Counter Trade

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  • Topic: Export, International trade, Trade
  • Pages : 7 (1738 words )
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  • Published : April 8, 2013
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Counter Trade
   Definition:
Reciprocal trade in which goods or services are exchanged not for cash but for other goods or services. A large part of the internet commerce comprises of local and international counter-trade

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

Types of Counter Trade
There are five main variants of countertrade:
• Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Barter is the direct exchange of goods between two parties in a transaction. The principal exports are paid for with goods or services supplied from the importing market. A single contract covers both flows, in its simplest form involves no cash. In practice, supply of the principal exports is often held up until sufficient revenues have been earned from the sale of bartered goods. One of the largest barter deals to date involved Occidental Petroleum Corporation's agreement to ship sulphuric acid to the former Soviet Union for ammonia urea and potash under a 2 year deal which was worth 18 billion euros. Furthermore, during negotiation stage of a barter deal, the seller must know the market price for items offered in trade. Bartered goods can range from hams to iron pellets, mineral water, furniture or olive-oil all somewhat more difficult to price and market when potential customers must be sought. • Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country. • Counter purchase: Sale of goods and services to one company in other country by a company that promises to make a future purchase of a specific product from the same company in that country. • Buyback: 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.

• 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. • Compensation trade: Compensation trade is a form of barter in which one of the flows is partly in goods and partly in hard currency

Importance of CounterTrade:

Countertrade also occurs when countries lack sufficient hard currency, or when other types of market trade are impossible. 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 Persian 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 tonnes of Iraqi crude under the oil-for-food program. The Security Council noted: "... although locally produced food items have become increasingly available throughout the country, most Iraqis do not have the necessary purchasing power to buy them. Unfortunately, the monthly food rations represent the largest proportion of their household income. They are obliged to either barter or sell items from the food basket in order to meet their other essential needs. This is one of the factors which partly explains why the nutritional situation has not improved in line with the enhanced food basket. Moreover, the absence of normal economic activity has given rise to the spread of deep-seated poverty." RESTRICTION FOR EXPORTING GOODS:

Export restrictions,...
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