Counter Trade

1140 Words Nov 17th, 2012 5 Pages
Counter Trade

Counter Trade:
Unquestionably, currency is the preferred payment medium for any export or import transaction—it is easy, fast, and straightforward to transact. Sometimes, though, compa¬nies must adapt to the reality that buyers in many countries cannot do so, whether due to the fact that their home country 's currency is nonconvertible, the country doesn 't have enough cash, or it doesn 't have sufficient lines of credit. Sometimes companies and coun¬tries find it practically impossible to generate enough foreign exchange to pay for imports. In recourse, they devise creative ways to buy products. For example, Indonesia traded 40,000 tons of palm oil, worth about US$15 million, with Russia in exchange for Russian Sukhoi
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For instance, Thailand and Indonesia signed a $40 million deal in which Indonesia would supply Thailand with an agricultural aircraft, train carriages, and fertilizer in exchange for Thai rice—no monies were or would be exchanged. There are barter firms that act as an intermediary between the exporter and importer, often taking title to the goods received by the exporter for a price or selling the goods for a fee and a percentage of the sales value.

(2) Buybacks
Buybacks are products the exporter receives as payment that are related to or originate from the original export. Buyback arrangements are quite common in the sale of technology, licenses, and even complete "turnkey" factories. Payment is made in full or in part either by products manufactured in the new facility or by production from the new license or tech¬nology. Buyback countertrade is especially popular for turnkey infrastructure projects. For example, the customer pays for the project, say a steel mill, with government-backed long-term credit. The exporting contractor first guarantees that the project will work when com¬pleted and then agree to buy back products or services from the completed facility or to serve as a distributor for products exported from the host country. The host-country buyer uses these hard currency payments to liquidate the original long-term credit. Throughout the relationship, no cash changes hands and no credit arrangements are necessary. The buy-back contract
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