Tuesday, March 24, 2009

COUNTER TRADE

COUNTER TRADE

Countertrade occurs when a firm accepts something other than money as payment for its goods or
services. Thus, countertrade is essentially a barter trade.

TYPES OF COUNTER TRADE
(1) BARTER SYSTEM

Barter is the direct exchange of goods and/or services between two parties without a cash
transaction.
(2) COUNTER PUCHASE
This is a reciprocal buying agreement. It occurs when a firm agrees to purchase a
certain amount of materials back from a country to which a sale is made.
(3) OFFSET
An example for an offset deal is that Pepsi Co sells its cola syrup to Russia for roubles and agrees
to buy Russian vodka at a certain rate for sale in the US. Going by this example, offset resembles
counterpurchase agreement. But there is difference. The difference is that Pepsi can fulfill the obligation
with any firm in Russia. From an exporter's perspective, offset is more attractive than a straight
counterpurchase deal because it gives the exporter greater flexibility to choose the goods that it wished to
purchase.
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(4) switch trading
it refers to use of the specialized third party trading house in a countertrade agreement. When a firm enters a counterpurchase or offset deal with a countryI It often ends
up with what are called counterpurchase credits, which can be used to purchase goods I llfll till" ountry.
Switch trading occurs when a third-party trading house buys the firm's counterpurchase credltH 111\(1 Ilells
them to another firm that can better use them.


(5) BUYBACK
A buyback also called compensation 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 deal. Countertrade is of particular importance to countries that lack convertible currency and, as stated earlier is often used as means of reducing the drain on scarce foreign currency holdings.

A relatively new form of countertrade involves swaps. Swaps are generally carried out in' relation to
developing countries where the government and private sector face large debt burdens. Given that these
debtors are unable to pay their debt in the immediate future, lenders have grown amenable to exchange the
debt for something else, as for example, debt-far-equity swaps in the private sector, and debt-for-nature
swaps in the public sector.

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