Counter trade
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Countertrade is exchanging goods or services that are paid for, in whole or part, with other goods or services.
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[edit] Types of countertrade
There are five main variants of countertrade:
- Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment.
- Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country.
- Counter purchase : Sale of goods and services to a country by a company that promises to make a future purchase of a specific product from the country.
- Buyback : Export of industrial equipment in return for products produced by that equipment.
- Offset : Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future.
Agreement by one nation to buy a product from another subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation.
[edit] Role of countertrade in the world market
Noted US economist Paul Samuelson was skeptical about the viability of countertrade as a marketing tool, claiming that "Unless a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, neither can make a trade". (This is called "double coincidence of wants".) But this is a too simplistic interpretation of how markets operate in the real world. In any real economy, bartering occurs all the time.
The truth is, that the volume of countertrade is growing. In 1972, it was estimated that countertrade was used by business and governments in 15 countries; in 1979, 27 countries; by the start of 1990s, around 100 countries. (Vertariu 1992).
More than 80 countries nowadays regularly use or require countertrade exchanges. Officials of the GATT organization, claimed that countertrade accounts for around 5% of the world trade. The British Department of Trade and Industry has suggested 15%, while numerous scholars believe it to be closer to 30%, with east-west trade having been as high as 50% in some trading sectors of Eastern European and Third World Countries. A consensus of expert opinions (Okaroafo, 1989) has put the percentage of the value of world trade volumes linked to countertrade transactions at between 20% to 25%.
[edit] Desirability of countertrade
According to an official US statement, "The U.S. Government generally views countertrade, including barter as contrary to an open, free trading system and, in the long run, not in the interest of the U.S. business community. However, as a matter of policy the U.S. Government will not oppose U.S. companies' participation in countertrade arrangements unless such action could have a negative impact on national security." (Office of Management and Budget; "Impact of Offsets in Defense-related Exports," December, 1985). A large part of countertrade has involved military sales.
But countertrade also occurs when countries lack sufficient hard currency, or when other types of market trade are impossible.
In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UN approval under Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrels of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued at about $22 a barrel. In 2001, India agreed to swap 1.5 million tonnes of Iraqi crude under the oil-for-food program.
The Security Council noted: "... although locally produced food items have become increasingly available throughout the country, most Iraqis do not have the necessary purchasing power to buy them. Unfortunately, the monthly food rations represent the largest proportion of their household income. They are obliged to either barter or sell items from the food basket in order to meet their other essential needs. This is one of the factors which partly explains why the nutritional situation has not improved in line with the enhanced food basket. Moreover, the absence of normal economic activity has given rise to the spread of deep-seated poverty."
[edit] References
Vertariu, P., (1992), "Trends and Developments in International Countertrade," Business America, (November 2), 2-6.
Okaroafo, S., (1989) "Determinants of LDC Mandated Countertrade," International Management Review, (Winter), 1624
[edit] Other Sources
Jalloh, S Balimo (1995) Subsahara Africa – Trade Expansion Through Countertrade, in: Internationales Afrikaforum, 31 Jahrgang, Heft 4/1995, S. 365 –374 (Article) und in: UNCTAD-Bulletin 1995: 365-375.
Jalloh, S Balimo (1995) Negotiating Countertrade Deals, in: West Africa, No. 4062, 1995, S.1284-1285
Jalloh, S Balimo (1988) Countertrade im Außenhandel. Beiträge zur Wirtschafts- und Sozialpolitik, Nr. 176, Institut der deutschen Wirtschaft, Deutscher Institutsverlag, Köln,
Jalloh, S Balimo (1990)Countertrade – Kompensations- und Offsetgeschäfte erfolgreich abwickeln; Verlag Moderne Industrie, Landsberg am Lech, 1990
[edit] External links
Global Offset and Countrade Organization
UNCITRAL resources
