Types of Countertrade By Sveinn Eldon • Barter Simple exchange of goods for goods Example. electricity exchanged for butter! One contract Types of Countertrade • Compensation The seller accepts goods as part payment, the rest is paid in cash. One contract. Compensation Example: A British computer firm sells computers to a Russian mining firm. The Russsian firm can only pay part of the price in money, but wants to pay the rest with titanium. The British firm does not need titanium so it contacts a metal trader in London who promises to buy the from the Russian mining firm titanium and pay the British computer firm. Counterpurchase • Two linked contracts Example: The Finnish airforce buys F18 fighter jets from McDonald Douglas Corp. For 2,5 b. The air force pays in dollars. In another but linked contact McDonald promises in return to buy Finnish goods for 2,5 b. dollars. Product Buyback • A long term contract made between a firm which builds and runs a factory to buy the products made in the factory. Example: A German firm builds and runs a factory in an African country. The factory is owned by the local government but it has no money to pay for it and not skilled staff to run it. Part of the factories output goes to the firm that built and runs it at predetermined price as payment for the factory and as compensation for running it. Offsets • Two linked contracts often between a government and a large corporation. Example: The Spanish government buys fighter jest from a foreign corporation. The corporation promises in a separate but linked contract to manufacture the wings in Spain. Switch Trading Two Contracts Example: A British firm sells machine tools to a Polish firm. The Poles wanted to pay in goods only. The Brits did not need Polish goods but French goods. They find a French firm that needs Polish goods. The French firm receives the Polish goods and sends its own goods to the British firm as payment. Clearing Account Barter • Two Principle Contracts are made, often between governments, outlining types of goods quantity and prices. • Two Clearing (bank) Accounts are established, one in each country. Each account is in the domestic currency. • At the end of the contract period the accounts are settled eventual inbalanaces are settled in hard currency.