Countertrade

Published date01 January 1985
Date01 January 1985
Pages15-16
DOIhttps://doi.org/10.1108/eb057389
AuthorK.A. Dewdney
Subject MatterEconomics,Information & knowledge management,Management science & operations
Countertrade
by K. A. Dewdney
Your spouse for seven long-necked, humped ruminant mam-
mals,
bactrian or dromedary, is one form of barter; as is a
dozen high quality free range eggs for one home-made
cream chocolate cake. Whether the spouse is worth more
or less than seven camels may be difficult to assess. It
should be easier to decide if the cake equates to the eggs
in money value, although money value may not be the be-
all-and-end-all in the decision-making process. Barter is the
exchange of goods or services without the use of money
the only possible mode of exchange prior to the introduc-
tion of money money itself being a commodity such as
gold or silver; today, usually coin and paper notes, used to
measure comparative values of commodities and to facilitate
their exchange.
Barter is not dead. It is alive and well and in everyday use
both home and abroad, and in international trade. In much
more complex forms than simple barter, in the guise of
countertrade, it accounts for a significant, albeit small, slice
of the world trade cake Countertrade in one form or another
has been utilised by nearly one hundred countries often in
specialised sectors such as aviation, but also in many more
general areas.
Countertrade includes barter, evidence accounts, switch
trading,
buy-back and counter-purchase It is a general term
for the above commercial mechanisms and many others.
These terms do not carry fixed definitions, but have mean-
ings applied to them in accordance with regulations existing
in the participating countries, the goods and current
circumstances
The following definitions are intended only as a very general
guide to the types of countertrade that may be encountered.
Barter
Illustrated above by cakes and camels, the direct exchange
of goods for goods, services for services or goods for
services
Used,
but not all that common. Favoured by some oil coun-
tries for specific deals and when currency restrictions make
alternative forms of trading extremely difficult or impossible
Evidence Account
If a business imports a significantly large volume of goods
into a country or spends significantly on services, it may
be required to arrange for the export of goods and/or ser-
vices to the equivalent value of its imports. These goods
or services may be its own products, but more usually those
of other businesses. It is unlikely that each import will be
matched by an equivalent export made at the same time
as the import. So an evidence account is kept showing the
businesses imports and the exports it has arranged, and
these must approximately balance over the agreed period,
often a year.
Switch Trading
So called because it often involves switching documents
and destinations whilst the goods are in transit. These deals
are often highly complex, and involve many intermediaries
with the goods being bought and sold many times before
they reach their final destination. They utilise uncleared
credit surpluses built up due to an imbalance in a bilateral
trading agreement, these surpluses being used by a third
party to finance a trade
deal.
Buy-Back
This type of trading is favoured by, amongst others, the
Soviet Union. Buy-back is when the seller agrees to buy
goods manufactured by the purchaser, utilising the product
purchased.
It occurs most often when manufacturing plant
is
sold,
but may also be coupled to the sale of raw materials
or mining equipment. If plant is sold for the production of
shoes, the exporter may agree to purchase shoes in full or
part payment of the plant. This type of
deal,
because of its
nature, tends to be long term.
Counterpurchase
Involves two separate contracts, one for the goods or ser-
vice being
sold,
and a second for the counterpurchase The
original export order will be conditional on the counterpur-
chase contract, which may be specific, for the purchase of
particular goods, or general, stating that goods to a certain
value must be purchased within a specified time. Contracts
may contain non-performance clauses, restrictions as to the
markets in which the goods may be
sold,
in order to pro-
tect existing markets, or for other reasons.
Counterpurchase is possibly the most widely utilised form
of countertrade. The value of the counterpurchased goods
may be small, say five per cent, or large, 100 per cent or
more.
Countertrade is often associated with Eastern Europe, and
with good reason, for it is a normal and commonly found
form of trading. The Communist bloc utilise forms of
countertrade for both political and economic reasons
relating to its ideologically superior status and a shortage
of convertable currency. However, countertrade is not
restricted to deals with the Communist bloc, and may be
found in a limited degree in Western Europe, Mediterranean
and Near East, Asia, Africa, Latin America, Caribbean and
New Zealand. In fact, few areas of the world totally exclude
this form of trading
Countertrade is complex and difficult; it is not for the
amateur. There are many traps. It is a commercial minefield.
Mistakes will almost certainly be expensive. For this reason
businesses must take advice before making any agreement
and guidance can be obtained from a number of sources.
These include the Department of Trade and Industry, Banks
and Consultancy, and Broking and Trading Houses that
specialise in countertrading. Some Houses deal worldwide,
and will consider all commodities; others specialise in a
limited number of markets or products.
Because countertrade is by its very nature restrictive and
protective, it is a form of trading a number of countries, the
European Community, the organisation for Economic Co-
operation and Development, and Gatt (The General Agree-
IMDS JANUARY/FEBRUARY 1985 15

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT