Countertrade

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Definition

Those transactions which have as a basic

characteristic a linkage, legal or
otherwise, between imports and exports
of goods and services in addition to or in
the place of financial settlements.

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Reasons for
Countertrades.

Economic Circumstances.
Dispose of excess goods.
Gain entry into new markets or
differentiation.
Growth opportunity.

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Growth of Countertrade.

Grown tenfold over the past 20 years.

Used by firms in 100 countries.
In 2000 50% of all international trade
linked to some form of countertrade.
Developing countries or countries with
foreign exchange problems.

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Types of countertrades -
Barter.
 Barter - Direct exchange of goods of
approximately equal value.
 Not used very often because difficult to find
goods of equal value.
 Assessing value and disposing of goods is also a
problem.
 Parallel barter - they sign two separate contracts
that specify the goods and services to be
exchanged at different times.

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Types of countertrades -
Counterpurchase.
 Seller gets paid but agrees to purchase goods
worth the same amount from the buyer.
 More flexibility in selecting goods and in
assessing value.

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Types of countertrades -
Compensation deals
 Part payment in goods and part in cash.
 Some cash involved, flexibility in assessing value
of goods involved.

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Types of countertrades -
Buy-back
 Seller agrees to accept as payment a portion of
the output or buy it back.
 Technology transfer, quality assurance, and
assured payment.
 Usually developing or newly-industrialized
nations.

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Variations on these basic
agreements

Clearing account barter - refined barter,

credits and debits of trade.
Switch-trading - credits can be sold to a
third party.
Offset - to offset the negative impact of
large purchases on balance of payments.

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Variations on these basic
agreements

Debts Swaps - Less developed countries

with large debt burdens.
Debt-for-debt swaps - Consolidated debt
and concentrate on a country.
Debts-for-equity swaps - debt converted
into equity in a foreign firm.
Debt-for-products, for nature, for education.

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U.S. Policy
 Strongly against countertrade.
 Not conducive to a competitive market.
 Implicit subsidies to the industry of the purchasing
countries.
 Could be disguised dumping.
 Assessment of taxes is difficult.
 However, Dept. of commerce is supportive and
congress has passed bills that permit and support
countertrade.

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Policy of other
governments
 Most emerging market economies have favored
countertrade for economic reasons.
 Newly Industrialized Countries favor for
competitive reasons.
 Western Europe, Japan, New Zealand, and
Australia participate actively.

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