2. Definition :
Countertrade means exchanging goods or
services which are paid for, in whole or
part, with other goods or services, rather
than with money. A monetary valuation can
however be used in counter trade for
accounting purposes. In dealings between
sovereign states, the term bilateral trade is
used. OR "Any transaction involving
exchange of goods or service for something
of equal value."
3. Need of Countertrade :
•Shortage of convertible currency
•Liquidity problems
•Develop new markets
•Stimulation of jobs and Industry
•To balance overseas trade
•Ensure future selling contracts (Counter purchase)
•To gain a competitive edge over other suppliers.
It has become popular as a means of financing
international trade to reduce risks or overcome problems
associated with various national currencies.
5. Barter :
• Exchange of goods or services directly for other goods or services without the use of
money as means of purchase or payment.
Examples : Indo Iraq Wheat and Rice for Oil deal
Example of Barter Trade :
Country A Country B
Cigars Mining Equipment
This means if Country A sells mining equipment to Country B in return for cigars - they will
probably hold some of the mining equipment back until they have made some good profit
from the cigars. .
Indo-Iraq Barter Deal :
Indo-Iraq Barter Deal
In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UN
approval under Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrels
of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were
valued at about $22 a barrel. In 2001, India agreed to swap 1.5 million tones of Iraqi crude
under the oil-for-food program.
6. Switch Trading :
•It involves at least three parties. This means a country may barter goods from
another country which may be of no use to itself so it sells the goods to other
country for hard cash
•Expands Exports
•Enables party to achieve satisfactory outcome
•May be difficult in brokering.
Example- Switch Trading :
•Brazil exported corn to East Germany (before Unification) and received
products in return. Germany did not use corn , so it sold the corn to other
countries for hard cash.
Export Imported goods from country 2 by country 1 to country 3
EXPOR
T
COUNTRY 2 COUNTRY 3
COUNTRY 1 IMPORT
7. Counter purchase :
•Counter purchase is a reciprocal buying agreement. It
occurs when a firm agrees to purchase a certain amount of
materials in future back from a country to which a sale is
made.
•Volume of trade does not have to be equal (may be covered
by cash)
•Covered by two separate contracts.
•More flexible than barter
•Under one of the contracts, the sale of goods between an
exporter and importer is negotiated and paid for in a
specified currency. The second contract obligates the
exporter to purchase goods from the importer at a specified
value over a period of time. Unlike buybacks, counter
purchases involve hard currency.
8. Buyback:
It occurs when a firm builds a plant in a country - or supplies
technology, equipment, training, or other services to the country
and agrees to take a certain percentage of the plant's output as
partial payment for the contract.
Compensation trade
: Compensation trade is a form of barter in which one of the
flows is partly in goods and partly in hard currency.
Offset:
Agreement that a company will offset a hard - currency purchase
of an unspecified product from that nation in the future.
Agreement by one nation to buy a product from another, subject
to the purchase of some or all of the components and raw
materials from the buyer of the finished product, or the assembly
of such product in the buyer nation.
