Tying in International Trade: Evidence on Countertrade

OUNTERTRADE is tied trade. In a typical transaction a CPE or LDC imports goods and the exporting party usually a firm in a western industrial country commits itself to make an offsetting purchase at some future date. Since the mid seventies countertrade has become a significant phenomenon in international trade. Reasonable estimates vary between 10 and 20 per cent of world trade (see OECD, 1985; 1981).' Countertrade takes three main forms: barter, counterpurchase and buy-back. The three forms all entail linked exportimport transactions, but they differ from each other in terms of whether they involve foreign exchange in the transaction, whether the two trade flows are temporally separated, and whether the trade flows stand in a technical relation to each other. Barter is a spot transaction in which the two trade flows occur at more or less the same time with no involvement of foreign exchange. Counterpurchase and buy-back, on the other hand, are long-term contracts with the two trade flows taking place at different points in time. Additionally, counterpurchase and buyback involve financially separate transactions in which each trade flow is paid for in hard currency. In buy-back agreements the original export consists of a plant or technology and the repurchase of some portion of the output produced by that equipment, whereas in barter and counterpurchase there is no technical association between the original export and the offsetting purchase.