Problem

Countertrade

Other Names:
Barter trade
Counterpurchase
Buy-back contracts
Nature:

Counterpurchase can be defined as a commercial transaction through which the seller agrees as part of his contractual obligations to purchase goods and services from the buyer up to an agreed percentage of his deliveries. Its complexity arises from the fact that it involves the negotiation in parallel of two separate agreements: the sales contract; and the purchasing contract. A typical feature of a counterpurchase transaction is that, contrary to buy-back, there need not be any special relationship between the products sold under the primary transaction and those supplied in accordance with the counterpurchase contract.

In buy-back, the seller agrees to purchase goods and services from the buyer up to an agreed percentage of his deliveries, the object of primary transaction being machinery, equipment patents, know-how or technical assistance that will be used to set up production facilities for the buyer. The parties agree that the seller will subsequently buy from the buyer products produced in those production facilities. As in counterpurchase, both flows of products are paid for in money, and the value of the products bought back may be lower than, equal to or higher than that of the products of the primary transaction. Inexperience can produce exploitative agreements.

Incidence:

Countertrade is heavily practised by developing and east European countries. It is estimated to count up to 10% of world trade. The process has taken very different legal forms and developed in a very uneven fashion from one region of the developing world to another.

Claim:

Countertrade, of which barter is one form, is inefficient, cumbersome and costly. It is not a panacea for the developing world's balance-of-payments problems. But because it puts off the evil day when a country will have to cut its imports to match its available cash and credit, it looks like an attractive expedient.

Counter Claim:

Countertrade between developing countries provides a mechanism for encouraging economic cooperation at the bilateral and multilateral levels. It provides a means of developing exports, and particularly non-traditional goods, by diversifying and broadening the exports base through access to new markets. Such arrangements are considered to be an instrument facilitating the rational use of methods of external payment.

Related Problems:
Abuse of in kind payments
Strategies:
Countertrading
Problem Type:
E: Emanations of other problems
Related UN Sustainable Development Goals:
GOAL 16: Peace and Justice Strong Institutions
Date of last update
18.04.2019 – 14:23 CEST