Increasing Importance of Countertrade

The practice of Countertrade and all of its variations has increased dramatically during the last five years in great part due to the worsening world economic situation and the Third World's increasing debt problems. Conventional wisdom has held that the goods finding their way into countertrade will tend to be manufactured goods of ever increasing value added. It is my contention that this has not been the case. The continued depression of most metals and minerals prices has conspired to keep a great number of metals and raw materials in the forefront of countertrade negotiations. The concept that if a country needs hard currency it will simply sell metals into world markets for cash has been significantly modified by countertrade which encourages subsidies for raw materials which are in turn funded by higher prices for the manufactured goods which the country must import. Countertrade is a term that is relatively new to most of us who have been involved in the international trade of metals and minerals, but it is one that we will continue to hear more of in the future. Countertrade as it is generally known today had its beginnings after the Second World War in Eastern Europe. As the shattered economies of Europe struggled to right themselves, a "cashless" system of trade developed. This system included such ancient concepts as barter as well as more modern ones like bilateral clearing agreements. For over 30 years countertrade was confined mainly to the COMECON nations and their various trade protocols with Third World nations. If metals and minerals were involved, there was little disruption of world markets by such examples as Cuba shipping ferronickel and sugar cane to the U.S.S.R. for a host of manufactured goods and oil. As the world's economy began to slow in the late 70's and the debt crisis began in earnest in the early 801s, this all began to change. As more and more nations which had previously been almost totally dependent upon their mineral wealth over-extended themselves in an attempt to industralize, they concurrently found their income from minerals falling, due to the decreased demand and subsequently lower prices available in the marketplace. At first these nations attempted to balance their payments by promoting the sales of their high value-added manufactured goods. We have all heard numerous examples of U.S. companies going to sell their high technology products in Rumania or Yugoslavia and being confronted with counterpurchase requirements for machine tools, shoes or drill bits. When faced with these demands, a number of companies chose not to sell into those markets while others merrily signed up the obligations without much intent to carry them out. The Performance Bonds required were generally minimal, especially when considered in light of the high margin inherent in high tech items; and the penalty clauses were equally small or nonexistent. A third group of companies actually tried to buy the machine tools or drill bits either for their own internal use or resale but found that due to poor quality and high prices, they were faced with a difficult if not impossible task. This is not to say that no one was able to fulfill a countertrade requirement, but the success ratio on these transactions was incredibly low. This was one of the major contributing factors to the reputation that countertrade has gained as a discipline ... "that it is mostly talk and very little action." As this situation slowly evolved, both the countries imposing the countertrade obligation and the exporters assuming the obligation began to realize that something