Types of Countertrade

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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.
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