Countertrade
What is Countertrade?
A commercial
agreement in which the
exporter is required to accept in part/total
settlement of its deliveries, a supply of
products from the importing country
It is estimated to account for 15 to 20
percent of world trade.
Benefits of Countertrade
Benefits for buyers:
Transfer of technology
Alleviation of balance
of payment difficulties
Market access and
maintenance of stable
prices
Benefits for exporters:
Increased sales
opportunities
Access to sources of
supply
Flexibility in prices
Theories on Countertrade




Countertrade is positively correlated with a
country’s level of exports.
Countertrade is partly motivated in order to
substitute for foreign direct investment.
The stricter the level of exchange controls,
the higher the level of countertrade activity.
Countertrade is positively correlated with a
country’s level of indebtedness.
Forms of Countertrade
Barter
Switch
trading
Clearing arrangement
Switch Trading
Exporter country A
Importer country B
Switch trader
Clearing Arrangement
Bilateral clearing account
Country B
Country A
Goods/services
Parallel Transactions
Buyback
Counterpurchase
Offsets
Buyback
Transfer of technology/capital goods
Technology
Exporter
Licensor
Country A
Cash (hard currency)
Purchase of all or partial
output over time
Cash ( hard currency )
Technology
Importer
Licensee
Country B
Counterpurchase
Goods/Services
Cash (hard currency)
Exporter
Goods/Services
Country A
Cash (hard currency)
Importer
Country B
Importer of third
party
supplier/
Manufacturer
Country B
Offsets
Direct offsets:
- Coproduction
- Subcontractor production
- Investments and transfer of technology
Offsets (cont.)
Export of military high-tech products

Cash as partial or total payment
Exporter
Offsets (direct/indirect,
partial/total, A–D )
A. Coproduction/licensed production
Importer
(Government
or
Private Firm)
B. Subcontractor production in country B
Country A
C. Investment in and technology transfer
D. Countertrade
(barter, compensation)
Country B
Indirect Offsets
Offset
arrangements in which goods and
services unrelated to the exports are
acquired from or produced in the
importing country
Countertrade Concerns
of the GATT/WTO



Countertrade represents a significant
departure from the principles of free trade
based on comparative advantage.
Countertrade results in higher transaction
costs.
Countertrade is inconsistent with the national
treatment standard that is embodied in most
trade agreements.
U.S. Government Policy
Toward Countertrade


U.S. government prohibits federal
agencies from promoting countertrade
in their business.
Adopts a hands-off approach in relation
to private transactions.