A PRIMER OF BASIC TRADE POLICY TERMINOLOGY

Note: This Primer is essentially a series of discussions of major trade policy terms or subjects.
Some of them make reference to other terms with which the reader may not be familiar or may
want to refresh his or her memory. These other terms or subjects, and the main contents of this
Primer, have been highlighted in the text. A cross-referenced listing of all terms is contained in
the INDEX.

This Primer was also developed solely and specifically for instructional purposes in the context of
the APEC Economic Integration Program training curriculum, and these definitions should not
therefore be considered legally binding or official.

1
accession- the process of becoming a Member of a multilateral agreement such as the World Trade
Organization (WTO). In the WTO, it is achieved by negotiating trade concession with all other
principal suppliers which are those countries who are the most important source of or destination
for a particular product. Those concessions set and bind the acceding country’s tariffs for
significant imports and open and guarantee access for services and for products subject to non-
tariff measures. In exchange, the acceding country receives treatment for its exports the same as
every other country that is a Member of the WTO or Most-favoured-nation treatment(MFN).
This work is overseen by a Working Party established for the negotiation of accession which also
drafts general terms of accession for the applicant and oversees the changes of domestic laws found
to be required to be brought into conformity with WTO rules.

agriculture agreement - the agriculture agreement was the first dedicated attempt to develop
order, fair competition and less distortion for agriculture trade. It is formally known as the Uruguay
Round Agreement on Agriculture. Although agriculture was negotiated in earlier GATT rounds,
special treatment was always given due to food supply, sector employment and other national
concerns. This resulted in a waiver of GATT rules against export subsidies and trade distorting
domestic subsidies and allowed countries to restrain imports by imposing quotas on trade in
agriculture products. The objective of the agriculture agreement was to reform trade in agriculture,
make policies more market-oriented, and improve predictability and security of markets. This was
achieved by requiring developed countries to convert all quotas to tariffs by a process known as
tariffication where countries were allowed to convert quotas to tariffs providing a similar level of
protection. These tariffs were then to be reduced by a set amount over a number of years. The
agreement also banned export subsidies, required the totalling of all subsidies including domestic
subsidies to arrive at an aggregate measure of support, and then imposed reductions on that total
as well. Amber Box subsidies, or those which have a direct effect on production and trade even
though they are domestic subsidies, are to be reduced and are subject now to possible
countervailing duty actions. Green Box subsidies or those which have a minimal if any impact
on trade and production can be continued without fear of trade action by partners. Some amber
box subsidies can be put into a blue box subsidies category and be exempted from reductions as
long as they are based on fixed area and yields or number of livestock. Other categories of subsidies
used for valid development reasons are exempted for developing countries and those countries are
also given Special and Differential treatment on subsidy reductions.

antidumping- provision in the WTO designed to foster fair trade. Dumping occurs when an
exporter sells his products in another country at prices below those in his home market or below
the cost of manufacturing or producing the product or, in non-market economies, at prices below
a constructed value calculation used to estimate the real cost of producing the goods in question.

2
Following an investigation to determine the amount of any dumping margins and an investigation
to determine that the domestic industry producing similar products has been injured by the
dumped imports, an antidumping duty can be applied. For an antidumping duty to be applied the
dumping must be at a level greater than de minimis (over a small percentage of about 2%) and
material injury to the domestic producers must have occurred; material injury is measured as a
significant decline in output, lost sales, reduced profits, reduced capacity utilization, etc., but no
specific measures have been set out in the agreement.

barter- paying for goods or services with other goods or services, instead of with money. It is
often popular when the quality of money is low or uncertain, (perhaps because of high inflation),
shortage of foreign currency or when money cannot be freely exchanged or taken out of the
country.

buy national policy- government policy stipulating that domestic goods or products must be
purchased, or providing a price preference level to prevent or discourage the purchase of lower
priced foreign goods. For their own purchases, governments also often give preferences to
domestic suppliers in government procurement decisions or stipulate buy national policy
requirements when approving or providing assistance to major private sector projects.

common market- group of countries who agree to remove all barriers to trade among themselves
and to establish a common external trade policy with respect to all other countries. This includes
having one tariff rate for each imported product which is uniformly applied by customs officials
of member countries (a common external tariff) and therefore, common markets are also referred
to as customs unions. If countries involved also establish harmonized monetary policies, taxation,
and government spending (fiscal policies), the common market becomes an economic union. It
may or may not include a common currency.

dispute resolution mechanism- the institutional provisions of a trade agreement, such as the
WTO, which make up the process by which disagreements between members are settled. In the
WTO, a member who believes his rights have been infringed by another, can insist on consultations
on the issue. If these consultations do not result in a satisfactory resolution of the problem, the
member can insist on the creation of a panel (of experts) chosen from other countries’
representatives to the WTO to investigate and determine if any rights have been infringed. The
panel hears presentations from the parties to the dispute, carries out research and makes its report
of findings and recommendations to the Dispute Resolution Board (permanent representatives
who make up the General Council) which accepts or rejects the panel’s report. Either party may

3
appeal that decision to the standing panel known as the Appellate Body (which is composed of
outside experts) whose rulings are final. The party in the wrong is given a reasonable period of
time to implement the panel’s findings and recommendations after which the other party to the
dispute may seek authority to retaliate by seeking compensation for the trade impaired (or
prevented) by increasing tariffs on goods of its choice to roughly the same value as the trade
damage it suffered. Actual retaliation seldom occurs as parties are most interested in re-establishing
the market access they were guaranteed before rather than imposing punishing tariffs which will
impact in their own economy as well as the other party’s economy. As dispute resolution is highly
legal and complex, assistance is provided to developing countries by the WTO Secretariat if they
become involved in a dispute or wish to bring a dispute.

Doha development agenda- those areas agreed in launching the current round of trade
negotiations which will help developing countries participate in and benefit from world trade. It
focuses on general principles and rules which are special for developing countries (binding of
tariffs, unequal reciprocal concessions, longer phase-in times) and specific subjects (cotton
initiative, pharmaceuticals, etc). The GATT/WTO waived MFN treatment requirements for
actions in favour of developing countries and allowed for special and differential treatment with
the introduction of the Enabling clause in the Tokyo Round of Multilateral Trade Negotiations.

extra-territoriality- the application of domestic laws, policies and practices to a country’s firms
and nationals outside the country.

free trade- trade which takes place without any restrictions imposed by governments. This is the
long-term objective of the WTO. It is usually achieved by a process of liberalization or removal
of barriers to trade negotiated by two or more partner countries but can also be done unilaterally.
A free trade area is a multi-country area where countries have agreed to abolish barriers to
substantially all trade (tariffs, quotas, etc) but each country maintains its own trade policies in
respect to other trading partners (as opposed to the case in a common market). In such agreements,
exemptions can be negotiated to exclude products or categories of products from a general rule if
they are very sensitive domestically for one reason or another. Exceptions, such as those for
national security reasons, also provide for a waiver of the general rules in certain circumstances.
Transitional measures are often put in place for a phase-in period of a free trade agreement to
allow participants to adapt to the new competition and ease the impact of changes caused by the
agreement. All such measures must be temporary (eg. financial assistance to workers displaced by
trade under a new free trade agreement beyond the assistance available to all workers).

4
free trade zone (not to be confused with free trade area)- an area within a country where tariffs
and other trade policies do not apply. Goods may be brought in without the payment of duties,
taxes, etc, and stored or processed for future onward shipment. Any product from the zone which
enters commerce in the hosting country must pay applicable duties, etc.

General Agreement of Tariffs and Trade (GATT)- a chapter of the failed Havana Charter
negotiations on creating an International Trade Organization which was brought into effect in 1947
and under went major revisions in 1994; it codified the rules and procedures on trade and trade
liberalization. The GATT now exists as a part of the WTO following the creation of that
organization through the Uruguay Round of multilateral trade negotiations and their concluding
conference at Marrakesh. GATT rules, as modified by subsequent negotiations, still apply to trade
in goods including agriculture with the agriculture agreement of the Uruguay Round being a part
of the GATT rules. The WTO, and the GATT before it, is the only international organization
dealing with the global rules of trade between nations. Its main function is to ensure that trade
flows as smoothly, predictably and freely as possible.

General Agreement on Trade in Services (GATS)- a multilateral agreement which is a part of

the WTO that establishes rules on trade in services and which is designed to reduce restrictions on
such trade. It includes general rules (including dispute settlement), schedules of exceptions to those
rules maintained by each member country and sectoral sub-agreements on telecommunications and
financial services. Services are economic activities which are not tangible but enter trade either on
their own, in compliment to goods, incorporated in goods, or by the international movement of
service suppliers. Because of the latter, commercial presence is required for some services trade
to occur and the GATS provides for this right.

harmonized system (H.S.)- the name given to the universal customs classification system. This
forms the basis for all bilateral and multilateral statistical reporting on trade and is used in all trade
negotiations. (Formal title is Harmonized Description and Coding System.)

market access- ability for foreign goods to enter another country. This access is often impaired
by high tariffs, non-tariff measures (eg. quotas and technical barriers), government procurement
policies, etc. Trade negotiations are about negotiating market access on a product by product or
general rule making basis.

Marrakesh Protocol- adopted on 15 April, 1994 at the Marrakesh Ministerial meeting of the

5
GATT/WTO, this agreement came into effect on 1 January, 1995 concluding the Uruguay Round
of Multilateral Trade Negotiations and establishing the World Trade Organization.

Most-favoured-nation (MFN) treatment- treatment no less favourable than that granted to any
other trading partner.

multilateral trade negotiations- the rounds of trade negotiations on trade liberalization conducted
under the auspices of the GATT/WTO.

national treatment- a basic principle of the WTO which extends to imported goods and services
treatment no less favourable than that given to domestic goods or services (eg. in respect of internal
taxes, laws, regulations and requirements). In other words, after any restrictions imposed at the
border (eg. taxes, quotas) have been met, imported goods and services cannot face other restrictions
which domestic goods and services do not face.

networking- establishing informal, friendly and cooperative contact to persons or organizations

with similar interests or purposes in pursuit of lending each other support on issues of mutual
interest.

non-tariff barriers- government policies/ measures other than tariffs which distort the
international flow of goods (eg import quotas, government procurement policies favouring
domestic suppliers, import monitoring systems, variable levies, etc. )

protectionism- the action of a government to restrict trade in a product or products to allow

domestic producers to take advantage of the local market. Restrictions most often are high tariffs
or import quotas but can also be other non-tariff barriers. It is the opposite of liberalization.

quasi-judicial procedures- regulatory body or agency taking decisions on a particular matter

under a law or statute which they are responsible for administering. Such decisions can normally
be appealed to a court of law.

quota- a limit or quantitative restriction (QR) imposed by a government on the amount of a

product which can be exported (export quota, export restraint) or imported (import quota).

6
Sometimes countries maintain tariff rate quotas where a fixed amount of a product is allowed
into that country at a certain level of tariff and over that quantity, a higher tariff must be paid.
Quotas are very distortive to trade and the WTO has rules which prevent or discourage their use.

results based management- the way an organization is motivated and applies processes and
resources to achieve targeted results. (Note: results differ from activities or functions). Results
based management encompasses four dimensions:
1)specified results that are measurable, monitorable, and relevant
2)resources that are adequate for achieving the targeted results
3)organizational arrangements that ensure authority and responsibilities are aligned with
results and resources
3)processes for planning, monitoring, communicating and resource release that enable the
organization to convert resources into desired results

safeguards- emergency actions to give temporary protection to local producers from fairly traded
imports when domestic producers have lost their competitiveness. Such escape clauses exist in the
WTO and in other trade agreements. Measures which can be taken when WTO rules regarding
serious injury (worse than material injury in impact on profits, productivity, prices, etc) are
adhered to include additional tariffs, or quotas which must be temporary and phased out over a
specified time.

sanitary, phyto-sanitary measures (SPS)- in the Uruguay Round of multilateral trade

negotiations, an agreement was concluded on how sanitary (health of animal) and phyto-sanitary
(health of plants) regulations should be made and enforced in order to preclude these being used
as disguised barriers to trade. In short, it was agreed that all import controls for these purposes
should be based on proven scientific assessments, and that international standards should be
respected if they exist or are created in the future. It was also agreed that equivalence of another
country’s measures should also be considered in determining if health is being properly protected
and that production method can not be used to determine acceptability.

state trading enterprises (STEs)- organizations (often monopolies) authorized by a government

to sell or buy domestically and/or internationally. WTO rules exist to ensure STEs and
governments allowing them do not use them for purposes of subsidization.

7
subsidy- in trade terms a subsidy is an economic benefit from a government to a producer or
producers to improve their competitiveness. All export subsidies (those that are paid only on
products that are exported) are prohibited under the WTO. Unless subsidies are generally available
( available to everyone or every industry in a country), the WTO rules allow other governments
to impose countervailing duties on imported products which have benefited from an illegal type
of subsidy from the government of the country where the product was manufactured equivalent to
the value of the subsidy and for as long as the subsidy exists, provided the subsidy is more than de
minimis (over a small percentage of about 2% of the value of the product) and the imported
products have caused material injury ( that is injury which causes substantial impact on profits,
productivity, employment, output, etc) to the domestic industry as a whole.

tariff- (also called a duty)- a tax on imported goods levied by a government for the purpose of
raising revenue. A tariff has the effect of making imported goods less competitive with domestic
products and can, therefore, be used to protect a country’s producers from cheaper foreign
products. Tariffs are the preferred form of allowable protection under the WTO/GATT because
they cause the least distortion of trade patterns, are visible and can therefore be readily and easily
negotiated downward. There are several types of tariffs: specific tariffs which are calculated at a
rate per unit of the goods (eg. $10 per tonne of sulphur), ad valorem tariffs which are calculated
as a percentage of the value of the goods (eg. 10% of the invoice price of the goods), end-use tariff
items where the rate of duty depends on the use to which the product will be put (eg. a lower tariff
for gold for manufacturing jewellery than for finished gold jewellery dutied on the weight of gold
it contains). Some countries have tariff schedules which are full of tariff escalation, where tariffs
are higher as the level of processing involved in the product rises, in an endeavour to encourage
local processing of primary products. There are also surcharges (or surtaxes) which are a tariff
on imports which are on top of existing tariffs (eg. as a result of a safeguard action taken in
accordance with WTO rules, an additional tariff of 25% is imposed in addition to the normal 7.5%
duty). In tariff negotiations, not only do negotiations result in reduced tariffs, but also in binding
of tariffs to prevent them from being increased without re-negotiating to do so with trading
partners. In the Uruguay Round, countries agreed in the Customs Valuation Code, that the
preferred calculation of tariffs (valuation) is to be on the basis of transaction value of imports.
There are, of course, processes which are allowed to verify (check) that invoiced transaction values
are not being falsified to avoid the payment of a fair amount of duty. Countries often have more
than one rate of duty or tariff in their tariff schedules which set out all of a countries tariff rates.
These different rates are intended to apply to different categories of trade partners (e.g. general
rate, Most-favoured nation rate, preferential rate (for developing countries) or a rate for partners in
a free trade agreement while tariffs are being gradually reduced to zero). Rules of origin are used
to determine if a product should be considered as originating in a particular country because it is
wholly manufactured there or is made from imported products but meet rules on being sufficiently

8
changed to be considered a manufacture of that country. These rules are important to determine if
an import is to qualify for a particular tariff rate granted to that category of supplying country.
Countervailing duties are those charges imposed in addition to the scheduled tariff to offset the
effect of prohibited subsidies by the government of the country of manufacture. Antidumping
duties are additional charges imposed in addition to tariffs to offset the effect of imports being
sold at prices below the cost of manufacture or below the prices charged in the country of
manufacture.

technical barriers to trade (TBT)- technical barriers to trade are those barriers caused by
technical regulations and standards (e.g. packaging, marking, and labelling requirements,
procedures for assessment of conformity, etc). In the Uruguay Round, trading partners decided to
conclude an agreement called the Technical Barriers to Trade (TBT) agreement to ensure that all
technical regulations and standards will be science based and not based on production methods, in
an endeavour to ensure that technical requirements and standards did not get used as a form of
hidden protectionism.

thematic networks- informal group of persons or organizations in different locations and/or

countries who share an interest in a particular subject or issue and who communicate about that
issue and where possible work cooperatively on it.

trade facilitation- endeavours to ease the blockages to the international movement of goods and
services which are not due to trade restrictions but which arise from lack of infrastructure,
technology, training of staff, etc. (e.g. help for a country to computerize its tariff schedule or
automate import document processing)

trade-related technical assistance- training or other assistance for developing countries to assist
them in developing domestic expertise in formulating, negotiating, and implementing trade policy
and the results of trade negotiations.
(eg. this project)

trade related investment measures (TRIMs)- some government trade policies are used to
encourage investment in certain sectors in the country in question (eg. policy fixing exports of a
raw material to the quantity of that raw material processed domestically and exported). Certain of
these policies have been found to contravene WTO rules on trade but other policies are not caught
by the current rules. As a result, some contracting parties wish to see further negotiations

9
specifically on TRIMs and other investment measures. However, many other contracting parties
fear that the real purpose of these negotiations would be to create rules on right of establishment
for foreign firms in every member country, something they do not believe should be part of the
WTO.

trade related intellectual property (TRIPs)- intellectual property is the government granted
ownership right to the producer of ideas or creations. It includes patents (an exclusive right granted
to an inventor for a specified time period), copyrights (an exclusive right to the creator of literary,
artistic or other works (computer programs), etc. The rules on these matters were and still are
mainly dealt with in the World Intellectual Property Organization (WIPO); however, that
organization does not have any trade dispute settlement mechanism between governments who are
members. In the Uruguay Round, in cooperation with WIPO, an agreement on TRIPs was
negotiated, which improved on some of the WIPO ownership rules, requires governments to
provide owners of such intellectual property with protection of their ownership through
introduction of appropriate laws and providing foreign intellectual property owners access to
domestic judicial systems to enforce their ownership rights.

transparency- an open and public process of formulating laws and regulations which allows those
interested to follow and comment on changes before they are finalized and implemented. This is a
major requirement of the WTO/GATT.

unfair trade- trade in dumped, subsidized or counterfeit goods.

variable levy- a tariff or duty on imported goods that varies as the world market price changes in
order to keep domestic prices stable. The European Union used variable levies to support its
common agricultural policy which endeavours to predetermine the cost of producing agricultural
products and guarantees its farmers that price for their products. When, as is usually the case, the
world price is lower, imports have to pay a variable level of the difference between the guaranteed
price and the world price. The revenue which is generated is then applied to reduce the costs to
governments of paying the higher than world prices to their agricultural producers.

10
INDEX OF TERMS CONTAINED IN THE PRIMER

access- see market access

ad valorem tariff- see tariff

aggregate measure of support (AMS)- see agriculture agreement

agriculture agreement

antidumping

antidumping duty- see antidumping, tariff

appellate body- see dispute resolution mechanism

barter

binding (of tariffs)- see tariff

buy national policy

commercial presence- see GATS

common agriculture policy (CAP)- see variable levy

common external tariff- see common market

common market

compensation- see dispute resolution mechanism

concession- see accession

contracting party- see accession

copyright- see TRIPs

11
countertrade- see barter

countervailing duty- see subsidies, tariff, agriculture agreement

customs union- see common market

de minimis- see antidumping, tariff, subsidies, agriculture agreement

dispute resolution mechanism

Doha development agenda

domestic support

drawback- see tariff

dumping- see antidumping

duty- see tariff

enabling clause- see Doha development agenda

economic union- see common market

end-use tariff item- see tariff

escape clause- see safeguards

exceptions- see free trade

exemptions- see free trade

extra-territoriality

free trade

free trade area- see free trade

free trade zone- see free trade zone

12
General Agreement on Tariffs and Trade (GATT)\

General Agreement on Trade in Services (GATS)

harmonized system

import quota- see quota

import substitution- see TRIMs

injury- see dumping, subsidies, safeguards

intellectual property- see TRIPs

liberalization (of trade)- see free trade

market access

material injury- see antidumping, subsidies

Marrakesh Protocol

Most-favoured-nation (MFN)- see accession

multilateral trade negotiations

national security exemption- see free trade

national treatment

non-tariff barriers

networking

patent- see TRIPs

principal supplier- see accession

13
protectionism

quantitative restrictions (Qrs)- see quota

quasi-judicial procedures see quota

red, amber, blue, and green box subsidies- see agriculture agreement

results based management

retaliation- see dispute resolution mechanism

right of establishment- see TRIMs

rules of origin- see tariff

safequards

sanitary, phyto-sanitary measures (SPS)

services- see GATS

special and differential treatment- see Doha development agenda

specific tariff- see tariff

standards- see technical barriers to trade (TBT)

state trading enterprises (STEs)

subsidy

surcharge- see tariff

tariff

tariffication- see agriculture agreement

tariff escalation- see tariff

14
tariff rate quota- see quota

tariff schedule- see tariff

technical barriers to trade (TBT)

thematic networks

trade facilitation

trade liberalization- see free trade

trade related technical assistance

trade related investment measures (TRIMs)

trade related intellectual property (TRIPs)

transitional measures- see free trade

unfair trade

variable levy

15