Governments’ Attitudes Toward Countertrade

Consistent with their commitment to a nondiscriminatory trading system, many countries are opposed to government-mandated countertrade because it distorts the free flow of trade and investment. Yet, they do not publicly discourage firms from engaging in countertrade (U.S. ITC, 1985; U.S. Office of Management and Budget, 1986).

The U.S. policy on countertrade was developed in 1983 by an interagency working group. The policy does the following:

• It prohibits federal agencies from promoting countertrade in their business or official contracts.
• It adopts a hands-off approach toward those arrangements that do not involve the U.S. government or that are pursued by private parties. This means that the U.S. govern­ment will not oppose participation of U.S. companies in countertrade deals unless such activity has negative implications on national security.
• It provides no special accommodations for cases involving such transactions. The Export-Import Bank (Eximbank) will not provide financing support for the countertrade component of a transaction or accept countertrade as security, but the U.S. export component is eligible for all types of Eximbank support. Any repayment to Eximbank must be in hard currency and not conditional on the fulfillment of a side contract associated with countertrade.

In view of congressional concern with respect to such practices, the 1998 Trade Act man­dated the establishment of an office of barter within the Department of Commerce’s Inter­national Trade Administration and of an interagency group on countertrade. The Barter and Countertrade Unit established within the Department of Commerce (2005) now provides advisory services to firms interested in such transactions, while the interagency group on countertrade reviews and evaluates U.S. policy on countertrade and makes recommenda­tions to the president and Congress.

Some countries have officially instituted mandatory countertrade requirements for any transaction over a certain value. Australia, for example, mandates local content and other investment requirements for all defense purchases valued at $5 million and above (Liesch, 1991). Certain countries have passed laws providing for counterpurchase operations and the extension of bank guarantees in the form of performance bonds. Indonesia, for example, established a countertrade division within the Ministry of Trade and has mandated coun­tertrade requirements for any transaction exceeding $500,000 (Liesch, 1991; Verdun, 1985). Other countries may not have an official policy on countertrade or may even be opposed to it due to their position on free trade. However, this opposition often yields to the realities of international trade and competition, and a number of these countries are seen providing tacit approval to such transactions (International Perspective 12.4).

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.