Our glossary containing definitions and explanations of the most common words and phrases in international trade. What is Article 50 and how is it triggered? What are WTO rules? Read on to find out…
Article 50 is the specific section of the Treaty on European Union (TEU) referring to a member state leaving the EU. It was inserted into the TEU in the 2009 Lisbon Treaty. It sets out the process by which states leave the EU.
Member States must notify the European Council of their intention to leave. This triggers a two year period, after which the Member State will cease to be a member of the EU.
Article 218 of the Treaty on the Functioning of the European Union is actually more important to the future of the relationship between the UK and the EU. A218 outlines how the new relationship with the UK will be negotiated. Following the triggering of Article 50 and the UK’s exit from the EU, the UK’s new trading relationship will be negotiated according to the terms of A218.
Balance of Payments
The Balance of Payments of a country is its total imports versus its total exports. If a country has a higher quantity of imports it is called a trade deficit or disequilibrium. If a country has a larger number of exports than imports, it is referred to as a trade surplus.
Brexit, an abbreviation of ‘British Exit (from the EU)’, is the term used to describe the UK’s exit from the European Union.
Brexit will occur;
- 2 years after Article 50 has been triggered, or
- Earlier, if a withdrawal agreement comes in to force, or
- Later, if all current EU Member States agree.
There are a number of various forms that Brexit could take, including:
- HardThe UK leaves the EU and the single market. Unless a free trade agreement is in place, the UK and EU will trade under WTO rules.
- SoftThe UK leaves the EU but negotiates continued membership of the European Economic Area (EEA). The UK would be a member of the single market, in return for contributions to the EU budget and accepting freedom of movement of EU citizens.
- Red, white & blueThe type of Brexit the The Prime Minister, Theresa May, said that she wanted to see. She said that a red, white and blue Brexit meant “the right Brexit for the UK, the right deal for the UK”.
|Alternative Brexit models|
|Single market membership||Full||Full||Partial||No||No||No|
|Tariffs||None||None||None||Reduced tariffs through FTA||None on industrial goods||Yes|
|Freedom of movement||Yes||Yes||Yes||No||No||No|
|In the customs union||Yes||No||No||No||Yes||No|
|Makes EU budget contributions||Yes||Yes||Yes (but smaller than Norway)||No||No||No|
Brexit Day (B-Day)
The day the UK officially leaves the EU.
CETA (Comprehensive Economic and Trade Agreement) is the trade agreement between the EU and Canada. It was approved on 30 October 2016, but is yet to come in to effect. It will remove 99% of tariffs on goods.
Common Commercial Policy
The common commercial policy is “one of the main pillars of the European Union’s relations with the rest of the world”. Member States of the EU have established a customs union with common arrangements for imports from other countries. The common commercial policy is therefore based on a common external tariff uniformly applied to all Member States.
Common External Tariff
A common external tariff is a measure or set of measures that apply to trade between a member of a customs union and an external country. The same tariffs, duties, import quotas, preferences or other non-tariff barriers will apply to all goods entering the customs union, no matter which member of the customs union they are entering.
A common market is a customs union in which the members also agree to reduce restrictions on the movement of factors of production, such as people and finance, as well as reducing barriers on the sale of goods.
First coined by economist David Ricardo, the term comparative advantage means that a country can produce one good more efficiently than any other country. His argument therefore, was that each country should produce whichever good they had a comparative advantage in, and import the rest.
A container ship is a cargo ship that carries its cargo in containers called TEU’s. They are very common form of international freight transport.
The use of paperwork or administration to delay or impede the import of a good or service.
In a customs union, like a free trade area, members agree to reduce or abolish trade barriers against each other. however, unlike a free trade area, in a customs union members also agree to establish common external tariffs and quotas against non-members. The European Union Customs Union (EUCU), which contains all members of the European Union and Turkey is one example.
Common Travel Area
The Common Travel Area is an open borders area comprising Ireland, the United Kingdom of Great Britain and Northern Ireland, the Isle of Man, and the Channel Islands. Travel through the area is subject to minimal or non-existent border controls.
Disequilibrium exists when a country does not have an equal balance of payments. Disequilibrium usually refers to a country importing more than it exports, but it is also correct to define a trade surplus as disequilibrium.
Economic Union is essentially a common market that is taken further by agreeing to establish common economic policies in areas such as interest rates, taxation and a common currency. The European Union is an economic union, it has a common currency being the Euro and members partake in the free movement of people and finance.
A specific type of quota prohibiting trade in a certain good or service.
Equivalence can mean two things, depending on whether it refers to countries inside or outside of the EU.
For countries inside the EU, it refers to an ‘equivalence regime’. In regulated industries, such as financial services, the EU member states have different regulatory authorities. In order for services to be traded in the single market, the regulatory regimes must be granted equivalence – that is, the regulations are equal. This grants companies ‘passporting’ rights in order to trade their services in other member states.
The EU can also grant equivalence to countries outside the EU. This can apply to any number of rules or regulations relating to the trade in goods or services. One example is product standards. If regulatory equivalence is granted, it allows countries outside the EU to trade more easily with the EU in those products or services that are covered by the equivalence regime.
It’s not quite as simple as you might think:
European Economic Area (EEA)
The European Economic Area is the area allowing members access to the EU single market. Norway, Liechtenstein and Iceland (also members of EFTA) must contribute to the EU budget and are bound by the rules of the internal market (about 21% of EU rules).
The EEA is made up of:
- EU member states
European Free Trade Association (EFTA)
The European Free Trade Association (EFTA) promotes free trade and economic integration amongst its members. Current members are Iceland, Liechtenstein, Norway and Switzerland. The Association manages the EEA Agreement, which allows it’s members (excluding Switzerland) to access the EU single market. EFTA also has free trade agreements with other countries around the world.
European Union (EU)
The European Union is a politico-economic union of 28 member states in Europe.
The Eurozone (Euro Area) is a monetary union on 19 states of the EU. These states have adopted the Euro as their currency.
An export is a good or service sent to another country.
Fragmented Supply Chain (FSC)
A fragmented supply chain is the term for a supply chain that utilises different manufacturers in different countries to produce constituent parts of a product.
Free Trade Agreement (FTA)
A free trade agreement is an agreement between two or more countries, with the purpose of removing barriers to trade. These barriers may be tariff or non-tariff barriers.
Free Trade Area
Members of a free trade area agree to reduce or abolish tariffs and quotas against each other, but retain their own individual trade barriers against non-members.
General Agreement on Tariffs and Trade (GATT)
The General Agreement on Tariffs and Trade is a WTO policy regulating the international trade in goods. The GATT states that its aim is to “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”
Trade in goods refers to the sale and delivery of a tangible product (good) between a producer and consumer. The producer and consumer are based in different countries.
A multi-lateral maritime treaty adopted in 1921 at The Hague, Netherlands. It standardises liability of an international carriers.
An import is a good or service that is brought into a country from another country.
International Monetary Fund (IMF)
The International Monetary Fund is an international organisation comprising 189 countries which work together to increase global economic cooperation. One of it’s stated aims is to “facilitate international trade”
Trade in items which cannot be seen, e.g. financial services, copyrights, information technology, etc. Contrast with Visible Trade.
The production of an item with more than one use, e.g. a sheep for both wool and meat. If farmers increase the number of sheep in response to an increase in demand for wool, they will also likely increase the amount of meat produced. This leads to great supply and therefore a fall in the price of meat.
An international charter, signed in 1973, in Kyoto, Japan. It establishes standard customs procedures when accepting international shipments.
The Treaty of Lisbon was signed in 2007 and came into force in 2009. It amended two preceding treaties being that of Rome (1957), know as the Treaty on the Fuctioning of the European Union (TFEU) and Maastricht (2007), known as the Treaty of European Union (2007).
A mixed agreement is an agreement by the EU, which requires approval by the European Commission and Member States. The CETA trade agreement with Canada was a mixed agreement as it contained non-trade elements that required approval by Member States.
A status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the most-favoured nations of the countries granting such treatment.
North American Free Trade Agreement (NAFTA)
NAFTA is a trade agreement between Canada, Mexico and the United States. It entered into force in January 1994. NAFTA’s terms provide for the elimination of most tariffs on goods. The liberalisation of trade in agriculture, textiles and automobiles was a key aim. The deal also sought to protect intellectual property, establish dispute-resolution mechanisms, and implement about and environmental safeguards.
Any obstacle to international trade that is not an import or export duty. They may take the form of quotas, subsidies, customs delays, technical barriers, or other systems preventing or impeding trade.
The Organisation for Economic Cooperation and Development, formed in 1961 out of the Organisation for European Economic Cooperation which had been established under the Marshall Plan. OECD countries produce two-thirds of the world’s goods and services.
The Organisation of Petroleum Exporting Countries is a collection of oil producing nations, who coordinate oil production and export policies.
Passporting is the right of financial services firms, registered in the EEA, to perform regulated activities in any other EEA nation, without requiring further authorisation in those countries.
Preferential Trade Agreement (PTA)
See Free Trade Agreement.
The theory or practice of shielding a country’s domestic industries from foreign competition by imposing barriers to imports.
A quota is a restriction on the quantity or value of imports or exports of a certain good.
Rules of Origin
Rules of origin are used to determine the country or origin of a product for purposes of international trade. Countries may not apply the same trade policy measures towards all other countries in international trade of goods, with the consequence that there must be various legal or administrative requirements to be ful lled for implementing the different trade policy measures according to the different origin of goods. This may be for example different levying of import duties, allocating quotas, imposing anti-dumping duties or applying safeguard measures.
Trade in services refers to the sale and delivery of an intangible product (service) between a producer and consumer. The producer and consumer are based in different countries.
Sometimes also called the internal market or common market.
The single market is the area in which there is freedom of movement for goods, services, people and capital. That means that there is free trade between members and people can move freely between each country. Members of the EEA are members of the single market.
There are no tariffs, customs duties, or quotas on trade. Other non-tariff barriers, such as regulations and technical specifications (e.g. product labelling) are also removed.
Countries outside of the EEA and therefore not members of the single market, are able to access it. Any goods or services imported to the single market are subject to tariff and non-tariff barriers.
It is an area comprising 26 European states that have officially abolished border controls between members.
A government policy to encourage the export of goods and discourage the sale of goods on the domestic market through direct payments, low-cost loans, tax-relief for exports, or government-financed international advertising. The WTO prohibits most subsidies directly linked to the volume of exports.
A tanker is a merchant vessel that transports liquids or gases. The main types of tanker are oil tanker, chemical tanker, and gas tanker.
A tariff is a tax levied on an imported good. They increase the cost exporters in their countries to get their products into another country. This often makes products more expensive for consumers. So why do governments do it? Well, a tariff restricts trade, which might protect domestic jobs and industries, and in addition, the tariff will raise revenue for the government. If two countries increase tariffs on products for each other, it can lead to a trade war.
Technical barriers to trade (TBTs) are a category of non-tariff barriers to trade. They include; labelling requirements, technical specification standards, quality standards, measures protecting the environment, all conformity assessment measures related to technical requirements (certification, testing and inspection), product weight/size/packaging, product ingredient or identity standards, shelf-life restrictions, and import testing and certification procedures.
Terms of trade (TOT)
Terms of trade represents the value of exports of a country relative to the value of its imports. The value is calculated by dividing the value of exports by the value of imports and multiplying by 100. When a country’s TOT is less than 100%, the country has a trade deficit . When a countryhas a TOT greater than 100%, the country has a trade surplus.
A situation in which countries try to damage each others trade, typically by the imposition of tariff or quota restrictions increasingly applied against the other country.
Treaty on European Union (TEU)
The Treaty on European Union (TEU) is one of the Primary treaties of the European Union. The TEU sets out the general principals of the EU, how it’s central institutions are governed and is the basis of EU laws. The TEU was originally implemented by the Treaty of Maastricht in 1992. The current version of the Treaty of Lisbon in 2007.
Not to be confused with Twenty-foot Equivalent Unit (TEU)
Twenty-foot Equivalent Unit (TEU)
A standard-sized shipping container and a unit of exports.
Not to be confused with Treaty on European Union (TEU)
A trade agreement between twelve of the Pacific Rim countries—notably not including China. The members are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam.
TTIP (Trans-Atlantic Trade and Investment Partnership) is the trade agreement between the EU and United States. Negotiations started in 2013 but it’s future is in doubt following opposition in both the EU and US.
Unilateral Trade Policy
A trade policy implemented by one country on all imports/exports. For example, the EU’s Generalised Scheme of Preferences.
Traded goods which can be seen, e.g. computers, grain, clothing etc. Contrast with Invisible Trade.
The World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programs.
World Trade Organisation (WTO)
The World Trade Organisation is an international body formed in 1995. It was developed out of the General Agreement on Tariffs and Trade (GATT). It is incorrect to believe that the WTO’s objective is global free trade. The WTO instead endeavours to prevent discrimination in trade against or by any WTO Country, reducing barriers to trade and encouraging competition and transparency. WTO also crucially does not specify or define trade outcomes and therefore does not seek to manage trade flows.
Tariffs are the only allowable restriction to trade available to WTO members. Non-tariff barriers or quotas are not allowed.
When the economic gains made by the winners in an economic transaction equal the losses made by the losers. For example, importing goods may lead to fewer jobs in that country.