Page 168 - DMGT547_INTERNATIONAL_MARKETING

Unit 9: Terms of Payment and Delivery

Self Assessment Notes

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7. .............................. is a form of price discrimination where different prices are charged for
the same product in similar markets.

8. .............................. dumping is an extreme form of discriminatory pricing where the firm
aims at eliminating competition and monopolizing the market.
9. The .............................. states the principles and rules to be followed by the member countries
in terms of imposing anti-dumping duties, countervailing duties and safeguards.

9.4 Counter Trade

Counter trade constitutes an estimated 5-30 percent of total world trade. Counter-trade greatly
proliferated in the 80s. Counter-trade is one of the oldest forms of trade in the government
mandate to pay for goods and services with something other than cash. It is a practice that
requires a seller as a condition of sale to commit contractually to reciprocate and undertake
certain business initiative that compensate and benefit the buyer. In short, a good-for-goods
deal is Counter-trade.
There are three primary reasons for Counter-trade:
(i) provides a trade financing alternative to those countries that have an international debt
and liquidity problems,
(ii) relationship may provide LDCs and MNCs with access to new markets, and
(iii) fits well conceptually with the resurgence of bilateral trade agreements between the
governments. Advantages of Counter-trade cluster around three subjects: (i) market access,
(ii) foreign exchange, and (iii) pricing.

9.4.1 Types of Counter-trade

There are several types of Counter-trades including barter, counter-purchase, compensation
trade, switch trading, and offsets and clearing agreements.
Barter is the simplest of many types of Counter-trades. It is a one time direct and simultaneous
exchange of products of equal value (one product or another). By removing money as a medium
of exchange, barter makes it possible for cash tied countries to buy and sell. Although price must
be considered in any counter-trade, price is only implicit and best in the case of barter.
Counter-purchase occurs when there are two contracts or a set of parallel cash sale agreement
each paid in cash. Unlike barter, which is a single transaction with an exchange price only
implied, counter-purchase involves two separate transactions—each with its own cash value.
A supplier sells a facility or product at a set price and orders unrelated or non-resultant products
to offset the cost to the initial buyer. Thus, the buyer pays with hard currency whereas supplier
agrees to buy certain products within specified period. Therefore, money does not need to
change hands. In fact the practice allows the original buyer to earn back the currency.
Next is compensation trade or buy back. A compensation trade requires a company to provide
machinery, factories or technology and to buy products made from this machinery over an
agreed on period. Unlike counter-purchase, which involves two unrelated products, the two
contracts in a compensation trade are highly related. Under a separate agreement to the sale of
plant or equipment, a supplier agrees to buy part of the plant’s output for a number of years.

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