LDC COUNTERTRADE: A PRELIMINARY LOOK AT A GROWING PHENOMENON

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85S00315R000300050001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 18
• Document Creation Date: December 22, 2016
• Document Release Date: January 31, 2011
• Sequence Number: 1
• Publication Date: November 1, 1984
• Content Type: REPORT

1& 11 STAT
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Directorate of
Intelligence
Growing Phenomenon
A Preliminary Look at a
LDC Countertrade:
i/15U/0t IC/Utz711ry5Kb
FILE LUPY/SLUKCE t CUPY
CUNIRUL tbRANLN/CPAs/PUV/IML
ROOM 76U7 H QS
NU AUHUL Rt UIRLMENTS
eonfidengial
GI 84-10192
November 1984
Copy 3 7 4
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l Intelligence
LDC Countertrade:
A Preliminary Look at a
Growing Phenomenon
This paper was prepared by
Office of Global Issues. Comments and queries are
welcome and may be directed to the Chief,
International Trade Branch, OGI
Confidential
GI 84-10192
November 1984
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'..umucuuai
LDC Countertrade:
A Preliminary Look at a
Growing Phenomenon F_
Key Judgments The financial problems besetting the less developed countries have led an
Information available increasing number of them to turn to countertrade. By linking the purchase
as of 5 October 1984 of imports to the sale of their goods, developing countries have tried to cir-
was used in this report.
cumvent their foreign exchange and trade financing constraints. Many
LDCs also view countertrade as a way of expanding their overseas sales of
nontraditional exports, particularly manufactures, through reliance on the
marketing expertise of Western firms. It also offers a way to disguise the
discounting of their exports, which in turn enables them to undercut prices
set by international commodity agreements and conceal the dumping of
surplus goods.
Most of the recent growth in LDC countertrade activity has occurred with
other developing countries and with Western industrial countries, rather
than with the Soviet Bloc. In our judgment, countertrade probably has not
increased as a share of LDC-Soviet Bloc trade, in part, because some
developing countries have had difficulty identifying Bloc products they
want to purchase in exchange for their goods. On the basis of studies
conducted by the OECD, GATT, and others, we estimate that counter-
trade now accounts for as much as 10 percent of LDC trade, about $50 bil-
lion a year.
Despite the perceived benefits of countertrade, the complexity of negotiat-
ing and executing countertrade deals makes them far more costly than
conventional transactions. Government intervention and the politicizing of
trade make countertrade even less economically efficient. Except for
instances where new export markets are opened up, countertrade may
actually lead to a net loss of foreign exchange since, in many instances,
goods sold in countertrade deals merely replace traditional cash exports
while, at the same time, the LDCs purchase higher priced imports.
In our judgment, the future expansion of countertrade will depend heavily
on whether LDCs fully grasp its limited gains and high costs. Some LDCs
engaged in countertrade are already disenchanted with it. Nevertheless,
there still is a danger that countertrade could become a structural form of
trade in LDCs as it is in the Soviet Bloc. If so, the use of a costly practice
such as countertrade will make LDCs worse off economically in the long
run since LDCs implicitly require more exports to pay for a given level of
imports in a countertrade deal than they would through conventional trade.
Confidential
GI 84-10192
November 1984
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In addition, the bilateral nature of countertrade poses a threat to the
multilateral free trade system in which the United States has a major
stake. Success in imposing countertrade on Western firms could foster even
greater government involvement in international trade and renewed growth
of bilateralism. Furthermore, US firms potentially could lose market
shares to more experienced countertraders in Western Europe and Japan,
while remaining vulnerable to disguised dumping of surplus goods by
LDCs.
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Countertrade: Data Limitations and Estimation Methodology 9
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Figure 1
The Growth of Countertrade, 1972-83
Number of countries
involved
0 1972 75
Table 1
LDCs Involved in Countertrade a
t ('("'[cil'dC 1972 India
(I :1n '; 11 1 1(, n s 111rl C y 1979 Argentina, Brazil, Colombia, Ecuador, India,
1980 100 Iran, Iraq, Libya, Uruguay
600 1983 Algeria, Angola, Argentina, Bangladesh, Brazil,
Burma, Cameroon, Chile, Colombia, Costa Rica,
}00 Dominican Republic, Ecuador, Egypt, El Salva-
dor, Ethiopia, Ghana, Guatemala, Guinea, Hon-
duras, Hong Kong, Indonesia, India, Iran, Iraq,
400 Ivory Coast, Jamaica, Kenya, Liberia, Libya,
Malaysia, Mexico, Morocco, Mozambique, Nige-
100 ria, Pakistan, Panama, Paraguay, Peru, Philip-
pines, Singapore, South Korea, Sri Lanka, Thai-
- land, Togo, Trinidad, Tunisia, Uganda, Burkina,
200 Uruguay, Venezuela, Zaire, Zambia, Zimbabwe
1(111 a Based on information obtained by the National Foreign Trade
Council. This information was obtained through a survey of US
L firms.
Source: A survey of US firms conducted by the
National Foreign Trade Council.
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Confidential
LDC Countertrade:
A Preliminary Look at a
Growing PhenomenonF_
Recent Trends in LDC Countertrade
After remaining very low in the 1970s, the use of
countertrade by less developed countries has grown
substantially in the 1980s. According to private sur-
veys of US firms taken last year, more than 50 LDCs
were involved in countertrade, up from fewer than 10
in 1979 (see table 1). According to our estimates, as
much as 10 percent of LDC exports may involve some
form of countertrade, and we believe most of this has
come about in the last five years (see appendix).F_
Countertrade describes trade practices where the flow
of goods and services is linked, or countered, by a
flow of goods and services in the opposite direction.
Countertrade can take many forms, including barter,
counterpurchase, buy-backs, and offsets. Although
usage of these terms varies, in general they are
defined as follows:
Most of this growth in LDC countertrade has oc-
curred among LDCs and with the industrial countries
rather than with the Soviet Bloc. On the basis of
OECD and GATT ' studies, we estimate that at most
4 percent of the $300 billion in LDC exports to the
industrial West are linked to countertrade deals, while
some $30 billion, 20 percent of intra-LDC trade,
involves countertrade. Trade with the Soviet Bloc still
involves the most countertrade-about 30 percent of
LDC exports, or $7 billion, according to the OECD,
but this share probably has remained unchanged or
declined slightly in recent years. A reduction in the
number of bilateral trade agreements and mounting
LDC dissatisfaction with previous countertrade deals
with Soviet Bloc countries largely explain this latter
trend.
Most countertrade deals with Western companies
have involved the export of basic commodities by the
LDCs. For example, the press has reported that
Jamaica has concluded a three-year agreement with
the General Motors Corporation exchanging refined
bauxite for motor vehicles. Kingston also bartered
alumina for Chrysler automobiles. According to pri-
vate surveys, the LDC products most commonly used
in countertrade are cotton, coffee, sugar, rice, iron
ore, bauxite, rubber, and oil
According to US Embassy and open source reporting,
nearly all OPEC oil producers have used or have
discussed using oil in countertrade deals, possibly to
? Barter involves the direct exchange of goods with-
out the use of any currency. The oldest form of
trade, it is now rare in its pure form and occurs
mainly between governments.
? In a counterpurchase transaction the exporter
agrees to purchase products back from the importer
up to and sometimes even exceeding the amount of
the sale. Normally, foreign exchange is involved.
There are two separate but linked transactions,
each paid for in cash. This appears to be the most
rapidly growing form of countertrade.
? Buy-back arrangements, sometimes referred to as
compensation, occur when an exporter agrees to
supply technology or plant equipment to be paid for
with products produced from that plant, usually
over a period of years.
? Offsets generally involve military or aerospace
deals where the seller enters into coproduction,
licensing, direct investment, or subcontracting in the
purchasing country.
Counterpurchase and barter relate mainly to com-
mercial transactions, while buy-backs and offsets are
longer term arrangements most often associated with
industrial contracts.
' Organization for Economic Cooperation and Development
(OECD); General Agreement on Tariffs and Trade (GATT).
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The OECD estimates that as much as 30 percent of
the trade conducted between LDCs and the Soviet
Bloc involves countertrade. This would amount to
about $7 billion of LDC exports last year. The most
important countertrade arrangement involves Soviet
acceptance of OPEC oil in lieu of cash payments for
some arms sales. Libya, for instance, according to
open sources, has an oil barter accord with the
Soviets whereby the Libyans provide oil in payment
for Soviet military equipment and other mantffac-
tured products. Since 1983, Moscow also has accept-
ed oil in payment for its weapon exports to Iraq.
According to Embassy sources the USSR received
approximately 37,000 b/d of Iraqi crude oil in 1983
in return for arms. For Moscow, these arrangements
almost certainly are a second-best solution, but, given
the financial constraints faced by these countries,
payment in commodities may be preferable to de-
layed cash payments.
Beyond OPEC, the USSR and other Soviet Bloc
countries have initiated a number of countertrade
agreements with LDCs:
? India, in addition to goods traded under bilateral
clearing account agreements, occasionally swaps
rice and other agricultural commodities for Soviet
oil.
? The Soviets have a seven-year contract with Jamai-
ca to exchange Lada automobiles and other goods
for Jamaican bauxite, according to US Embassy
reporting.
? The press has reported on Soviet assistance in the
development of a phosphate deposit in Morocco,
which is being repaid in phosphate rock. When
Morocco's shipments exceed specified amounts, it
receives Soviet oil, timber, potash, and nitrogen
fertilizers. Morocco also has a $50 million credit
facility with Czechoslovakia for machinery and
equipment, which is to be repaid with phosphate
rock.
The deals struck between the Soviet Bloc countries
and LDCs appear to have been driven by commercial
motivations rather than political factors. Many East
European nations, in fact, have turned to counter-
trade for the same reason-a lack of hard currency-
that has contributed to the rise in countertrade
among debt-troubled LDCs. While the countertrade
deals have afforded the Eastern Bloc countries an
opportunity to enhance their economic ties with cer-
tain LDCs, they probably will not provide the Soviet
Bloc much political leverage or access to restricted
technology. Few non-Socialist LDCs are heavily de-
pendent on Soviet Bloc trade or, for the present at
least, have strategic technology to offer the Soviets.
Moreover, according to East-West trade specialists,
Soviet Bloc countries pay cash for highly sought-after
goods rather than attempting to use countertrade. F
Many LDCs have expressed dissatisfaction with past
countertrade deals with Soviet Bloc countries. In
some cases, LDCs have been unable to identify
products they want to buy in exchange for their
goods. Malaysia, for example, has had problems
trading with Romania for this reason. According to
US Embassy reporting, Romania had wanted to
purchase 5,000 metric tons of Malaysian tin on
barter terms earlier this year, but the Malaysians
were expected to turn down the deal because of
difficulties in identifying Romanian goods for barter.
Last year the Malaysians agreed to buy urea from
Romania in exchange for crude petroleum. According
to diplomatic reporting, the urea shipment arrived
nine months late and was short-weighted 20 percent.
Similar problems with Soviet Bloc countries have
been reported by Ethiopia, Zambia, and Zimbabwe.
circumvent price agreements and quotas. For exam-
ple, according to press sources, the recent Saudi-
-Boeing-Rolls-Royce barter deal for 10 747s appar-
ently provides hefty commissions and an implicit oil
price discount arranged by shipping oil far ahead of
the aircraft delivery. Iran, Iraq, Libya, and Algeria
are frequently cited in the press as bartering oil in
exchange for imports. Nigeria, according to US Em-
bassy reporting, has agreed to swap $1 billion worth
of crude oil for Brazilian agricultural goods, automo-
tive parts, and aircraft.
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t-ontidential
Table 2
Key Debtor LDCs: Foreign Exchange Holdings, 1979-83
Million US $
Yearend
4,356
1,717
2,031
3,489
1,429
570
304
4,521
2,592
3,638
3,816
3,509
3,510
2,198
1,717
785
2,619
2,743
2,230
Although LDCs have, for the most part, provided
basic commodities in countertrade deals, they are
starting to push nontraditional exports. In a recently
signed agreement, for example, Brazil offered refrig-
erators and Volkswagen cars to Algeria for petroleum.
In our judgment, future countertrade deals are likely
to involve increasing amounts of nontraditional ex-
ports as LDCs use countertrade to foster their indus-
trial development.
Forces Behind Recent Growth
The financial problems of the LDCs are generally
considered to be the key force behind the recent
growth in countertrade. Many of the developing coun-
tries have been strapped for hard currency to pay for
needed imports. Cutbacks in trade financing have
compounded their difficulty in securing imports.
Faced with severe foreign exchange constraints,
LDCs have been forced to sharply curtail foreign
purchases and have sought ways to boost exports.
Countertrade is viewed by many LDCs as a way of
increasing their access to new, particularly Western,
markets while at the same time maintaining imports.
The LDCs also see countertrade as a way of diversify-
ing their exports-specifically, a way of increasing
their sales of manufactures. By tapping the marketing
expertise and sales networks of Western firms, the
LDCs can benefit from skills and services they them-
selves lack, such as packaging, advertising, credit, and
follow-on service. LDCs frequently require proof of
"additionality"-that the firm, in effect, is opening
up a new market or increasing the LDC's market 25X1
share at the expense of competitors, rather than
simply undercutting the LDC's own cash sales. For
example, according to press reports, Ecuador now
permits bananas to be used in countertrade deals only
if they are destined for new markets. With the
exception of bananas, Ecuador requires that nontradi-
tional goods be used in countertrade and restricts the
resale of these goods to third countries.
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Figure 2
Key Debtor LDCs: Trade Trends, 1979-84a
I I I I I I 1
50 1979 80 81 82 83 84b
a Semi-annual data seasonally adjusted at annual rates.
b Projected.
The nature of countertrade enables LDCs in many
instances to disguise export discounts. Although
counterpurchase contracts specify dollar values, the
prices can be arbitrary. For example, if a country
agrees to sell tin at the world price, but in the separate
contract for an imported good pays 20 percent over
what it would ordinarily have to pay, it has effectively
discounted the tin by 20 percent. By concealing price
cutting, LDCs believe they can offer some buyers
lower prices and thus increase sales without upsetting
other customers or traditional markets. Burying the
price discount of an export in an inflated import price
also provides LDCs an opportunity to unload surplus
goods at an implicit price below international agree-
ment prices for commodities such as coffee, tin,
rubber, and oil. Perhaps more important, the ability to
disguise price cutting enables LDCs to engage in
dumping of surplus export stocks on developed coun-
try markets without providing clear evidence for
antidumping measures.
Domestically, disguised discounting can have political
advantages. Discounting exports by padding the im-
port price has a similar effect to that of direct export
subsidies or of a devaluation. Unlike subsidies, howev-
er, which show up as a direct cost in the budget (and
draw the attention of the IMF and GATT), the costs
in a countertrade deal are hidden. Further, by estab-
lishing an individual rate of exchange between the
exported and imported goods, countertrade can serve
as a type of "selective devaluation" in countries where
a devaluation would meet strong political resistance.
In many developing countries, firms have resorted to
countertrade to get around import and foreign ex-
change restrictions. In some cases, LDC firms have
been able to circumvent import controls by demon-
strating that imports are self-financing. In Mexico,
for example, firms obtaining government approval for
a countertrade transaction are able to import goods
for which they might otherwise not have been able to
get import licenses or foreign exchange. In other
cases, Western firms, unable to get import licenses for
their LDC subsidiaries, have accepted local products
as payment for imports needed to keep their compa-
nies operating. General Motors, for example, accepted
countertrade goods in order to finance car parts
needed by its African subsidiary, according to the
financial press
Countertrade is also more common in LDCs where
there is traditional government interventionism. A
recent GATT study points out that officials often
believe countertrade provides more stability andfa-
cilitates planning. In addition to providing govern-
ments with greater control over trade flows, counter-
trade is viewed as a way to reduce trade deficits by
balancing trade on a transaction-by-transaction basis
just as a related mechanism, clearing account agree-
ments, balances trade on a country-by-country basis.
Further, large countertrade agreements are viewed as
a means to improve ties with other countries and
promote regional integration. Embassy reporting fre-
quently cites the use of countertrade to foster in-
creased regional trade, particularly within Latin
American trade associations.
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LDC government policies on countertrade vary wide-
ly. Only a few LDCs actually mandate counter-
trade-in most cases only for government contracts
or certain products. While some developing countries
have official guidelines, most of them sanction, en-
courage, or require countertrade on an ad hoc basis.
In the Far East, Indonesia began requiring counter-
trade for public-sector foreign purchases in 1982.
Malaysia began encouraging countertrade on a volun-
tary basis in late 1983. According to Philippine
officials, the Philippines considered countertrade reg-
ulations, but opposition by the Central Bank has
ruled out its adoption.
In Latin America, Costa Rica, Ecuador, and Mexico
have laws or guidelines governing but not requiring
countertrade. Colombia recently announced that cer-
tain "nonessential" goods can be imported only if
goods of equal value are exported. According to press
reports, Bolivia, Ecuador, Peru, and Venezuela have
asked the consultant who helped draft Colombia's
regulations to assist their trade ministries in formu-
lating countertrade policies. The press reports that
Argentina has been drafting countertrade require-
ments for several months. Brazil has been active in
countertrade-particularly involving oil imports-
but as yet has no formal requirements.
According to a recent private survey, five of nine
African countries examined were introducing coun-
tertrade regulations.
Economic Costs
A major drawback of countertrade is that it is
inherently inefficient. The costs of negotiating and
executing countertrade agreements are much higher
than for standard trade agreements because they can
be extremely complex and normally involve additional
middlemen and paperwork. Moreover, costs are fre-
quently incurred in negotiating deals that never pan
out. According to a countertrade specialist, only a
small fraction of the deals that are discussed or
publicized are actually completed. Even with a suc-
cessful countertrade deal, the LDC's trading partner
frequently accepts goods it ultimately does not want
and thus has to resell the goods, adding further costs.
According to a survey of US firms, 72 percent of the
goods obtained in countertrade deals had to be sold to
someone else. Additional costs are incurred in paying
commissions to trading houses, banks, and other firms
providing countertrade services. The same survey
indicated that, in most cases, part or all of these
transaction costs are passed on to the LDC by way of
a higher price for the goods being purchased.[
Reliance on countertrade may reduce the amount of
foreign exchange available to an LDC. The restrictive
and time-consuming nature of countertrade reduces
the number of possible transactions in a given time
period, while the LDC implicitly pays more for its
imports and receives less for its exports than it would
under conventional trade. Although some new
markets may be opened through countertrade, we
believe the products often merely replace traditional
cash exports. This is particularly true for primary
commodities since they are fungible and can be easily
rerouted to any market.
Moreover, while in the short run countertrade may
aid LDCs in promoting nontraditional exports, there
are longer run costs involved. Dependence on the
marketing skills of Western firms may prevent LDCs
from developing their own. Countertrade isolates the
LDC from market feedback that might encourage it 25X1
to produce more desirable, salable goods. In some
cases direct purchase of Western marketing services
may be less costly than those obtained through a
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Outlook and Implications
Despite the recent growth in the LDCs' countertrade,
it still accounts for a small fraction of their total
trade. The extent of future growth will depend largely
on whether the developing countries perceive the
actual economic costs and benefits of countertrade.
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In January 1982 the Government of Indonesia imple-
mented a law requiring any foreign company selling
goods to the public sector to import Indonesian
nonpetroleum goods of an equal value. The new law
came after rising import demand and falling exports
led to a deterioration in Indonesia's current account.
The requirement was billed as an export promotion
device and a response to protectionism in the indus-
trialized countries. With billions of dollars worth of
major public-sector projects in Indonesia, Western
firms considered it to be a lucrative and worthwhile
market.
Indonesia's countertrade requirements are quite
strict and include the following provisions:
? Proof of additionality: exports are required to be
over and above historical sales to that company or
country, and resale of exported goods to third
parties is prohibited.
? Exports must be chosen from a list of 30 Indone-
sian nonoil goods (although oil initially continued
to be used'in several cases).
? 50 percent nonperformance penalty: companies are
fined half of the value of the contract if they fail to
comply.
There are already signs that those with countertrade
experience are disenchanted:
? Embassy sources in Malaysia report that, despite
the personal interest of the Prime Minister, there is
considerable criticism of countertrade within the
bureaucracy and a general feeling that valuable
resources are being expended to accomplish very
little.
? After being one of the first LDCs to introduce
legislation allowing countertrade, Ecuador this year
moved to restrict deals involving its traditional cash
products. The Embassy reports that most deals were
falling through anyway as firms decided such com-
plicated transactions were not worth the trouble in
so small a market.
The program, which the Indonesian Government had
hoped would generate $2.5-4.5 billion per year in
exports, does not appear to have been a success.
According to the financial press, in the two and a half
years the program has been in place, only $765
million in contracts have been signed, of which only
20 to 30 percent have actually been completed. This
is partly due to the fact that Indonesia has been
flexible in implementing the program and has al-
lowed a number of exemptions. There was a further
slowdown in the signing of contracts in mid-1983
when the government delayed or canceled a number
of major projects. Indonesia's nonoil exports have
recovered somewhat, although this may be due main-
ly to the recovery in OECD import demand. Firms
report difficulty in securing delivery of large amounts
of Indonesian goods and proving additionality. In
spite of the poor results of the program, according to
press reporting, other ASEAN countries producing
similar goods fear that they may be losing export
sales because of Indonesia's countertrade policy.
Malaysia has countered with a "voluntary" counter-
trade program, and the Philippines have been study-
ing the Indonesian system.
? In Uruguay the US Embassy reports that the Minis-
ter of Economy and Finance deplored the trend
toward barter, commenting that the most recent
deal with Iran involved a mission of 25 persons to
Tehran for transactions that formerly could have
been done by telex.
? In a dramatic policy change, Indonesia, according
to US Embassy reporting, will no longer sell oil as
part of countertrade packages, thus eliminating a
mechanism under which crude oil was covertly
discounted.
? Zimbabwe, frustrated by countertrade deals with
Eastern Europe, has asked the Bulgarians to in-
crease trade on a cash basis.
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The current recovery in the OECD import demand-
in particular the sharp rise in US imports from the
Third World-may ease foreign exchange pressures
on LDCs, but several factors could still prolong the
growth of countertrade:
? A continued shortage of trade financing for LDCs.
? The widespread attention in the press and exagger-
ated claims of countertrade's share of world trade.
? The establishment of bureaucratic regulations and
agencies to deal with countertrade.
? The significant investments made by Western banks
and firms to establish divisions or new companies
that specialize in countertrade
Many Western businessmen, according to interviews,
believe that the debt problems responsible for the
expansion of countertrade will continue for some time,
that countertrade will become an institutionalized
method of trading, and that countertrade-although
not good for the world economy-is simply another
cost of competing for sales abroad. Beset by slumping
foreign sales, they have been more than willing to
accommodate LDC requests for countertrade and
now often even initiate countertrade offers in the hope
of clinching more sales for them.
In our judgment, countertrade warrants continued
monitoring because of the danger that it could be-
come a structural form of LDC trade as it is in the
Soviet Bloc. If so, the use of a costly practice such as
countertrade will make LDCs worse off economically
in the long run since LDCs implicitly require more
exports to pay for a given level of imports in a
countertrade deal than they would through conven-
tional trade. In addition, the bilateral nature of
countertrade poses a threat to the multilateral free
trade system. The hidden subsidy element of counter-
trade will have an overall negative effect on world
trade; subsidies, in general, distort trade flows since
products are not traded on the basis of comparative
advantage. Moreover, countertrade deals could foster
even greater government involvement in international
trade. Success in imposing countertrade on Western
firms, in particular, could encourage LDCs to intro-
duce other requirements on companies that want to
sell to them or invest in their country. Further, US
firms could lose market shares to more experienced
countertraders in Western Europe and Japan.
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Appendix
Countertrade:
Data Limitations and
Estimation Methodology
In our judgment, reports circulated in the financial
press that countertrade now comprises between 20
and 40 percent of world trade (in the range of $500
billion) and will reach 50 percent by the end of this
decade greatly overstate countertrade's current size.
The true extent of countertrade is very difficult to
determine because of the lack of data. It shows up in
customs figures as a normal trade transaction. Coun-
tertrade usually involves separate contracts between
the buyer and seller, and the parties usually consider
this information to be proprietary. Large agreements
are generally reported in the press, and, although this
anecdotal information can sometimes be useful, it is
impossible to determine when, or even whether, the
agreements are actually fulfilled. As a result, sum-
ming the stated value of these deals provides no real
indication of the level or growth of countertrade. A
major trading company claims only 2 percent of such
deals it examines actually are completed
Despite a lack of hard data, the OECD and GATT
estimate that countertrade probably accounts for a
maximum of 5 to 8 percent of world trade, respective-
ly. East-West countertrade has been studied fairly
carefully by the OECD and other organizations. Most
estimates indicate that countertrade comprises around
15 percent of East-West trade. The OECD believes
that countertrade accounts for as much as 30 percent
of LDC trade with the Soviet Bloc, and 5 percent of
the trade between the industrial countries and the
nonoil LDCs. Based on anecdotal information and
interviews with traders, we estimate that countertrade
accounts for at most one out of every five transactions
between LDCs. Despite a few well-publicized deals
such as the Saudi oil-for-aircraft agreement, it is
doubtful that a substantial amount of countertrade
takes place between the oil-exporting LDCs and the
West since oil payments almost always are made in
hard currency. Finally, given the lack of even anec-
dotal instances of countertrade between developed
countries, the OECD estimates it to be 2 percent or
less of their trade. By applying these percentages to
the value of each region's trade and summing we
arrive at a maximum plausible countertrade figure of
less than $100 billion, about 5 to 6 percent of world
trade last year.
Our confidence in this estimate of countertrade's
maximum share of world trade is bolstered by several
factors. A recent survey of US firms indicated that 4
percent of all the reporting firms' exports, and 8
percent of the major exporting companies' sales,
involved countertrade. Further, the British Depart-
ment of Trade and Industry estimates that counter-
trade affects less than 5 percent of Britain's trade.
25X1
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Table 3
Countertrade: Maximum Estimated Share of World Trade, 1983
Exports (billion US $)
Countertrade (billion US $)
Countertrade (percent)
Exports (billion US $)
Countertrade (billion US $)
Countertrade (percent)
Soviet Bloc
Exports (billion US $)
Countertrade (billion US $)
Countertrade (percent)
All countries
Exports (billion US $)
Countertrade (billion US $)
Countertrade (percent)
Industrial
Countries
LDCs
Soviet
Bloc
780.0
303.0
32.0
1,115.0
15.6
12.1
4.8
32.5
2.0
4.0
15.0
2.9
305.0
12.2
4.0
31.0
20.0
NA
51.0
4.7
6.0
NA
10.7
15.2
30.0
NA
21.0
1,116.0
485.0
55.0
1,656.0
32.5
50.5
11.7
94.7
2.9
10.4
21.3
5.7
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