Both U.S. Exporters and Developing Nations Stand to Glean Benefits from Countertrade

By Pappas, George D. | American Banker, September 21, 1984 | Go to article overview

Both U.S. Exporters and Developing Nations Stand to Glean Benefits from Countertrade


Pappas, George D., American Banker


Today's strong dollar brings to light the important role that countertrade can play in world trade. For U.S. exporters, countertrade represents a marketing tool that can overcome uncompetitive exports due to the high dollar.

For commodity producing nations strapped between reduced export earnings, limited foreign exchange reserves and high debt interest payments, countertrade offers continued opportunities for economic growth. Though rarely appreciated by corporate managers and Wall Street, foreign currency translation effects on income statements can be mitigated by creative utilization of countertrade techniques.

What is countertrade? Although no single definition exists, countertrade is generally a medium of exchange. Where the traditional medium of exchange has been standardized and streamlined by currencies, today's mode of international trade has undermined the functional criteria for using currency. Factors such as uncertainty concerning the value of currencies and protectionism have forced nations to return to the primitive trading pattern that occurs where there is a 'double coincidence of wants'.

Therefore, countertrade is a trading medium that not only uses currency, abut also creates a coincidence of wants that take shape in the form of counterpurchase agreements, switch-trading, compensation, buy-back, and, in rare instances, barter.

Consider how counterpurchase agreements can protect or expand markets for U.S. exporters. A counterpurchase agreement is where the exporter "negotiates" to purchase commodities, goods or services from the importing country in exchange for the purchase of the export contract. Such agreements can be beneficial to the U.S. exporter where a significant price differential is caused by the appreciation of the dollar relative to other currencies.

Although counterpurchase agreements are complicated and involve risk concerning protocol, performance, quality, market access -- counterpurchase agreements can offer nontraditional export opportunities as well.

For instance, McDonnell-Douglas was able to export DC-9 passenger jets to Yugoslavia in exchange for purchasing consumer goods and services from Yugolsavia. Counterpurchase agreements with protocol such as this enableds McDonnell-Douglas to effectively out-bid the likes of Boeing, Airbus Industries of France, and Bristol. Opportunities for LDCs

Countertrade also offers trade opportunities for developing nations and LDCs (least developed countries). Namely, LDCs such as Jamaica, Indonesia, Peru, and others cannot import essential raw materials due to de facto and explicit protectionist policies adopted by the industrialized West. Policies such as trigger-pricing, agreement quotas, and tariffs have clearly created barriers to free trade.

While the appreciation of the dollar has increased pressures for industrialized nations to practice protectionist policies, it has also contributed to the present international illiquidity that has squeezed vital credit facilities for LDC nations. To that extent, U.S. Federal Reserve monetary policy has pushed up interest payments on dollar-denominated bank loans, further draining the foreign exchange reserves of LDC nations.

Consequently, various LDCs such as Jamaica and Indonesia have adopted "mandated compensation" requirements. Mandated compensation requires that exporters undertake to purchase the importing country's products over a given period of time -- usually equal in value to the export contract.

Until recently, mandated compensation requirements were predominantly a matter of accepted practice by the Eastern Bloc nations. Historically, Eastern Bloc foreign trade offices (FTOs) used mandated compensation requirements were predominantly a matter of accepted practice by the Eastern Bloc nations. Historically, Eastern Bloc FTOs used mandated compensation requirements to conserve the outflow of their convertible foreign exchange reserves and to support their five-year plans. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Both U.S. Exporters and Developing Nations Stand to Glean Benefits from Countertrade
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.