COUNTERTRADEWhat is it ? means to exchange goods or services paid for in whole or in part,with other goods or services instead of moneyThis expression is used associated to foreigntrade and international trade betweencountries.Born and developed as a result of the inabilityor inconvenience of purchasing goods in cash, inthe event that there is a shortage of foreignexchange, helping to formalize sales thatotherwise would not have been possible.
HISTORYSince the beginning of time mankind has used some form of countertrade in order to meet their personal needs and even though the concept has remained the same, many things have changed over the centuries with respect to countertrade.the modern day countertrade agreements began and how countries require many different rules and regulations when it comes to countertrade.
BASIC OBJECTIVES OF COUNTERTRADEThey are:* Increase overall bilateral trade.* Avoid currency transfer.* Promote the development of the countriesinvolved.* Overcome or minimize the effects of thebarriers imposed by countries withprotectionist economies.* Increasing international trade.* Avoid development of external indebtedness.* Create new job opportunities.
COUNTERTRADECountertrade, as we know it today,came about in the 1960’sas a way for the Soviet Unionand the Communist states of Eastern Europe topurchase imports because their currencies werenonconvertible.The technique became popular during the 1980’samong many developing nations who did not have themeans to purchase necessary imports.
BARTERThe direct exchange of goods between merchants, goodsor services directly for other goods or services withoutusing money as a means of purchase or payment.
CLEARINGHOUSE ARRANGEMENTis a form of barter traders agree buy a certainamount of goods from each other. Establishaccounts with each other that are debited andaccredited as necessary. At maturityarrangement, participants in money or cancelgoods.
SWITCH TRADEPractice in which a company sells to another itsobligation to make a purchase in a givencountry.
BUY BACKoccurs when a companybuilds a plant in a country- or materials technology, equipment, training, orother services to the country and agrees to take acertain percentage of the production plant as partpayment for the contract.
COUNTER PURCHASESales of goods and services to a company inanother country by a company that is committedto making a future purchase of a specific productfrom the same company in that country.
OFFSETAgreement by one nation to purchase a product from another, subject to the purchase of someor all components and raw materials from the buyer of the finished product.
DISADVANTAGES*It ineficiente. Slow and complex negotiations* Some argue that such transactions alterfundamental operations of the freemarket, and therefore the resources will be usedinefficiently.* Increasing costs.* Transactions that do not make use of the moneyrepresent a major step backwards in termseconomic development.* Brokerage costs.* Creates uncertainty.
ADVANTAGE* Fighting inflation.* Relieves deficit payment* Reduces the volume of external debt* Facilitates the entry of technology* Facilitate the development of new markets.* Stops processes unfair competition from thirdcountries.* Reduces external marketing costs.
GENERALIZATIONS OF COUNTERTRADE* There are advantages and disadvantages with thecountertrade.*It can benefit both participants and in somecircumstances is the only tradepossible.* Whether transactionscountertrade good or bad for theglobal economy, the fact is that they will continueincrease in the near future asworld trade increases.
Does the exporter BuyBack received Counter back Purchase goods? Counter purchase yes Buyback no yes Agreement yes Offset reciprocal Counter Purchase Buyback limited to the purchaserequires real? no use of Offset money Clearing yes yes Switch other no Does it extend to stakeholders Trading involved? a long period and involves a basket of nobarter goods Clearing no Barter