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230 Răvaş, O. An authorized agency of the buyer country will issue a certification when the countertrade obligations have been fulfilled. At this point, the company should do a cost-benefit analysis. The analysis should be used as guide for improving future countertrade transactions. "Countertrade is inherently an ad hoc activity - practice varies according to local regulations and requirements, the nature of the goods to be exported and the current priorities of thee parties involved. Also, the terms used to describe the main modes of trading vary, often interchangeably causing confusion. " - which is a fancy way of saying -countertrade can be a lot of things depending on who is involved Elderkin and Norquist, in their book "Creative Countertrade," say that companies countertrade in order to: • Expand or maintain foreign markets • Increase sales • Sidestep liquidity problems • Repatriate blocked funds • Clean up bad debt situations • Build customer relationships • Keep from losing markets to competitors • Gain foreign contracts for future sales • Find lower-cost purchasing sources Four main reasons why countertrade is used: • Money - some people cannot pay in the currency you want "to enable trade to take place in markets which are unable to pay for imports. This can occur as a result of a non-convertible currency, a lack of commercial credit or a shortage of foreign exchange" • The Political Environment - local jobs and industry "to protect or stimulate the output of domestic industries (including agriculture and mineral extraction) and to help find new export markets" • The Political Environment - rules and regulations to protect the host country "as a reflection of political and economic policies which seek to plan and balance overseas trade" • "to gain a competitive advantage over competing suppliers." 1 Countertrade Examples. Finally, a few examples of countertrade. The first is the well known Pepsi/USSR trade whereby Pepsi-Cola delivers syrup that is paid for with Stolichnaya Vodka. Pepsi has the marketing rights of all Stolichnaya Vodka in the U.S. Recently Pepsi has made another innovative step by taking 17 submarines, a cruiser, a frigate, and a destroyer in payment for Pepsi products. In turn, this rag tag fleet of 20 naval vessels will be sold for scrap steel, thereby paying for Pepsi products being moved to the Soviet Union. In another instance, Fisher Controls International, a subsidiary of Monsanto, counter purchased ball bearings and chair frames to be sold in Western Europe in a countertrade opportunity for control valves sold to Romania. 1 By: C.G. Alex and Barbara Bowers
The Utility of the Barter Agreement in International Commercial Trade 231 This countertrade purchase activity set Fisher apart from its competitors, and enabled it to be awarded the contract. In another case, Monsanto is helping one of its customers in Argentina gain increased exports goods of finished goods. The exported goods contain Monsanto products, which results in increased sales. When countertrade is used in a proactive manner, it becomes a total quality activity of "meeting your customers needs." We all know this results in increased sales and profits. 2 After 1989, domestic barter in Russia exploded after macroeconomic stabilization in 1994 from 5 percent of GDP to 60 percent in 1998. In Ukraine the share of barter in industrial sales is estimated to have been 51 percent in 1997.2 The survey of 200 firms by the Russian Economic Barometer (1999) since 1992, in turn, suggests that noncash payments rose steadily from 8 percent in 1992 to 54 percent in mid-1998 . Since the financial crisis in August 1998, barter and the use of other money surrogates have started to decline, accounting for 43 percent of sales of industrial firms in February 1999. The importance of barter varies across transition economies. In twenty transition economies and shows that Croatia exhibits the highest share of barter of 33 percent in 1999. Russia and Ukraine show a barter share of about 24 percent and Central European countries like Hungary, Poland, and the Czech Republic have barter shares between 0.8 and 4.7 percent. It is also interesting to see that some of these countries experienced an increase in the importance of barter over time, like Croatia, and Ukraine, while barter declined in Uzbekistan, Kazakhstan, and Moldova. In Uzbekistan, the fall of barter was particularly pronounced. In international trade a similar boost of countertrade was experienced in the 1980s, when the international debt crisis led to a dramatic decline in private lending to developing and Eastern European countries. Even though debtors hesitated to invoke total repudiation, commercial banks were reluctant to provide new loans, sceptical that they would ever be repaid in full. As highly indebted countries found it increasingly difficult to finance their imports, unconventional forms of trade and trade financing experienced resurgence, including countertrade. Bussard (1987) reports that the number of countries engaged in countertrade rose from 27 in 1979 to 88 in 1984. Likewise the number of countertrade transactions that was reported by a group of survey respondents increased on average by 50 percent between 1980 and 1981, by 64 percent between 1981 and 1982, and by 117 percent between 1982 and 1983.5 Hammond (1990) observes that precedents of this striking comovement of debt and countertrade can be found in the late nineteenth century and in the depression of the 1930s. In both environments, contract enforcement is problematic, and hence conventional contracts cannot be relied on as the main mechanism to sustain economic exchange. In international trade, the enforcement of contracts is in the hand of national authorities. If, for whatever reason, these authorities fail to perform this function, trade partners have no higher instance to which they can turn to enforce the law due to the lack of supranational authorities. Similarly, in transition economies, relying on 2 BarterNews issue #17, 1988
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