Countertrade is an agreement between the parties where the trade of goods and services happen in an absence of the money, i.e. the trade occurs with an exchange of goods or services in reciprocation. Nearly 15-20% of the world trade is covered by the countertrade mechanism (Seyoum, 2009).
The countertrade is beneficial when there are no strong and sufficient means to settle trade transactions financially, the parties involved may either exchange or swaps their goods and services ultimately bettering off the parties with an increased level of production as well as consumption. And, I see these as a humanitarian mechanism to support citizen in the economics havocked by political and economic crises. This may appear in the form of a currency crisis and monetary instability. The Venezuelan currency has all most lost its purchasing power, it could not be used as a mode of international trade anymore, but the country is one of the largest producers of the crude oil, here it can trade its necessities with its trading partner in exchange of the oil. Currently, the country is in talks with India to barter its oil (Retures, 2019)
Except in the case of the political and economic crises, it can also be used in good faith to create a win-win scenario. For example, a company can import raw material from another country setting an agreement that the latter one has to import 35% of the finished goods that are made from them, here in doing so both the parties are benefited. PepsiCo traded drink concentrate for Basmati rice in India and for silk and mushroom in China, the mushroom was used in PepsiCo Pizza Hut chain and the silk was dyed and sold for the profit (Seyoum, 2009). Similarly, to lock the sale of $250 million worth of Apache helicopter to the UAE, the US aircraft maker McDonnell Douglas has agreed to equip the Arab sheikdoms against a perky airborne enemy: the whitefly (Seyoum, 2009)
Some of the scenarios which can expedite the countertrade are listed below:
· If the conventional means of payment becomes difficult, costly or non-existent
· If the countries want to settle transaction through the exchange of goods and services ultimately leading to promotes one’s export industry.
· If countries lack the hard currencies and foreign exchange reserve
· And if the countries do not have as easy access to the forex market.
Whereas the following scenarios may decrease over-reliance on countertrade:
· If the countries have strongly defined monetary system
· If there is less chance of happening of the political and economic cult that may dampen the value of currencies
· If the countries work together to decrease the barriers of the trade.
The countertrade has played a pivotal role in the occurrence of the global trade, it has also become a kind of marketing strategies between the nations where the parties contractually agree to deliver some non-financial facilities and transactions. And it could be a cent percent barter of goods and services or a mix of barter and cash.
References
Retures. (2019, February 11). Venezuela's PDVSA seeks to barter its oil with India. Retrieved from www.finance.yahoo.com: https://finance.yahoo.com/news/venezuela-open-barter-trade-india-095320313.html
Seyoum, B. (2009). Export-import Theory, Practices, and Procedures. New York: Routledge.
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