Circumstances where counter trade can be beneficial for a country
Answers
What is countertrade? When can countertrade be beneficial for a country?
It is a collective term which is used to refer to various methods of linking two export transactions between companies in different countries or, in some instances, between countries themselves. In a simple countertrade arrangement the respective exporters and importers accept reciprocal delivery of goods in part or full settlement of the value of their deliveries of goods. Few deals are that simple. In an ideal market countertrade would not arise and to many analysts it is an undesirable bilateralization of world trade. It developed after the Second World War and has grown in sophistication since. Countertrade is now a worldwide practice and since the early 1970’s has emerged as a significant medium of world trade. Estimates vary but on average suggest that countertrade today accounts for more than 20% of total world trade. Australian exporters have in the past been reluctant to embrace countertrade as a method of doing business–in my opinion all they have been doing is denying themselves (in times like this) the opportunity to participate to the fullest extent in the opportunities that exist in world markets. Countertrade is more appropriately viewed as simply another financing technique designed to put dollars in your bank whilst delivering the following general advantages to the trading parties involved: (a) It gives access to markets for Australian companies that may otherwise be closed to them. (b) It helps conserve foreign currency reserves of the importing country. (c) It allows access to foreign markets without necessarily setting up marketing companies or programme. (d) It allows the importing country to export products for which markets might not otherwise exist. Types of Countertrade: Countertrade is an umbrella term which has been adopted to encompass what is largely an adhoc or deal by deal arrangement. The various forms of reciprocal trade, which fall within the countertrade N umbrella include: (a) Barter: This involves the direct exchange of unrelated goods with in principle, no Alternative means of payment. (b) Counter Purchase: This is the most common form of countertrade and involves two separate flows of goods usually done under two separate contracts. In a short-term agreement the seller is committed to buy goods from the importing country but this obligation will normally be assigned to a third party trader and the seller will neither handle nor see the outbound goods–only receive cash into its bank account. The value of the counter purchase goods is an agreed percentage of the price of the exported goods. (c) Buyback: An exporter of equipment agrees to take back products produced by that equipment as payment. The buyback agreement specifies precise particulars as to the products to be bought and perhaps the markets in which they can be sold. (d) Offsets: The seller of defence, aerospace and sometimes other Hi-tech products is required to undertake the local purchase of components, technology transfer, investment, training and sometimes straight counter purchase as a condition of the sale. Apart from these straight costs which I have referred to the other unknown at the start of negotiations of any countertrade transaction are the quality and market price of the outbound goods. In essence you do not know what net return you will get from each shipment of outbound goods until you have been able to fully particularize them, run the proposal past your proposed countertrade company, find out from it what contractual terms it will impose to take over those goods and what commission it will charge. Only then can you calculate the return to you less the various costs which I have referred to above and put a price on your inbound goods.