International trade glossary

Comparative advantage: David Ricardo’s nineteenth-century principle: a country should specialize in the good it produces at the lowest relative cost, export the surplus, and import the goods it produces less efficiently. Even a country with lower costs in every good gains from trade. The classic result considers two goods and two countries; with more goods and countries, results are more nuanced.
CIF (cost, insurance, and freight): The value of a good including insurance and freight to the destination port.
FOB (free on board): The value of a good loaded at the port of departure, including all costs up to that point. It excludes international freight and insurance.
GATT (General Agreement on Tariffs and Trade): The post–Second World War agreement that preceded the WTO. Its aim was to replace non-tariff barriers, such as quotas, with tariffs and then to reduce tariffs as far as possible, because tariffs distort trade less and make trade decisions easier to calculate.
Gains from trade: When countries move from autarky to trade, they tend to specialize in goods in which they have a comparative advantage, raising production, consumption, exports, and imports. In modern models, trade opening also tends to raise welfare. Gains from trade are usually measured in welfare or GDP.
Harmonized System (HS): An international classification of traded goods with levels of 2, 4, 6, and 8 digits (HS2 to HS8). More digits mean more detail. Detailed trade databases usually use HS6.
Iceberg costs: A modeling device in which part of a shipment “melts” in transit: (1 + κ) units must leave origin i for one unit to arrive at destination j, where κ is the trade cost.
MFN (most-favored nation): A core principle of trade law: a country must extend to all trading partners the treatment it gives to its most favored partner, without tariff discrimination. Trade agreements are the main exception, allowing members to be favored over non-members.
NCM (Mercosur Common Nomenclature): Mercosur’s product classification, derived from the Harmonized System with additional detail for goods produced and traded in the bloc.
Non-tariff barriers: Measures other than taxes that restrict imports. In the past these were mostly quotas; today they include sanitary and phytosanitary requirements. The EU Deforestation Regulation (EUDR), which bars certain goods produced on recently deforested land from the EU market, is an example.
Tariffs: Taxes on imports of a given good. Trade rules allow tariffs as long as they are non-discriminatory and transparent.
Terms of trade: The ratio of a country’s export price index to its import price index. A higher ratio means exports are worth more relative to imports.
Trade databases: UN Comtrade covers bilateral trade between countries; WITS covers tariffs and non-tariff barriers. National databases differ in detail; Brazil, the United States, China, Spain, and Canada publish data with subnational detail.
WTO (World Trade Organization): Established on January 1, 1995, after the Uruguay Round, the WTO extended the GATT to trade in services and intellectual property and created a forum for settling trade disputes.