There was a notable increase in the volume of

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There was a notable increase in the volume of countertrade after the Asian financial crisis of 1997. There are five distinct versions of countertrade: 1. barter 2. counterpurchase 3. offset 4. compensation or buyback 5. switch trading 1. Barter is a direct exchange of goods and/or services between two parties without a cash transaction. Barter is the most restrictive countertrade arrangement. It is used primarily for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy. 2. Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. 3. Offset is similar to counterpurchase insofar as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. The difference is that this party can fulfill the obligation with any firm in the country to which the sale is being made. 4. A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant’s output as a partial payment for the contract. 5. Switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement.
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A firm with a counterpurchase or offset agreement in a country often ends up with counterpurchase credits, which can be used to purchase goods from that country. Switch trading occurs when a third-party trading house buys the firm’s counterpurchase credits and sells them to another firm that can better use them.
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