COUNTERTRADE FROM A MANAGEMENT PERSPECTIVE

INTRODUCTION

The purpose of this research is to examine the use of countertrade procedures and arrangements in the conduct of multinational trade. Countertrade is "a generic term which refers to trade involving an element of reciprocity" (Economic Itelligence Unit [EIU], 1985, p. 7).

The use of countertrade procedures and arrangements is not restricted to multinational activity (Shipley & Neale, 1987, p. 1). Barter, which is the oldest and most elementary form of countertrade, has long been used in the conduct of domestic trade. In the 1980s, some of the more sophisticated forms of countertrade are also being incorporated in some domestic trade deals.

It is in the area of multinational trade, however, that the use of countertrade is experiencing its most explosive growth. The net effect of multinational countertrade agreements is that a sale by an external entity to a second entity located within a country imposing countertrade rules is contingent on some sort of offset by the selling entity  a purchase from within the target economy, an investment within the target economy, or some other form of reciprocal activity (Cateora & Hess, 1983, p. 439).

The number of countries requiring the incorporation of some form of countertrade arrangement in multinational trade deals has increased from 15 in 1972 to more than 90 in 1988 (Verzariu, 1988, p. 29). Understanding countertrade in its s

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entity or selling country purchase a specified amount of some product(s) originating within the economy of the target country, or (2) that the selling entity or selling country invest in the establishment of a specified type of production facility within the target economy. When the second, or contingency contract, involves the construction of a production facility within the target economy, there may also be a provision covering the required purchase of some volume of the output from that facility (refer to the preceding discussion on buyback arrangements). Further, the initial selling contract may include provisions which require that some proportion of the payment be in the form of products originating within the target economy. Offset arrangements often do not involve 100 percent reciprocity. The proportion of reciprocity required may vary according to (1) the goods and services involved, (2) the countries involved, or (3) a legally specified proportion applicable to all offset contracts. There are two principal forms of offset arrangements  indirect offset, and direct offset (Francis, 1987, p. 24). Indirect offsets involve products or technology which are unrelated to the product being sold. By contrast, direct of
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Approximate Word count = 3599
Approximate Pages = 14 (250 words per page)

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