

 

Oligopoly. A domestic or international market structure comprising several firns, each of which is large enough to affect prices but none of which holds an uncontested monopoly position. While limited price competition may occur among sellers in an oligopoly, a single large producer may assume a leadership position in establishing prices or terms of sale that the other firms will tacitly follow. When concerned action or collusion occurs among oligopolistic firms, the association is known as a cartel.

Patent. The grant of an exclusive right to manufacture and market an invention for a specified time, based on a novel idea that provides a solution to a specific technological problem. See intellectual property rights (Sec. I).

 

Permanent Excess Capacity. See excess capacity.

 

Political Risk. The risk, borne by an exporter or international lender, that settlement of the importer's or borrower's obligation may be precluded by political or military conditions in a foreign country .See also commercial risk.

 

Portfolio Investment. A minority interest in a foreign venture from which income is .derived in the form of dividends. In contrast with direct investment, a portfolio investment position does not convey significant control over the management or operations of the foreign firm.

 

Predation. In international trade contexts, an aggressive pricing strategy in which a foreign producer prices below cost to drive domestic firms out of business, leaving the foreign firm with effective market power. Predation may involve pricing below marginal cost, possibly supported by government subsidies. Proponents of antidumping duties often justify such measures on grounds of preventing predation by foreign firms; critics maintain that a predatory pricing strategy is implausible in global industries that include many producers.

 

Price Competitiveness. See competitiveness.

 

Price Discrimination. The practice of charging unequal prices to different buyers of products that are essentially identical, when such pricing does not correspond to differences in supply cost. Dumping is a form of price discrimination which, in principle, can be maintained only if the exporter's home market is sheltered by trade barriers (preventing re-importation of goods which have been sold below cost in foreign markets).

 

Price-Fixing Agreement. See cartel.

 

Price Supports. A program of official measures, most commonly applied to agriculture, designed to stabilize or raise the price that producers receive for their products. Price supports may include cash payments, government purchases of output, or special financing programs.

 

Primary Commodity or Primary Product. An agricultural, forest, mineral, or fishery product sold in its original form, including such processing as may be necessary to make the product suitable for sale in international trade.

 

Product Cycle. The evolution of a production process from innovation through obsolescence, constituting a fundamental dynamic element in international competitiveness and trade patterns over time. For some products, production tends to "migrate" from country to country over the product cycle. Innovations tend to arise in high-income, high-wage countries where the payoff for economizing on labor is greatest; new products therefore appear in international trade initially as exports of the innovating country. As the technology matures, manufacturers seek to produce on a large scale as cheaply as possible (i.e., mass production with less-skilled labor), and production may be pulled to countries such as NIEs and LDCs with lower labor costs. Eventually, the product may recede in importance or become obsolete as it is displaced by newer innovations. The product cycle can be a key factor in globalization of some industries -- as well as a source of trade friction, since adjustment costs can be substantial as industries migrate internationally.

 

Protectionism. Restriction of international trade by a government in order to shelter domestic producers from foreign competitive pressures. Fundamentally at odds with the principle of comparative advantage.

Quota Rents. The increase in profits that accrue to an import dealer (under an import quota) or an exporting firm (under an export quota or voluntary restraint agreement --see Sec. I). Quota rents result from the effect of a quota in raising prices in the importing country above the competitive equilibrium level as market supply is reduced. Under a tariff, in contrast, the government of the importing country derives economic benefits from the trade restriction.

Rent-Seeking. In international trade contexts, refers to the economically unproductive practice of individuals, firms, and industries investing significant resources in lobbying activities to obtain protection from foreign competition.

 

Repatriation. The transfer of investment earnings or the return of capital from a foreign country to the investor's home country.

 

Resale Price Maintenance. See vertical restraints.

 

Restraint of Trade. Combinations, contracts, or other oral or written arrangements designed to establish a monopoly position, impede competition, fix prices, or prevent entry by potential rivals. Acts in restraint of trade are generally treated by competition policies as inimical to the public interest, and may be specifically prohibited by antitrust laws.

 

Restrictive Business Practices. Actions of private or public enterprises --such as collusion among the leading international suppliers of a product --that limit access to markets or restrain competition. See competition policy.

 

Results-Oriented Trade Policy. See managed trade.

 

Revealed Comparative Advantage. A measure of relative competitive performance of a country's exporters of a particular product or class of goods. Calculated by dividing the country's share of world exports of the product in question by the country's share of total world trade. Products having a ratio greater than one may be considered indicative of the country's underlying comparative advantage, relative to products with ratios less than one. In this way, the measure takes into account competitive factors (such as the exchange rate) that affect the country's exporters as a whole; it also yields results that are scaled in a way that permits comparison between countries of different sizes. However , other factors --especially competitive policies and practices in the exporting country, and trade barriers protecting foreign markets --can significantly distort the results.

 

Ricardian Model. A theory for explaining international trade patterns in terms of technological differences among countries and resulting differences in their productivity. Named after the nineteenth-century British economist, David Ricardo. See Heckscher- Ohlin Trade Model.

Rules-Oriented Trade Policy. An idealized approach to trade policy under which governments establish a set of rules for the conduct of international trade competition -- as, for example, under the GATT --and let the market determine the outcome with minimal interference. In practice, some intervention by governments inevitably occurs, raising the question of whether this laissez-faire approach should be made to work better or, as suggested by advocates of managed trade, should be abandoned.

Schedule B. The classification system in which US export data are recorded according to 4,500 seven-digit product categories. Schedule E is the rearrangement of Schedule B data conforming to the SITC international data format developed by the United Nations. The TSUSA is the import equivalent of Schedule B. The End-Use classification system, developed by the Commerce Department's Bureau of Economic Analysis, rearranges TSUSA and Schedule B data into categories associated with the principal uses of the traded goods. Finally, the SIC-Based Trade Data classification system, developed by the Census Bureau, transforms original TSUSA and Schedule B data into an approximation of the SIC format. .

 

Screwdriver Assembly. The export of components to manufacturing subsidiaries or

joint venture companies in a foreign market, where they are assembled and marketed at prices close to those of finished manufactures exported directly from the home country . Some countries allege that this practice constitutes circumvention (Sec.l). See also offshore production.

 

SDRs. See Special Drawing Rights.

 

Services. Non-manufacturing industries or business activities. Key service industries include accounting and management consulting, advising, banking and financial services, insurance, legal services, architecture, construction and engineering, data processing and software, telecommunications and information services, lodging and tourism, wholesale and retail trade, leasing, franchising, shipping and transportation, education and training services, health care, and environmental services. In GATT negotiations, the motion picture industry is also treated as pan of the services sector. As economies mature (see structural change), services tend to assume a more prominent role in the economy,3 posing challenges for international trade policies that have traditionally focused on trade in goods.

 

Shakeout. A condition that may occur as a result of innovation or technological change in a competitive industry. Because the introduction of new processes or techniques will improve productivity, more overall industry output becomes possible, driving down the price level. However, only firms employing the new technology can sell at the lower prices without incurring losses; others are "shaken out." Eventually, a new equilibrium for the industry will be reached, but --because of the greater efficiency of the new technology --the number of firms remaining in the industry is likely to be smaller. In the ", case of an industry shakeout on an international scale, governments are likely to take measures to ensure that "their" firms are among the survivors (see national champions).

 

Short-Term Capital Transactions. An element of a country's balance of payments that reflects loans granted to or received from foreigners with a maturity of one year or less.

 

SIC (Standard Industrial Classification). The basic system used by the US Commerce Department to categorize similar economic activities as distinct industries. Based on the SIC, the Census Bureau has organized a system of seven-digit industry codes, each successive digit of which reflect a progressively narrower degree of classification. Twenty two-digit groups (SIC numbers 20 through 39) constitute the manufacturing sector. Analyses of US production and national accounts usually involve SIC-based data; a rearrangement of US import and export data into an approximation of the SIC format has been developed by the Census Bureau (see TSUSA).

 

SITC (Standard International Trade Classification). The classification system used by the United Nations for compiling and publishing international trade data. Although countries employ a variety of data collection systems for their own purposes (see, for example, TSUSA), UN members are requested to use the current version of the SITC in reporting their import and export data to the UN Statistical Office. The original SITC was adopted by the UN Economic and Social Council in 1950. The SITC, Revised was established in 1960 in an effort to reconcile trade data compiled by many countries on a commodity basis with the Brussels Tariff Nomenclature (Sec.l), which classified goods according to the material of which they were made; a second effort along these lines, SITC Revision 2, was established in 1975. SITC Revision 3, introduced in 1986, currently provides 3,118 basic product headings organized in a system of five-digit classification codes, and is aligned with the H harmonized System ( Sec .I) of customs classification. Analyses of international trade patterns almost always involve SITC- based data. However, SITC classifications do not concord with SIC classifications.

 

Soft Currency. A national currency that is not freely convertible into other currencies .because of officially set exchange rates or other forms of exchange controls (Sec. I ).

 

Soft Loan. A loan repayable by a foreign borrower in a soft currency. Soft loans usually result from long-term sales to countries without resources for repayment in hard currencies.

 

Special Drawing Rights (SDRs). A composite unit of value for international transactions, the value of which is determined daily by the International Monetary Fund on the basis of a weighted "currency basket." In the derivation of the SDR value, the currencies of the basket are valued at their market exchange rates for the US dollar and are summed to yield the rate of the SDR in terms of the US dollar. Since 1991, the SDR valuation basket has consisted of the US dollar (40 percent), German mark (21 percent), Japanese yen ( 17 percent), French franc ( 11 percent), and British pound ( 11 percent). Some international trade agreements, such as the GATT Government Procurement Code (Sec. I), use SDRs to designate nominal amounts that are less susceptible to distotion via fluctuations in the exchange value of a single currency.

 

Specialization Agreement. A restraint of trade arrangement among rival firms .stipulating that each will sell only certain products, thereby assuring each participant a dominant market position for the specified products.

 

Standard Industrial Classification. See SIC.

 

Standard International Trade Classification. See SITC.

 

Standardized Product. A product marketed internationally without significant changes in its composition or characteristics from one country to another. Product standardization can be a factor in achieving economies of scale.

 

Strategic Partnerships. A type of cooperative strategy in which corporate alliances are made between organizations --including between former rivals --as part of a global business strategy. See globalization and competition policy.

 

Strategic Stockpile. A store or critical metals or other industrial commodities maintained by a government as a buffer against supply disruptions in times of war or national emergency.

 

Strategic Trade Policy. A broad term for approaches joining conventional trade theory with industrial organization theory , in order to analyze trade in products for which producing firms are pan of oligopolistic industries in their home markets, and in which strategic interactions among firms and governments occur. See also managed trade and industrial policy.

Structural Adjustment Lending. A program of lending by the World Bank (Sec. III) designed to help developing countries deal with balance-of-payments problems resulting from internal economic patterns that are susceptible to correction. The program provides hard-currency loans conditional upon agreement by the beneficiary country to undertake specified corrective measures, which may include elimination of protective tariffs that have sheltered inefficient domestic industries, as well as improvements in budgeting and management of public debt and shifts in public investment priorities.

 

Structural Adjustment Policies. Measures --such as worker re-training and placement, capital formation, and R&D support --intended to facilitate the adjustment of factors of production to "structural" economic forces such as increased international competition. See adjustment assistance and structural change," see also industrial policy"

 

Structural Change. Changes in the relative importance of different sectors of an economy over time, usually measured in terms of their share of output, employment, or total spending. (Since the industrial revolution, structural change in most countries has involved shifts from subsistence agriculture to commercial agriculture, an increase in the relative significance of manufacturing, and, at a later stage, a further shift toward service industries.) In its broadest sense, the term refers to shifts in an economy's sectoral composition --driven by changes in technology, for example --that are more fundamental than temporary changes due to business-cycle and exchange-rate fluctuations. Along with realignments in the relative economic importance of different industries, structural change can also involve shifts between regions of large national economies, and changes in the composition of a country's imports and exports. See also deindustrialization and services.

 

Sunrise vs. Sunset Industries. The term "sunrise" refers to industries with the greatest potential for growth and international competitiveness, often associated with high technology. In contrast, the term "sunset" is often applied to mature or basic industries such as steel, automobiles, glass, rubber, and textiles. No precise delineation of the two categories exists. Moreover, there is no reason why an industry (or segments thereof) might not move from one category to another over time.

Targeting. See industrial targeting.

 

Tariff Schedules of the United States, Annotated. See TSUSA. Technological Trajectories. See innovation systems.

 

Technology. A method for convening resources into goods and services.

 

Technology Driver. A product with a relatively simple design which a manufacturer may produce in high volume in order to hone its skills and then transfer this experience to more complicated but higher-value-added devices. See learning curve. Arguments for import protection or export promotion sometimes are based on assertions that the product in question is (or may become) a technology driver, and so warrants special treatment as part of national technology policy .

 

Technology Policy. Government measures or programs to promote innovation and adoption of new technologies in key industries. Such tools include government sponsorship of research consortia, support for research and development (R&D), trade measures, and special antitrust exemptions for joint R&D efforts among firms. See also industrial policy.

 

Technology Transfer. The diffusion of practical knowledge from one enterprise, institution or country to another. Technology may be transferred by giving it away (e.g., through technical journals or conferences); by theft (e.g., industrial espionage); or by commercial transactions (e.g., patents for industrial processes) as well as through cross-national exchanges among components of multinational enterprises. The transfer of technology may be accompanied by transfer of legal rights to use of the technology, such as sale of licensing of associated intellectual property rights ( Sec .I ). Both UNCTAD and OECD (Sec. III) have been active in discussing regulation of international technology transfers.

 

Terms of Trade. The volume of exports that can be traded for a given volume of imports; changes in the terms of trade are measured by changes in the ratio of export

 

prices to import prices. The terms of trade determine a country's share of the "larger pie " generated by trade based on in emotional specialization and comparative advantage. An improvement in the terms of trade can be interpreted as an increase in the country's international competitiveness in the broadest sense --that is, its people are becoming better off as a result of their transactions with the rest of the world. In contrast, a country that expands its foreign market share by selling its exports at cut-rate prices may experience declining terms of trade, in which case it is not genuinely "competitive."

 

Territorial Restrictions. See vertical restraints.

 

Textiles. Historically, one of t e most politically sensitive and contentious sectors of international trade. As define in the Multifiber Arrangement (Sec.l), textiles encompass "yarns, piece goods, made-up articles, garments, and other textile manufactured products (being products that derive the r chief characteristics from their textile components) of cotton, wool, man-made fibers or blends thereof, in which any or all of those fibers in combination represent either e chief value of the fibers or 50 percent or more by weight (or 17 percent or more by weight of wool) of the product." Within the textiles sector, apparel products often utilize more unskilled labor and less expensive capital equipment than in other manufacturing industries; as a result, they often are among the first manufactured goods to be produced in a developing country. Nearly all-industrial countries also have large, politically significant textile industries, and these are vulnerable to import competition n from low-wage countries, setting the stage for international trade friction. More recently, textiles have come to include an increasing range of goods that require mo e capital-intensive production processes, especially some of the more sophisticated man- made fibers and complex knit cloths.

 

Tie-In Contract. See tying co tract.

 

Trade Activism. See manage trade.

 

Trade Balance. The surplus deficit that results from subtracting a country's imports from its exports during a give in period (see current account). Despite widespread misunderstanding --and the lingering political influence of mercantilism --in many countries, a trade surplus or deficit is not inherently good or bad for a country, since different situations may be involved:

* A trade surplus is the no al condition for a "mature creditor country" that provides investment capital to less developed countries. This was for many years the position of the United States, which ran persistent trade surpluses up to the early 1970s.

* However, an "unhealthy" de surplus may occur when the country is in a severe economic slump or recession n while other countries are booming (hence, exports will be strong, while imports' weak).

* A trade deficit can occur hen a dynamic, growing country is building its capital base, with inflows of foreign capital attracted by strong investment prospects in the country .This capital account surplus must be offset by a current account deficit; in such a case, a trade deficit is a consequence of an essentially healthy economic situation.

* A deficit can, however, be "unhealthy" if it reflects a savings shortfall and borrowing from foreigners to finance current spending rather than investment.

 

Trade Barrier. Any governmentally-imposed constraint upon the international exchange of goods or services. Such constraints can take the form of tariffs, quotas, exchange controls, or nontariff barriers (Sec.I). Trade barriers usually are applied in order to meet an economic objective such as protecting domestic industries, reducing unemployment, or preserving foreign exchange, although they may also arise from political disputes among countries or in retaliation for barriers maintained by trading partners.

 

Trade Creation. International trade flows that are generated in response to formation of a customs union or free trade area as member countries reallocate resources more efficiently, achieving greater economic growth and consequently trading more with the outside world. Formation of such blocs can benefit nonmember countries if trade creation exceeds trade diversion.

 

Trade Diversion. A switch in sourcing of imports that results from a country's joining a customs union or free trade area, in favor of bloc partners and at the expense of nonmember trading partners.

 

Trademark. A name or symbol used by a manufacturer or merchant to distinguish goods from those made or sold by others. See intellectual property rights (Sec. I).

 

Trade Secret. A form of industrial property (Sec. I). Refers to a non-patented process, mechanism, or formula, known only to its owner, that is used in producing something of commercial value.

 

Trading Company. See export trading company. Transfer Pricing. See arm's length pricing. TSUSA (Tariff Schedules of the United States, Annotated). The classification system in which US import data are recorded according to 10,500 seven-digit product categories. .The TSUSA is the legal basis for US Customs duty calculations. Schedule A is a rearrangement of TSUSA import data in a form closely resembling the SITC international data format developed by the United Nations. Schedule B is the export equivalent of the TSUSA, and Schedule E is the rearrangement of Schedule B data conforming to the of SITC format. The End-Use classification system, developed by the Commerce Department's Bureau of Economic Analysis, rearranges TSUSA and Schedule B data into categories associated with the principal uses of the traded goods. Finally, the SIC-Based Trade Data classification system, developed by the Census Bureau, transforms original TSUSA and Schedule B data into an approximation of the SIC format.

 

Turnkey Contract. An arrangement under which a contractor assumes responsibility to a client for constructing productive installations and ensuring that they operate effectively before turning them over to the client. By assuming responsibility for the contributions of all participants in the project, the contractor is often able to arrange more favorable financing terms. The responsibility of the contractor ends when the completed installation is turned over to the client.

 

Turnover. The rate at which sales occur, usually expressed in relation to the amount of .capital employed in a venture or enterprise.

 

Tying Contract. (Also known as a tie-in contract or bundling.) A restraint of trade ~ arrangement by which a product can be purchased only upon agreement to purchase certain other products from the seller. Tying contracts in effect preclude other suppliers from selling the tied product to the purchaser, and are generally proscribed by various, countries' antitrust and competition policies.

Unfair Business Practices. See competitive policies and practices and restrictive business practices. See also discussion under unfair trade practices in Section I.

 

Unilateralism. The implementation of unilateral trade policy measures or sanctions that are not dependent on approval by a multilateral organization; hence, the opposite of multilateralism. Other countries sometimes use the term in referring critically to actions by the United States under Section 301, Special 301 , Title VII, and similar legislation (see Sec. IV).

 

Unrequited Transfer. In balance of payments accounting, refers to a transfer of assets from one country to another --for example, foreign aid grants --without expectation of recompense.

Value Added Tax (VAT). An indirect tax, assessed on increments in the value of a product from the raw-material stage through the production process to final sale. At each stage, the tax is levied on the amount by which inputs purchased from the preceding stage have been augmented in value. The final sale price will incorporate all of the V A T payments made along the production chain.

 

Vertical Integration. The combination within one firm of two or more different stages in the production process of a particular good or service.

 

Vertical Restraints. Anticompetitive restraint of trade arrangements imposed by a firm at one stage in a chain of transactions --usually the seller --on firms at another stage, such as the seller's customers. Such restrictions include prescribing minimum prices at which the customer can resell a purchased product (resale price maintenance); limiting the geographic territory in which the buyer may resell what it has purchased (territorial restrictions); inducing the buyer to deal only in the seller's products (exclusive dealing); and making the availability of one product contingent upon the purchase of other goods or services (tying contracts or bundling). See antitrust and competition policy.

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