Modern Countertrade

World trade continues to grow faster than world production in spite of mounting protectionism. One reason may be the increased role being played by barter and countertrade, forms of trade especially designed to overcome barriers. It is a paradox that these ancient forms of trade, predating the use of money, continue to be popular and continue to grow in importance. Modern countertrade covers various forms of trading arrangements where part or all of the payment for the purchased goods or services may be in the form of other goods or services. It is an adult version of children trading in cigarette cards and marbles (for similar reasons i.e. lack of cash and trade of ‘priceless’ items). Because of its recent and projected growth and its ability to overcome market imperfections and provide opportunities for extraordinary profits, countertrade should be assessed as an important part of business strategy, especially by companies that operate internationally.

No reliable figures as to its overall volume are available as there is much secrecy in this business. Estimates are unreliable especially since it is estimated that only one in twenty deals that is discussed actually goes through. The U.S. Department of Commerce estimates that countertrade involves over 20 per cent of all world trade.While others have estimated it to be 30 per cent of all world trade,‘-’some companies specializing in countertrade estimate it to be as much as 40 per cent of all world trade. In any case, as any of these estimates indicate, countertrade has grown to be an important part of doing business across borders.

Countertrade is a higher percentage of total trade in some areas of the world such as the COMECON (Eastern European) countries and the less developed countries (LDCs), while it is a lower percentage for trade among developed countries.’ Countertrade started by being important in trade with COMECON countries. Later, it grew in importance in trade with the developing and newly industrialized countries such as Brazil, Mexico, China, Indonesia, Iran and Nigeria and now has even become important in large trade deals among developed countries such as Sweden, Switzerland, Austria, Canada, Japan and Italy. While U.S. companies are just recently becoming aware of it, European and Japanese companies have had longer experience with countertrade. Many countertrade deals into the hundreds of millions of dollars (some are even in the billion dollar range). Both India and China, for example, have prepared billion dollar government purchasing lists with much of each to be paid for by reciprocal or countertrade arrangements. The Purchasing World magazine estimates that 48 per cent of all U.S. purchasing agents already engage in some form of barter.

Examples of modern countertrade include a wide range of transactions, from simple to increasingly complex deals. The simplest examples involve various forms of barter. They include, for example, the sale of recordings of the Swedish group Abba in the COMECON countries in exchange for commodities such as fresh fruits, chemicals, and even machine tools which are then sold for hard currencies in Western Europe. As another example, the British subsidiary of PepsiCo sends Pepsi concentrate to Soviet bottling plants and in payment receives bottles of Stolichnaya vodka which is then marketed in the West.

Chrysler sold 200 pickup trucks to Jamaica in 1982 in a more complicated five party barter deal involving aluminum ore. Flush from this success, it has since engaged in other barter deals involving simultaneous trading of Peruvian copper ore, Sudanese cotton and Liberian rubber, coffee and cocoa. The Douglas Aircraft Company sold Yugoslavia seven DC-9 airplanes. It was paid partly in cash but also agreed to sell S9m worth of Yugoslav goods in western markets including S40, OOO worth of hams for its cafeterias.

In another type of countertrade allowing trade over a longer time period, East Germany and Brazil agreed to barter machine tools for coffee so that at the end of their 2 year bilateral trade agreement, the value of machine tools bought by Brazilian companies must equal the value of coffee bought by the East Germans. However, Brazil ended up buying machine tools valued at about 30 per cent more than the coffee bought by the East Germans. The East Germans then sold their coffee contract obligation (at a discount) to a western private company for hard currency. This company arranged a three-way transaction in which Israel ‘sold’ potash to Poland which in turn ‘sold’ sugar to Brazil which ‘sold’ coffee to Israel. All three ‘sales’ were arranged and agreed simultaneously and the values of the three commodities ‘sold’ were exactly equal.

Another type of long term countertrade deal is illustrated by the ease of Technip of France building a chemical plant in the Peoples Republic of China and planning to recover the cost of its equipment and services by selling part of the plants output in western countries. Similarly, General Tire furnished equipment and technology for a Rumanian truck tire plant in exchange for radial truck tires from that plant.

Date: 2015-12-24; view: 1120