Definition<br />Any transaction involving exchange of goods or service for something of equal value;<br />exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money;<br />monetary valuation can however be used in counter trade for accounting purposes.<br />See also: “Bilateral Trade”
What for?<br />4 reasons:<br />to enable trade to take place in markets which are unable to pay for imports;<br />to protect or stimulate the output of domestic industries;<br />as a reflection of political and economic policies which seek to plan and balance overseas trade; <br />to gain a competitive advantage over competing suppliers.
History: Pre-World War II<br />Inflationary and deflationary swings <br />Difficulties in paying money for international transactions<br />BARTER!
History: The Cold War<br />Oil price increases Barter;<br />Confidential military offsets;<br />accounted for 10 percent of international trade.
History: Post-Cold War<br />Main players – Eastern Europe and ex soviet Republics;<br />Weak currencies & low currency reserves;<br />Countertrading accounted for 40 percent of international trade.
History: important dates<br />1979 - the U.N. Commission on International Trade law adopted guidelines provided in report entitled “Barter or exchange in international trade“ (between governments);<br />1984 – the commission defined the activities of international organizations relative to barter like transactions.
Types of countertrade<br />3 factors of categorizing countertrade:<br />the types of goods involved;<br />the degree of reciprocal payment; <br />the timeframe of the two transactions.
Types of countertrade
Commercial countertrade<br />Commercial countertrade refers to trading arrangements of a short time-span, accompanied by a comparatively small monetary value<br />Barter<br />Counterpurchase
Barter<br />The use of a single contract to exchange goods or services of an equivalent monetary value;<br />without the use of currency exchanges;<br />Usually barter is carried on between the governments of developing countries;<br />Often with surplus commodities such as cereals, textiles, and raw materials<br />Rather rare form of countertrade nowadays (difficult to negotiate appropriate terms)
Counterpurchase<br />Also refers to “Parallel barter”;<br />uses two separate and parallel contracts;<br />usually between a private company and a government-trading agency;<br />The two parallel contracts are completed independently of each other, often with goods and services unrelated to the initial contract, and with the value of the reciprocal transaction being a certain percentage of the original sales contract value.
Switch & Swap<br />A long-term bilateral agreement between two countries;<br />Accumulation of unclearedcredit surpluses in one or other country <br />these surpluses can sometimes be tapped by third countries;<br />involves the use of clearing accounts.<br />When goods are shipped from one country to the other, instead of being paid, a credit is made to a clearing account.
Types of countertrade
Industrial countertrade<br />Industrial countertradeconsists of items considered by developing countries at the highest priority in their economic development plans <br />military equipment, industrial hardware needed for turnkey projects, and major technology items.<br />Buybacks<br />Offsets
Mostly used by developing nations;<br />Exchange of equipment on its resultant output;<br />No financial commitments;<br />Products being marketed in the developed world;<br />Tend to be much longer term and for larger amounts than counterpurchase or barter deals.<br />Buybacks (compensation)
Offsets<br />Used by governments to promote import substitution and to minimize the balance of payments deficit for military purchases;<br />Direct offset: here the supplier agrees to incorporate materials, components or sub-assemblies which are procured from the importing country. In some large contracts, successful bidders may be required to establish local production. Direct offset has been particularly common for trade in defense systems and aircraft.
Offsets<br />Indirect offset: here the purchaser requires suppliers to enter into long-term industrial (and other) cooperation and investment unconnected to the supply contract and may be either defense related or in the civil sector.
Four Countertrade Strategies<br />Defensive<br />Passive<br />Reactive<br />Proactive
Examples<br />Pepsi-Vodka (The USA & USSR)
Examples<br />Oil for wheat and rice (Iraq & India)
The Future<br />Infancy in corporations In-house countertrade organizations;<br />Going to the Internet online electronic barter;<br />Proactive strategy & source of international marketing.