Glossary of International Trade Terms
A duty (or tax) levied on goods transported from one customs area to another. Tariffs raise the prices of imported goods, thus making them less competitive within the market of the importing country.
International Commerce (INCO) terms
Shipping terms set the parameters for international shipments, specify points of origin and destination, outline conditions under which title is transferred from seller to buyer, and determine which party is responsible for shipping costs. They also indicate which party assumes the cost if merchandise is lost or damaged during transit. To provide a common terminology for international shipping, the following INCO terms have been developed under the auspices of the International Chamber of Commerce.
Cost, Insurance and Freight (CIF)
The exporter pays the cost of goods, cargo, and insurance plus all transportation charges to the named port of destination.
Cost and Freight (C&F)
The exporter pays the costs and freight necessary to get the goods to the named destination. The risk of loss or damage is assumed by the buyer once the goods are loaded at the port of embarkation.
Ex Works (EXW)
The price quoted applies only at the point of origin and the seller agrees to place the goods at the disposal of the buyer at the specified place on the date or within the period fixed. All other charges are for the account of the buyer.
Free on Board (FOB)
The goods are placed on board the vessel by the seller at the port of shipment specified in the sales contract. The risk of loss or damage is transferred to the buyer when the goods pass the ship’s rail.
Free on Board Airport (FOB Airport)
Based on the same principles as the ordinary FOB expression, the seller’s obligation is fulfilled by delivering the goods to the air carrier at the specified airport of departure, at which point the risk of loss or damage is transferred to the buyer.
Transportation and Delivery Terms
The following are common terms used in packing, labeling, transporting and delivering goods to international markets. They are in addition to the above INCO terms.
Bill of Lading (Ocean or Airway)
A contract prepared by the carrier or the freight forwarder with the owner of the goods. The foreign buyer needs this document to take possession of the goods.
Certificate of Origin
A document that certifies the country where the product was made (i.e. its origin). A common export document, a certificate of origin is needed when exporting to many foreign markets.
A document prepared by the exporter or freight forwarder, and required by the foreign buyer, to prove ownership and arrange for payment to the exporter. It should provide basic information about the transaction, including a description of goods, the address of shipper and seller as well as delivery and payment terms. In some cases, the commercial invoice is used to assess customs duties.
A document that traditionally accompanies exported goods bearing such information as the nature of the goods, their value, the consignee and their ultimate destination. Required for statistical purposes, it accompanies all controlled goods being exported under the appropriate permit.
A document used to clear goods through customs in the importing country by providing documentary evidence of the value of goods. In some cases, the commercial invoice (see glossary entry) may be used for this purpose.
Used in price quotations, an expression referring to the price of goods at the exporter’s loading dock.
A legal document that is necessary for the export of goods controlled by the Government of the export country, specifically goods included on the Export Control List.
A service company that handles all aspects of export shipping for a fee.
A document prepared by the exporter or freight forwarder to provide evidence that insurance against loss or damage has been obtained for the goods.
The cost of the exported product at the port or point of entry into the foreign market, but before the addition of foreign tariffs, taxes, local packaging/assembly costs, and local distributors’ margins. Product modifications prior to shipment are included in the landed cost.
A document prepared by the exporter showing the quantity and type of merchandise being shipped to the foreign customer.
Pro Forma Invoice
An invoice prepared by the exporter prior to shipping the goods, informing the buyer of the goods to be sent, their value and other key specifications.
An offer by the exporter to sell the goods at a stated price and under certain conditions.
Financial and Insurance Terms
The following are the most commonly used terms in international trade financing.
Delivery of merchandise to the buyer or distributor, whereby the latter agrees to sell it and only then pay the exporter. The seller retains ownership of the goods until they are sold, but also carries all of the financial burden and risk.
Document of Title
A document that provides evidence of entitlement to ownership of goods, e.g. carrier’s bill of lading.
Letter of Credit
An instrument issued by a bank on behalf of an importer that guarantees an exporter payment for goods or services, provided the terms of the credit are met.
Letter of Credit (Confirmed)
A local bank confirms the validity of a letter of credit issued by a foreign bank on behalf of the foreign importer, guaranteeing payment to the local exporter provided that all terms in the document have been met. An unconfirmed letter of credit does not guarantee payment so, if the foreign bank defaults, the local exporter will not be paid. Local exporters should accept only confirmed letters of credit as a form of payment.
Letter of Credit (Irrevocable)
A financial institution agrees to pay an exporter once all terms and conditions of the transaction are met. No terms or conditions can be modified without the consent of all parties.
An arrangement in which goods are shipped to the foreign buyer before the local exporter receives payment.
Partnership, Alliance and Market Entry Terms
The following expressions define the various types of partnership or alliance arrangements as well as methods of market entry common in international trade.
A foreign representative who tries to sell your product in the target market. The agent does not take possession of and assumes no responsibility for the goods. Agents are paid on a commission basis.
A foreign company that agrees to purchase a local exporter’s product(s), and then takes responsibility for storing, marketing and selling them.
This is a more specific form of licensing. The franchise is given the right to use a set of manufacturing or service delivery processes, along with established business systems or trademarks, and to control their use by contractual agreement.
An independent business formed cooperatively by two or more parent firms. This type of partnership is often used to avoid restrictions on foreign ownership and for longer-term arrangements that require joint product development, manufacturing, and marketing.
In a specifically American legal context, however, a joint venture is a collaboration between two companies to carry out a particular, individual project. The venture lasts only as long as the project does and is governed by the partnership laws of the state where it was formed.
Although not usually considered to be a form of partnership, licensing can lead to partnerships. In licensing arrangements, a firm sells the rights to use its products or services but retains some control.
Trading House (or Company)
A company specializing in the exporting and importing of goods produced or provided by other companies.
The following are some of the more common legal terms encountered in international transactions.
The process of resolving a dispute or a grievance outside of the court system by presenting it to an impartial third party or panel for a decision that may or may not be binding.
A written or oral agreement which the law will enforce.
Protection granted to the authors and creators of literary, artistic, dramatic and musical works, and sound recordings.
A collective term used to refer to new ideas, inventions, designs, writings, films, and so on, protected by copyright, patents, and trademarks.
A right that entitles the patent holder, within the country which granted or recognizes the patent, to prevent all others for a set period of time, from using, making or selling the subject matter of the patent.
A word, logo, shape or design, or type of lettering which reflects the goodwill or customer recognition that companies have in a particular product.