In recent years, in light of the technological developments, many exporters have been forced to finance international transactions by taking full or partial payment in some form other than money

Question

A number of alternative forms of payments known as countertrade are widely used. How does a countertrade transaction work? How do barter transactions differ from offset?

Answer 1

In a countertrade transaction, a sale results in product flowing in one direction to a buyer with a separate stream of products and services often flowing in the opposite direction. For example, the countries in the former Soviet bloc have historically relied heavily on countertrade. Countertrade flourishes when hard currency is scarce. Since exchange controls may prevent a company from expatriating earnings, the company may be forced to spend money in-country following products that are then exported and sold in third-country markets. The reasons importing nations may demand countertrade include the priority attached to the Western import. The second condition may be the value of the transactions; the higher the value, the greater the likelihood that countertrade will be involved. Also, the availability of products from other suppliers can be a factor. Barter falls in one of the categories of countertrade. The mixed forms of countertrade, including counterpurchase, offset, compensation trading, and switch trading belong in a separate category. They incorporate a real distinction from barter because the transaction involves money or credit. The term barter describes the least complex and oldest form of bilateral, non-monetized countertrade. It is a direct exchange of goods or services between two parties. Although no money is involved, both partners construct an approximate shadow price for products flowing in each direction. Offset, on the other hand, is a reciprocal arrangement whereby the government in the importing country seeks to recover large sums of hard currency spent on expensive purchases such as military aircraft or telecommunication systems.