Definition :Countertrade means exchanging goods orservices which are paid for, in whole orpart, with other goods or services, ratherthan with money. A monetary valuation canhowever be used in counter trade foraccounting purposes. In dealings betweensovereign states, the term bilateral trade isused. OR "Any transaction involvingexchange of goods or service for somethingof equal value."
Need of Countertrade :•Shortage of convertible currency•Liquidity problems•Develop new markets•Stimulation of jobs and Industry•To balance overseas trade•Ensure future selling contracts (Counter purchase)•To gain a competitive edge over other suppliers. It has become popular as a means of financinginternational trade to reduce risks or overcome problemsassociated with various national currencies.
Types of Countertrade :•Barter•Switch Trading•Counter purchase•Buyback•Compensation trade•Offset
Barter :• Exchange of goods or services directly for other goods or services without the use ofmoney as means of purchase or payment. Examples : Indo Iraq Wheat and Rice for Oil dealExample of Barter Trade :Country A Country BCigars Mining EquipmentThis means if Country A sells mining equipment to Country B in return for cigars - they willprobably hold some of the mining equipment back until they have made some good profitfrom the cigars. .Indo-Iraq Barter Deal :Indo-Iraq Barter DealIn 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UNapproval under Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrelsof oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia werevalued at about $22 a barrel. In 2001, India agreed to swap 1.5 million tones of Iraqi crudeunder the oil-for-food program.
Switch Trading : •It involves at least three parties. This means a country may barter goods from another country which may be of no use to itself so it sells the goods to other country for hard cash •Expands Exports •Enables party to achieve satisfactory outcome •May be difficult in brokering. Example- Switch Trading : •Brazil exported corn to East Germany (before Unification) and received products in return. Germany did not use corn , so it sold the corn to other countries for hard cash. Export Imported goods from country 2 by country 1 to country 3 EXPOR T COUNTRY 2 COUNTRY 3COUNTRY 1 IMPORT
Counter purchase :•Counter purchase is a reciprocal buying agreement. Itoccurs when a firm agrees to purchase a certain amount ofmaterials in future back from a country to which a sale ismade.•Volume of trade does not have to be equal (may be coveredby cash)•Covered by two separate contracts.•More flexible than barter•Under one of the contracts, the sale of goods between anexporter and importer is negotiated and paid for in aspecified currency. The second contract obligates theexporter to purchase goods from the importer at a specifiedvalue over a period of time. Unlike buybacks, counterpurchases involve hard currency.
Buyback:It occurs when a firm builds a plant in a country - or suppliestechnology, equipment, training, or other services to the countryand agrees to take a certain percentage of the plants output aspartial payment for the contract.Compensation trade: Compensation trade is a form of barter in which one of theflows is partly in goods and partly in hard currency.Offset: Agreement that a company will offset a hard - currency purchaseof an unspecified product from that nation in the future.Agreement by one nation to buy a product from another, subjectto the purchase of some or all of the components and rawmaterials from the buyer of the finished product, or the assemblyof such product in the buyer nation.