Countertrade

1

• Countertrade

2
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.

3
Reasons for Countertrades.

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

4
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.

5
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.

6
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.

7
Types of countertrades - Compensation deals

• Part payment in goods and part in cash.
• Some cash involved, flexibility in assessing
  value of goods involved.

8
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.

9
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.

10
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.

11
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.

12
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.