Definitions

As a general rule countertrade can be split into three broad categories:

• Barter – the oldest form of countertrade whereby a sale of equipment is secured against delivery of goods from the buyer which may be of interest to the seller or can be on sold by the seller of equipment to generate a cash payment.
• Counterpurchase – the practice whereby a foreign seller agrees to buy goods and/or services in the buyer’s country as a condition of the sale contract to a value related to the value of the goods sold. The goods and/or services may or may not be related to the items sold.
• Offset – increasingly popular with governments in developed countries. Offset is the practice whereby government buyers seek compensation for the loss of technical and financial investment in domestic industries caused by their acquisition of foreign-manufactured equipment. This can be achieved through:
  • Direct offset: the supplier agrees to incorporate materials, components or sub-assemblies which are procured from the importing country. In some large contracts, successful bidders may be required to establish local production facilities. Direct offset has been particularly common for trade in defence systems and aircraft.
  • Indirect offset: the supplier agrees to promote and develop export, investment and other cooperative measures that are not connected to the equipment supplied under the sale contract and may be either defence related or in the civil sector.

Other forms do exist, such as switch trading and buyback, but these are derivatives of the above categories.