II. ECONOMIC & COMMERCIAL CONCEPTS & TERMS
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 distortion 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 de-industrialization 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 non-tariff 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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