Countertrade

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DEFINITION of 'Countertrade'

International trade in which goods are exchanged for other goods, rather than for hard currency. Countertrade can be classified into three broad categories - barter, counterpurchase and offset.


Barter forms the oldest countertrade arrangement, and essentially involves the direct exchange of goods and services having an equivalent value, but with no cash settlement. In a counter purchase, the overseas seller agrees to buy goods or services sourced from the buyer's country up to a defined amount. In an offset arrangement, the seller assists in marketing products manufactured by the buying country or allows part of the assembly of the exported product to be carried out by manufacturers in the buying country; this practice is often found in the aerospace and defense industries.

BREAKING DOWN 'Countertrade'

Countertrade has its pros and cons. A major benefit of countertrade is that it facilitates conservation of foreign currency, which is a prime consideration for cash-strapped nations. Other benefits include increased employment, higher sales, better capacity utilization and ease of entry into challenging markets.


A major drawback of countertrade is that the value proposition may be uncertain, especially in cases where the goods being exchanged have significant price volatility. Other disadvantages of countertrade include complex negotiations, potentially higher costs and logistical issues.




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