1. Countertrade

2.  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. What is Countertrade?

3. 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 Benefits of Countertrade

4.  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. Theories on Countertrade

5.  Barter  Switch trading  Clearing arrangement Forms of Countertrade

6. Exporter country A Importer country B Switch trader Switch Trading

7. Bilateral clearing account Country A Country B Goods/services Clearing Arrangement

8.  Buyback  Counterpurchase  Offsets Parallel Transactions

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

10. Goods/Services Exporter Country A Importer Country B Importer of third party supplier/ Manufacturer Country B Cash (hard currency) Goods/Services Cash (hard currency) Counterpurchase

11. Direct offsets: - Coproduction - Subcontractor production - Investments and transfer of technology Offsets

12.  Export of military high-tech products Exporter Country A Importer (Government or Private Firm) Country B Cash as partial or total payment Offsets (direct/indirect, partial/total, A–D ) A. Coproduction/licensed production B. Subcontractor production in country B C. Investment in and technology transfer D. Countertrade (barter, compensation) Offsets (cont.)

13.  Offset arrangements in which goods and services unrelated to the exports are acquired from or produced in the importing country Indirect Offsets

14.  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. Countertrade Concerns of the GATT/WTO

15.  U.S. government prohibits federal agencies from promoting countertrade in their business.  Adopts a hands-off approach in relation to private transactions. U.S. Government Policy Toward Countertrade