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					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:         Benefits for exporters:
-  Transfer of technology    -  Increased sales
-  Alleviation of balance       opportunities
   of payment difficulties   -  Access to sources of
-  Market access and            supply
   maintenance of stable     -  Flexibility in prices
   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 A                                Country B

               Goods/services
       Parallel Transactions
Buyback
Counterpurchase

Offsets
               Buyback

             Transfer of technology/capital goods
Technology
                   Cash (hard currency)             Technology
 Exporter                                            Importer
 Licensor         Purchase of all or partial         Licensee
Country A             output over time              Country B

                   Cash ( hard currency )
       Counterpurchase
             Goods/Services
                                        Importer
             Cash (hard currency)
                                       Country B
Exporter



              Goods/Services        Importer of third
                                         party
Country A                               supplier/
             Cash (hard currency)
                                      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

                        Offsets (direct/indirect,
    Exporter             partial/total, A–D )                 Importer
                                                            (Government
                 A. Coproduction/licensed production              or
                                                            Private Firm)
                 B. Subcontractor production in country B


    Country A    C. Investment in and technology transfer    Country B
                           D. Countertrade
                          (barter, compensation)
          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.

				
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posted:11/3/2012
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