Thursday, May 20, 2021

Counter Trade

Counter Trade 

Countertrade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money. A monetary valuation can however be used in countertrade for accounting purposes. In dealings between sovereign states, the term bilateral trade is used.

Countertrade also occurs when countries lack sufficient hard currency, or when other types of market trade are impossible.

In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to United Nations approval under Article 50 of the UN Persian Gulf War sanctions, that would facilitate 300,000 barrels of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued at about $22 a barrel. In 2001, India agreed to swap 1.5 million tonnes of Iraqi crude under the oil-forfood program.

The Security Council noted: "... although locally produced food items have become increasingly available throughout the country, most Iraqis do not have the necessary purchasing power to buy them. Unfortunately, the monthly food rations represent the largest proportion of their household income. They are obliged to either barter or sell items from the food basket in order to meet their other essential needs. This is one of the factors which partly explains why the nutritional situation has not improved in line with the enhanced food basket. Moreover, the absence of normal economic activity has given rise to the spread of deep-seated poverty."

A major benefit of countertrade is that it facilitates the conservation of foreign currency, which is a prime consideration for cash-strapped nations and provides an alternative to traditional financing that may not be available in developing nations. Other benefits include lower unemployment, higher sales, better capacity utilization, and ease of entry into challenging markets. A major drawback of countertrade is that the value proposition may be uncertain, particularly in cases where the goods being exchanged have significant price volatility. Other disadvantages of countertrade include complex negotiations, potentially higher costs and logistical issues. Additionally, how the activities interact with various trade policies can also be a point of concern for open-market operations. Opportunities for trade advancement, shifting terms, and conditions instituted by developing nations could lead to discrimination in the marketplace.

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