Countertrade

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.

There are six main variants of countertrade:

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-for-food 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."

Countertrade transactions have been basically conducted among the former Soviet Union and its allies in the Eastern Europe and other parts of the world. The reason that these countries have allocated a big portion of their commerce to the countertrade attributed to insufficient hard currency. A significant proportion of international commerce, possibly as much as 25%, involves the barter of products for other products rather than for hard currency. Countertrade may range from a simple barter between two countries to a complex web of exchanges meeting the needs of all countries involved.

Noted US economist Paul Samuelson was skeptical about the viability of countertrade as a marketing tool, claiming that "Unless a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, neither can make a trade". (This is called "double coincidence of wants".) But this is arguably too simplistic an interpretation of how markets operate in the real world. In any real economy, bartering occurs all the time, even if it is not the main means to acquire goods and services.

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