The Need for a United States Countertrade Policy
Need for CountertradePolicy
The N eed for a United States Countertrade Policy
Marie J. Oh 0
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The Need for a United States
Countertrade is a form of international trade which involves
payment partially or in full with goods rather than with money.1 It is clearly
growing and becoming an increasingly important part of the
international business environment. More than sixty-one governments have
policies which encourage countertrade practices to some extent.2 Between
1980 and 1984, the value of countertrade between the United States and
Europe quadrupled, and the value of such arrangements between the
United States and Asia more than tripled.3 Although traditionally used
in East-West trade,4 recently countertrade has been spreading to Third
World trade transactions. Developing countries use countertrade as a
means of increasing their exports at a time when protectionism by
developed countries and falling international prices are creating huge trade
imbalances for them.'
Although many do not prefer to do business through countertrade,
trade experts have concluded that world economic conditions have made
countertrade a necessary financing mechanism for countries that cannot
pay cash for their imports. In order to trade with these countries and to
open up new markets in countries with limited resources, United States
companies must educate themselves about the advantages and drawbacks
of countertrade. Countertrade by United States firms raises a host of
legal issues, including the application of United States trade laws,
antitrust laws,6 and other federal regulatory concerns. 7 Countertrade
arrangements are subject to the application of United States trade laws.'
The current official United States government policy is sometimes
contradictory. Nevertheless, the Administration's opposition to
countertrade, especially government-mandated countertrade, seems to represent
the dominant position.
This Comment suggests that instead of opposing countertrade as an
impediment to multilateralism, the official policy should concentrate on
the practicalities of helping United States businesses who engage in
countertrade. Although the government and many members of the
business community do not like countertrade, the more flexible and
wellversed they become on countertrade and its ramifications, the more able
they will be to take advantage of the opportunities created by
countertrade and to steer clear of the potential pitfalls lurking therein. The
United States government may have some justification for remaining
fairly neutral with regard to voluntary arrangements and in opposing
countertrade if it is government-mandated. Yet the increasing popularity
of countertrade worldwide and the rising number of countries which
mandate countertrade suggest that the United States government should
reconsider its position and take affirmative steps to develop a cohesive
Administration policy to aid those United States firms who choose to
engage in countertrade transactions.
First, this Comment will define countertrade and discuss the reasons
for its expansion. Second, it will examine the present United States
policy, including the application of United States trade laws to countertrade.
Finally, it will conclude that the government policy should focus on
educating United States firms on the practicalities, the opportunities and the
problems created by countertrade.
6 A discussion of the application of United States antitrust laws to countertrade is beyond the
scope of this paper. For a discussion of this topic see McVey, Countertrade: Commercial Practices.
Legal Issues and Policy Dilemmas, 16 LAW & POL'Y IN INT'L Bus. 1, 45-46, 55-56 (
7 See id. at 35-56.
8 The warning comes from Commerce Department economist James Walsh. Administration
Opposes Forced Barter, CountertradeBut Not Voluntary Deals, 9 U.S. IMIOR'r WEtEt (BNA) No.
2, at 58 (Oct. 12, 1983) [hereinafter cited as Administration].
Countertrade encompasses the "entire range of practices whereby
one country requires another to purchase from it as a condition for
allowing that country to sell to it."9 Barter is the simplest form of
countertrade, but countertrade usually takes the form of more complex
arrangements.1l Most countertrade deals involve two or more contracts
that carefully describe the terms of the exchange. These agreements
generally involve a party who sells technology or goods to a buyer and in
turn contractually agrees to purchase goods equal in value to a specified
percentage of the original sales contract.1
At first, the main emphasis of countertrade was on East-West trade.
Communist countries have been using countertrade as a way of
circumventing the problem of their nonconvertible currencies, which hampers
their hard currency trade with developed countries like the United
States.' 2 In 1976, the United States Department of Commerce reported
that an estimated twenty-eight percent of East-West trade was
countertrade; the estimate rose to thirty-eight percent in 1981.13 According to
one expert, about fifty percent of all East-West trade currently involves
some form of countertrade.14
In this context, countertrade arrangements involve the extension of
credit by a Western bank or company to a government agency or state
bank within the Communist country. 15 The Western bank, which may
be a government entity such as the Export-Import Bank, provides the
Eastern trade partner with the initial capital to pay its Western trade
partners for the equipment, technology, and construction costs. 16 The
loans are then retired over several years in hard currency from the
Eastern partner's output or from specified goods stated in the contract.17 One
of the Western trading partners would typically handle the sale of the
goods in the West. 8
Despite its traditional use in East-West trade, in the 1980s a wide
variety of nations have made significant efforts to promote and expand
countertrade.' 9 This international expansion of countertrade has affected
North-South trade2 ° as well as other types of trade. Less developed
countries (LDCs) use countertrade to ensure export sales which help
their balance of trade and enables the LDCs to acquire the sophisticated
technology and industrial goods necessary to develop a domestic
manufacturing infrastructure. In this context, countertrade is a financing tool
which provides an alternative means of purchasing imports when
traditional payment forms such as cash or credit are unavailable' because of
foreign exchange shortages or low currency values.2 2 In addition to
spreading to North-South trade, the following list supplied by the United
States International Trade Commission (USITC) demonstrates the great
variety of nations which use countertrade: oil-poor developing countries
such as Israel, Jamaica, and Turkey; oil-rich developing countries such as
Indonesia, Malaysia, Mexico, and Saudi Arabia; newly industrialized
countries such as Korea and Singapore; traditional East European users
such as East Germany, the Soviet Union, Poland; and even developed
market economies such as Australia, Belgium, Canada, and Japan.2 3
A general characteristic of the various countertrade arrangements is
that countertrade stems from necessity.2 4 Although countertrade is
technically never forced upon companies because they have the choice of not
entering into the transaction, one party always acknowledges that if it
does not agree to some type of a barter deal, the whole transaction itself
16 Potter, East-West Countertrade:Economic Injury andDependence Under US. Trade Law, 13
LAW & POL'Y IN INT'L Bus. 413, 417 n.20 (1981).
19 USITC (1985), supra note 2, at vii.
20 Many Third World nations turn to countertrade because of balance of payments problems.
See generally Walsh, Countertrade: Not just for East-West any more, 17 J. WORI.D TRADi. L. 3
21 Transactions,supra note 1, at 679.
22 MeVey, Countertradeand Barter: Alternative Trade FinancingBy Third World Nations, 6
IN'r't. TRAwr L.J. 197, 197 (1980-81).
23 USITC (1985), supra note 2, at vii. See also id. at 123-38 for "Countertradc Policies and
Practices in Selected Countries."
24 GA7T Report, supra note 4, at 1071.
would fall through."
Barter is the direct exchange of goods or services without any
transfer of cash.2 6 In a barter transaction, the two parties determine the value
of the goods and/or services to be exchanged. 7 After the contracting
parties decide upon the quantity of the goods or services to be exchanged
and the delivery dates, each party fulfills its obligation.2 8 The time
period for a barter agreement is usually short, typically less than one year,
to avoid world price fluctuations favoring one party or another.2 9
Western firms rarely engage in pure barter, however, because of the difficulty
of exactly matching needs on both sides.3"
Counterpurchase links the value of exports and the value of imports
of unrelated products, transaction by transaction.31 In a
counterpurchase agreement, one party sells goods or services to the other
party and contractually agrees to make a reciprocal purchase of generally
non-resultant products. This means that the counter-delivered goods are
not a product of the supplied technology but are often raw materials or
light manufactured items.3 2 The reciprocal purchase obligation, which
the Western company must generally fulfill within one to five years, is
usually for an amount less than one hundred percent of the original sale
value.3 3 Some transactions, however, stipulate that the reciprocal
purchase obligation equal or even exceed the original value of goods
supplied, in which case the seller takes the full contract price plus interest
with the goods to be marketed in the West.34
Counterpurchase agreements benefit both developing and developed
countries. 35 Developing countries especially use counterpurchase to
minimize their balance of payments deficits.3 6 Some countries require
counterpurchase when their state oil bodies negotiate contracts: Algeria,
Indonesia, 37 Iran, Libya and Nigeria are examples.3 Developed
countries use counterpurchase as a means to boost exports to foreign markets
where foreign exchange shortages exist.39
Unlike counterpurchase agreements which link exports and imports
of unrelated products, compensation (or buyback) agreements link
exports and imports of related products.' The total monetary value of a
compensation transaction is often much higher than the total monetary
value of a counterpurchase transaction."a In such an agreement, the
Western trading partner exports the machinery and technology needed to
build a plant.4 2 In return, the Western supplier receives, over the term of
the bilateral contract, payment in the form of a predetermined amount of
the resultant output.43 The goods are often produced according to the
Western supplier's designs and may be incorporated into products which
the Western supplier himself produces.' A more complicated
compensation arrangement involves exports of services, both managerial and
technical, financed by export credits, repayable in resultant output.45
Yet another type is called a "develop-for-import compensation
arrangement" which involves exports of equity loans repayable in related output,
usually equal to a share of equity held.46
Compensation arrangements involve greater costs and risks for the
Western supplier than either counterpurchase or pure barter
tions.47 The main reason for the greater risk is that compensation
agreements are long-term arrangements which entail transferring complex
technology and setting up entire facilities for production.48 Also,
compensation agreements generally run from five to twenty years or more,49
while counterpurchase deals typically continue for shorter periods." In
addition, the reciprocal purchase commitment is often one hundred
percent or more of the original contract value."
Despite the risks, compensation agreements can be advantageous for
both developed countries, as well as developing countries. Developed
countries that have a policy of assuring stable supplies of essential
imports use import compensation arrangements.5 2 In addition to ensuring
the long-term supply of critical raw materials or manufactured goods to
developed nations, compensation agreements also provide substantial
sales of equipment and production facilities to the LDCs5 3 Another
advantage of compensation arrangements is that they can preserve or
increase a company's competitive edge. Finally, compensation agreements
may permit a Western company to manufacture goods in nations where
labor is cheaper than labor in the Western company's own country. 4
Despite these benefits, compensation arrangements sometimes face
heavy criticism in the West, especially by the Western unions which
charge that such transactions export Western jobs to the East.55 Some
business executives argue that products received in compensation are
often dumped on Western markets. They assert that these products
erode the profit margins of Western manufacturers of the same products
and thereby threaten their existence. 6
On the other hand, Eastern European nations and the Soviet Union
favor compensation or buyback arrangements in which the products that
are traded form the payments for one of the parties. 7 The main
incentive behind compensation trading for Eastern European nations is their
desire to exploit the marketing networks of the West. 8 The best-known
example of a compensation agreement is the Soviet gas pipeline deal
between several European countries and the Soviet Union.59 The European
countries agreed to supply technology, equipment, and capital to the
Soviet Union for the Soviets to build a transcontinental pipeline between
Siberia and Western Europe. The Soviet Union in return agreed to sell
the European countries natural gas from the pipeline.
Offset is another type of countertrade.60 Offset arrangements have
barter-like components because they involve forced technology transfer
or co-production in return for buying products from the supplier.6 1
Industrialized countries commonly use offset for the specific purpose of
aircraft and military-related procurement.62 A typical offset arrangement
may involve either subcontracting, licensing production in the buyer
country, or buying goods and services in return.63
Countertrade can also take the form of bilateral clearing agreements
(sometimes called Evidence Accounts). Bilateral clearing agreements are
arrangements between two parties in which purchases are automatically
credited against a company or a country's sales." The parties involved
in these agreements usually have foreign exchange controls and shortages
of foreign currency.6" They enter into a bilateral agreement to exchange
goods and/or services over a specified time period, commonly one year.6 6
Each party provides a list of what it offers for trade, and each country's
foreign trade bank keeps a ledger in which it records credits and debits in
accounting units stated in terms of currency.67
For transactions outside the Eastern bloc, the value of the goods is
measured in a hard currency like the Swiss franc or the United States
dollar.6 8 For transactions within the Council of Mutual Economic Aid
(CMEA) countries, the value of goods is measured in "transferable
rubles." 6 9 If a country does not purchase enough goods to balance its
accounts within the set time limitation, it receives clearing credits.7 0
Although stated in terms of currency, clearing credits cannot be
redeemed for currency." 1
To use these clearing credits, the country or company with the
surplus clearing credits must resort to "switching" all or part of its clearing
account to an interested third party at discounted prices.72 This process
is called switch trading. The third party is often a switch trading house
which uses the credits to buy goods from the country in deficit.7 3
Through a complicated series of deals, often involving barter, the switch
trading house obtains goods that can be sold for much-desired hard
currency. After deducting a sizable discount for its efforts, the switch
trading house transfers the hard currency proceeds to the party with the
original account surplus.7 4
Most Third World countries have bilateral clearing arrangements. 75
Although the LDCs usually engage in bilateral clearing arrangements
among themselves, some LDCs have such arrangements with more
developed Eastern bloc countries. 76 In addition, two members of the
Organization for Economic Development (OECD) have bilateral clearing
arrangements: France has special arrangements with its former colonies,
and Greece has a bilateral clearing arrangement with Iraq.77
The use of countertrade has risen dramatically over the last several
years. More than eighty-five countries now initiate countertrade.7 8 Each
year from 1981 to 1984, the number of countertrade transactions grew by
50, 64 and 117% respectively.79 Estimates of countertrade as a total
percentage of world trade vary widely, as the following figures illustrate.
According to one source, countertrade represents about one-third of the
world's commerce, approximately 700 billion dollars.8" On the other
hand, a GATT economist estimates that countertrade represents a
maximum of five percent of total international trade.8" The International
Monetary Fund (IMF) estimates an even lower figure, only one percent
of total world trade.82 By the year 2000, one-half of all world trade will
involve some kind of countertrade, according to a Commerce
Department estimate. 83
It is difficult to determine what effect the worldwide growth in
countertrade has had on United States trade. The exact dollar value of
United States trade affected by countertrade cannot be determined
because United States firms are not required to report this information.84
Furthermore, an estimated seventy-two percent of the countertrade
goods "never reach the United States but are disposed of through
overseas affiliates and subsidiaries.""
Ninety-six percent of the participants in a recent National Foreign
Trade Council survey said that they expected the use of countertrade to
continue.8 6 The United States exporters cited world economic
conditions, lack of foreign exchange, the debt position of developing countries,
export expansion, and the need for technology transfer and economic
development as reasons for the continued use of countertrade.8 7 Changes
in international economic conditions within the last fifteen years have
brought about hard currency depletions for many countries.88 A rapid
rise in the cost of key imports, such as energy, has greatly depleted
supplies of hard currency that countries need to pay for imports and to meet
expanding needs.89 In addition to the countertrade initiator's scarcity of
foreign exchange, the additional opportunity for that country to acquire
80 L. WELT, supra note 64, at 1-2.
81 Suro-Bredie, U.S. Government Views on Countertrade in COUNTERTRADE AND TRADING
COMPANIES: TRADE TRENDS IN THE 80'S 10 n.2 (P. Ehrenhaft chair 1984).
82 Id. at 10 n.3.
83 Welt, supra note 13, at 2.
84 Suro-Bredie, supra note 81, at 10.
85 NFTC. supra note 78, at 499. This statement is from W.A. Bussard, director of NFTC's
countertrade project which conducted the survey of 110 United States exporters.
88 McVey, supra note 22, at 197.
89 Id.at 197-98.
desired imports makes countertrade appealing.9° Countertrade also
facilitates export expansion by concealing the decrease in price from creditors
and existing customers.9 1
In addition to increased Western trade with both nonmarket
economies (NMEs) and LDCs, the rising use of countertrade can be attributed
to its use as a financing tool for one or both of the parties to the
transaction.9" Difficulties in obtaining short-term export financing have
compelled many heavily indebted developing countries to use countertrade. 9 3
Countertrade presents an important alternative to paying cash for
imports, whenever increasing amounts of foreign exchange are required for
servicing foreign debt.94 Countertrade has also been used as direct
payment to compensate for any discrepancies in the exchange value of
imports and exports.9 5
Several factors add to the financing problems of developing
countries experiencing balance of payments difficulties. World recession
exacerbates the hard currency position of Third World countries because it
leads to lower commodity prices and thereby reduces foreign exchange
earnings for many developing countries. 96 The tightening of
underwriting conditions on trade-credit insurance provided by the Foreign Credit
Insurance Association (FCIA) to United States exporters has been
another aggravating factor.9 7 In addition, protectionist "import relief'
measures in the United States and other Western industrialized countries
aim to protect key domestic industries and their respective labor forces
from lower-priced Third World imports. 98
Experts predict a continued rise in countertrade as a means of
dealing with the foreign debt problem.99 Countertrade appeals almost
equally to both developing countries short of cash and to the
international banks wary of extending them credit."° Therefore, although
countertrade can be costly, Western companies have found that it can
provide an appropriate financing tool in cases where it has been
estimated that cash or credit payment is impossible to arrange. 10 1
UNITED STATES POSITION ON COUNTERTRADE
Current Government Position
Current Official Policy
Although in practice, United States government departments and
agencies may sometimes take inconsistent policy stances regarding
countertrade, the Administration does have an official position on
countertrade. Officially, the United States government sees countertrade
as a distortion of free trade and contrary to the best interests of the
contracting parties in the long run.102 Although the United States
government would be neutral to a countertrade transaction "voluntarily agreed
to between two parties," 0 3 it views countertrade as "'costly,
cumbersome and restrictive.' ,m Companies must increase their prices by
approximately ten percent in order to complete such transactions.10°5 As a
general rule, the United States government finds countertrade acceptable
if it "reflects market forces," and involves the swapping of goods for
goods, each valued at market prices. 106
The Office of the United States Trade Representative (USTR)
recently described the United States government position on countertrade:
1. The U.S. Government generally views countertrade as contrary to an
open, free trading system. However, as a matter of policy, the U.S.
Government will not oppose U.S. companies' participation in
countertrade arrangements unless such action could have a negative impact on
2. The U.S. Government will provide advisory and market intelligence
service to U.S. businesses, including information on the application of
U.S. trade laws to countertrade goods.
3. The U.S. Government will continue to review financing for projects
containing countertrade/barter on a case-by-case basis, taking account
of the distortions caused by these.
4. The U.S. Government will continue to oppose government-mandated
countertrade and will raise these concerns with the relevant
101 See Transactions,supra note 1, at 679.
102 p. VERZARIU, INT'l. TRADE ADMIN., U.S. DEP'T OF COMMERCF, INT'L COUNTERTRADE: A
GUIDEl FOR MANAGERS AND EXECUTIVFS, at iii (
103 Administration, supra note 8, at 58.
104 This quote is from Commerce Department economist James Walsh. See also Verzariu, supra
note 102, at iii.
5. The U.S. Government will participate in review of countertrade in the
International Monetary Fund (IMF), the Organization for Economic
Cooperation and Development (OECD), and the General Agreement
on Tariffs and Trade (GATT) ...
6. The U.S. Government will exercise caution in the use of its barter
authority, reserving it for those situations which offer advantages not
offered by conventional market operations.107
In the late 1970s and early 1980s, countertrade became less
responsive to market forces than countertrade arrangements had been during
the early 1970s. 10 8 The Organization for Petroleum Exporting Countries
oil embargo, concurrent material shortages of the early 1970s and slower
world economic growth are among the factors causing the shift to less
reliance on market factors. °9 The combination of these factors has led
developing countries to protect their balance of payments by mandatory
counterpurchases, and developed countries to boost exports with mixed
credits and soft loans tied to buyback agreements. 110
The United States government strongly opposes foreign government
policies that impose mandatory countertrade requirements because it
takes the position that such practices are "economically inefficient and
impede the free flow of trade and investment.""' The United States
government is concerned that "mandated countertrade may generate
excess world productive capacity in certain products.""' As a result, the
United States follows the policy of asking foreign governments which
require countertrade for consultations. 1 3 For instance, along with the
governments of other industrial countries, the United States government
has made strong "representations" to the Indonesian government
protesting its 100 percent countertrade requirement for government
procurement contracts over $750,000. 11 Countertrade is becoming increasingly
mandated by foreign government legislation. The Commerce
Department estimates that as many as seventeen countries require a
counter107 USITC (1985), supra note 2, at 68-69. The USTR description came in testimony before a
subcommittee of the House Committee on Banking, Finance and Urban Affairs. Id.
108 Walsh, supra note 20, at 10.
110 Id. at 11.
III McVey, supra note 6, at 64. Quote is from James Walsh, a countertrade generalist in the
Commerce Office of Trade and Finance.
112 U.S. Continues to Oppose Mandated Policies, But Will Provide Information, Official Says, 2
INT'I. TRADwi Riw. (BNA) No. 24, at 797 (June 12, 1985) [hereinafter cited as Infornation].
Statement is by Carmen Suro-Bredie of the USTR's Office.
113 U.S. Firms,supra note 61, at 389. According to Commerce Department economist Walsh, the
United States government has held consultations with Mexico, South Korea, Brazil and Indonesia.
Administration. supra note 8, at 58.
114 Administration, supra note 8, at 58.
trade commitment as part of any trade transaction with them.' 15 The
United States government believes that-government-mandated
countertrade is especially discriminatory to small businesses, since only larger
multinationals can afford to set up in-house countertrade units or hire
the lawyers, and market and financing experts necessary to manage such
Ambiguities in Government Position
Despite the United States government's professed opposition to
countertrade, especially government-mandated countertrade, its
competing objective of "gaining a broader multilateral consensus on problems
caused by countertrade," 7 makes it unlikely that the United States
government will take a country mandating countertrade before the General
Agreement on Tariffs and Trade (GATT)." 8 An interagency group
developing a policy on countertrade and barter suggested that as a matter
of policy, the United States government will not oppose United States
companies' participation in countertrade arrangements unless the
participation could have a negative impact on national security." 9
Countertrade by the federal government
The federal government's response seems even more confusing given
its stance that it will neither encourage nor discourage countertrade deals
which private firms negotiate without government interference. 120
According to the Assistant Secretary of Commerce for Trade Development,
countertrade is economically inefficient, but the federal government
should not interfere with the ability of a United States business to engage
competitively in international trade.' In fact, the federal government
itself has engaged in a number of forms of countertrade for years. Barter
programs have traditionally been used to facilitate trade in products that
were hard to export, to acquire strategic materials, and to establish trade
relations with countries which were forced to barter because of a
shortage of convertible currency. 122
115 Grabow, supra note 12, at 262 n.21.
117 Id. Statement is by Suro-Bredie, Director of North-South Affairs in the Office of the USTR.
118 U.S. Firms,supra note 61, at 389.
119 Countertrade: Indonesian Official Explains Linkage Policy, U.S. Government in Opposition, 9
U.S. IMPORT WIHFKLY (BNA) No. 4, at 161 (Oct. 26, 1983) [hereinafter cited as IndonesianOfficial].
120 P. VERZARIU, supra note 102.
121 McVey, supra note 6, at 64.
122 Note, Bauxitefor Butter The U.S..JamaicanAgreement and the Futureof Barter in U.S.
Trade Policy, 16 LAW & PoI.'Y IN INT'L Bus. 239 (
Interest by the United States Department of Agriculture has been
reviving recently in the United States Barter Program. For instance, in
January of 1984, the Department of Agriculture signed the third major
bilateral transaction with Jamaica under which the United States
exchanged surplus dairy products, metals and cash for Jamaican bauxite. 12 3
The Department of Defense also engages in forms of countertrade. It
often uses offset countertrade arrangements in which it requires foreign
suppliers to try their best to hire subcontractors from the United States
and to buy components from United States firms.12 4
Federal government assistance
In addition to engaging in some forms of countertrade itself, the
federal government also provides limited assistance to United States
firms that want to engage in countertrade. Despite its continued
opposition to government-mandated countertrade and any deals that affect
national security, the United States government will give limited help to
United States entities that want to learn about the countertrade
requirements of foreign governments which mandate countertrade.125 Although
the Commerce Department has previously made its assistance available
to United States firms wishing to engage in countertrade, it has not been
very open about the availability of such aid.' 2 6 The Commerce
Department seems to be increasing its awareness that countertrade is "becoming
part of the reality of the market, and governments will continue to
require it, and economic conditions make it likely to continue for many
years to come .... We are advising companies, as to what they are
facing in other countries."' t 27 Yet the Commerce Department is quick to
point out that the purpose of the federal government assistance is not to
educate a firm on the mechanics of successfully negotiating and
completing countertrade transactions. 12 8 Instead, it believes that companies
must use private sector experts and consultants for that purpose.' 29
Trying to determine the true Administration policy on countertrade
123 Id. at 241-42.
124 McVey, supra note 6, at 65.
126 See Indonesian Official supra note 119, at 161. Only a few years ago, one of the government's
few experts on countertrade said that "we don't go out and advertise" the existence of such
Commerce Department assistance. Id.
127 Information, supra note 112, at 797.
is difficult, given various departments' stances on the subject. The extent
to which the government will get involved is unclear. In addition to the
Commerce Department's view stated above, the Treasury Department
advocates free trade with traditional cash sales. 30 In the view of the
Treasury Department, forced countertrade is contrary to an open free
trading system and detrimental in the long-run to the United States as
well as developing countries. As a result, the United States government
is trying to think of ways to oppose mandated countertrade such as that
which Indonesia imposes.13 1 But the desire for free trade and the
resulting opposition to such countertrade deals is tempered by the concern that
the business will slip to other countries' firms.1 3 The practice of
requiring foreign companies to transfer technology or manufacture their
products in the country to which they are selling is becoming widespread in
industrialized nations as well as developing countries. 13 3
From the viewpoint of the Department of State, barter is "inefficient
and potentially harmful to U.S. foreign relations,"' 134 for the following
First, barter is inefficient compared to cash transactions because of the
additional cost of locating a suitable trading partner.
Second, by masking the price of a transaction, barter may be used to take
advantage of a less sophisticated trading partner or to conclude a sale at a
price lower than a party is willing to openly acknowledge.
Third, barter bypasses the government appropriations process and thus, in
effect engages the government in speculation in commodities futures.
Fourth, sales from the . . . strategic stockpile ... can have a seriously
disruptive effect on international markets by displacing the exports of other
nations. This is especially undesirable when the affected country is a
developing country with which good relations are important. Finally, barter
may violate the GATT if it is the equivalent of dumping or subsidizing our
From the viewpoint of the Customs Service, nothing is inherently
wrong with countertrade. 36 Yet it cautions companies importing
countertraded goods into the United States against violating United
States law. 137 One reason for this caution is that "with all the secrecy
surrounding much of countertrade, and its dramatic rise in world trade,
130 Barter Becomes Big Business in World Trade, N.Y. Times, July 26, 1981, at F15, col. 1.
131 Indonesian Official, supra note 119, at 161.
134 Note, supra note 122, at 257.
135 Id. at 257 n.125.
136 U.S. Firms,supra note 61, at 389.
the threat of fraud may be growing, too."'1 38 The ways an importer of
record can get into trouble with Customs include giving false
informations and failing to disclose information if a countertrade product is later
determined to have been undervalued. 139 The Customs Service has the
legal right to know what kind of transaction is occurring because that
information may be important in determining the value of the imported
goods. 14 0
It is difficult for an importer to determine the value of countertraded
merchandise. Section 402 of the Tariff Act of 1930, as revised by the
Trade Agreements Act (Section 402), regulates the valuation of goods
entering the United States.' 4 ' Five methods--one primary method and
four secondary methods---determine customs value. 4 2 The primary
method equates the customs value with the transaction value of the
imported merchandise, the price actually paid or payable for the
merchandise when sold for exportation to the United States with certain
adjustments. 14 3
According to Section 402, when the transaction value is unavailable,
Customs officials must consider secondary valuation methods in a
predetermined order."44 The first alternative is to use the previously
accepted and adjusted "transaction value of identical merchandise"' 141 sold
for export to the United States and exported at approximately the same
time as the goods being valued.' 46 The next alternative is to use the
"transaction value of similar merchandise."' 4 7 If these three value
standards are inapplicable, the customs value is determined on the basis of
deductive value14 8-a price determined depending upon when and in
what condition the merchandise concerned is sold in the United
Statesor computed value' 49 -a sum which includes the cost of materials and
processing, an amount for profit and general expenses, and provisions for
a few other costs-in that particular order, unless the importer chooses
to reverse them. 50 If none of the five methods work to determine a
value, Customs officials may base a value, on any one of those methods
with reasonable adjustments.1 51
Applying the transaction value to countertraded merchandise is
difficult.15 2 If a transaction is not considered to be a sale, then the
transaction value cannot apply and a secondary means must be used to
determine dutiable value1. 5 3 Although transaction value could apply in a
pure barter transaction by stipulating terms in the contract, transaction
value may not apply where the imported goods are part of a more
complicated countertrade transaction than pure barter, such as a
compensation deal. Yet often the same circumstances which necessitate
structuring a transaction without any money changing hands also
eliminates the usefulness of secondary valuation methods.15 4
Because of these difficulties in valuing countertraded merchandise in
complex countertrade transactions, the potential for customs fraud
through the under-or-over-valuation of goods looms large.1 55 One expert
on countertrade has stated that "[t]here's a lot of dumping going on...
the problem is the government has not been able to put its hands on it
because it is not continuous dumping; it's dumping once or twice."1 56 To
address this potential problem, the United States Custom Service is
making a major effort to monitor countertrade. As a result, it is advisable for
companies that have questions about the end value of a countertraded
good to submit a written request for an opinion to the Office of Rulings
and Regulations at the United States Customs Service.157
In addition to various Executive agencies espousing different views
on countertrade, Congress has also acted on matters relating to barter
and countertrade. It has enacted several pieces of legislation which
permit the President or Secretary of Agriculture to barter or exchange
privately-owned agricultural commodities or Commodity Credit
Corporation (CCC)-owned commodities for strategic and critical
materials produced abroad, or for services and supplies which United States
151 19 U.S.C.A. § 1401a(f) (West 1985 Supp.); See also Abbey, supra note 143, at 59.
152 Abbey, supra note 142, at 60.
156 Difficulties in Marketing Products May Result in Dumped Goods. Conference Told, 9 U.S.
IMPORT WEEKLY (BNA) No. 2, at 74 (Oct. 12, 1983) [hereinafter cited as Difficulties]. The warning
comes from Leo Welt, president of Welt International Corp. at a New York Chamber of Commerce
seminar on barter and countertrade.
157 Replies can be expected within ninety days. The address is 1301 Constitution Ave., N.W.,
Washington, D.C. 20229. U.S. Firms,supra note 61, at 389.
2. Application of United States Trade Laws to Countertrade
While the GATT says little about countertrade, the more pressing
threat comes from the application of United States trade laws to
countertrade goods.'8 6 An attorney advising a United States exporter must note
at the outset that no United States statute directly addresses
countertrade. Furthermore, United States trade laws do not distinguish between
countertrade imports and cash sale imports resulting from conventional
trade contracts."8 7 Although domestic manufacturers and the United
States government have brought very few cases even when countertrade
deals have been proliferating, a countertrade transaction is not immune
from the trade rules.' 8 Thus, a United States exporter must be alert to
laws which domestic manufacturers may use to seek relief from the
exporter's countertraded imports and which thereby jeopardize the
exporter's investment in a countertrade agreement. Although United
States exporters are generally familiar with United States export laws,
they often lack knowledge and experience with United States import laws
and consequently are in danger of missing the possible legal violations
applicable to a countertrade transaction.' 89
The main United States trade laws which apply to a countertrade
transaction are the Antidumping Law,' 90 the Countervailing Duty Law
(CVD),' 9 ' Escape Clause,'9 2 and the Section 406 Market Disruption
Statute.' 93 These trade laws apply to all United States import
transactions, not just those connected with countertrade. The laws take on
special importance in countertrade transactions because countertrading
companies often need to sell large quantities of sometimes undesirable
products in a short period of time. 9 This burden in turn results in
pressures to sell countertrade imports at very low prices in the United States
or in a foreign market.' 95
The Antidumping Law aims to stop private unfair trade practices by
186 U.S. Firms,supra note 61, at 389.
187 ITC COUNTERTRADE ANALYSIS, supra note 60, at viii.
188 U.S. Firms,supra note 61, at 389.
190 19 U.S.C.A. §§ 1671-1677h, (West 1982 & 1985 Supp.).
191 19 U.S.C.A. § 1671-1677h (West 1982 & 1985 Supp.)
192 19 U.S.C.A. § 2251 (1985 Supp.).
193 19 U.S.C. § 2436 (1982).
194 McVey, supra note 6, at 36.
preventing discriminatory export pricing.' 9 6 Subtitle IV of the Tariff Act
of 1930, as amended, imposes a special assessment duty on products sold
in the United States at less than fair value, defined as less than the
amount the foreign manufacturer charges for the same goods in the home
market.19 7 This practice is called underselling.19 8 The special duty is
assessed in addition to all regular duties which the law imposes if the sale
of such products cause or threaten material injury' 99 to a United States
industry, or materially retard its establishment.2 "0 If the Secretary of
Commerce finds that the merchandise is being sold at a dumping price in
the United States, and the International Trade Commission (ITC) finds
material injury or threat thereof, or material retardation of the
establishment of an industry, then the Secretary issues an "Antidumping Order,"
ordering the assessment and collection of special dumping duties by
United States Customs officers at ports of entry.2"'
To determine the existence of dumping, the Antidumping Law
specifies the criteria used to compare the "foreign market value" and the
United States price. Especially pertinent for countertrade is the special
rule2"2 for determining the domestic value of the NME exports in
antidumping cases.2" 3 The antidumping administrators may use either the
domestic or export prices charged by producers in a free market
economy 204 for similar products, or the constructed value of similar goods
196 Baker & Cunningham, supra note 173, at 383.
197 19 U.S.C.A. §§ 1671-1677h (West 1982 & 1985 Supp.).
199 Liebman, supra note 183, at 216-17. "Material injury to an industry does not have to
necessarily occur at a nationwide level. The Commission is authorized to divide the United States into
separate product markets if producers within those markets sell almost all of their product within
their market area and the demand in the market is not supplied to any substantial degree by
producers located elsewhere in the country. In such an instance material injury or the threat thereof could
be found if there is a concentration of dumped merchandise into an isolated market." Id.
200 Dumping Duties, [Reference File] INT'L TRADE REP. (BNA) No. 49, at 37:0102 (Sep. 19,
1984) [hereinafter cited as Dumping Duties].
202 The special rule does not explain which countries are to be considered "state-controlled
economies." Baker and Cunningham, supra note 173, at 386. The only guideline it gives is that the rule
applies wherever a country's economy is "state controlled" to an extent that sales or offers of such or
similar merchandise in that country or to countries other than the United States do not permit a
determination of foreign market value by the regular methods set out in 19 U.S.C. § 1677b(a) (1982).
203 19 U.S.C. § 1677b(c) (1982).
204 Prices are to be determined from those in a market economy "at a stage of economic
development comparable to the state-controlled-economy country from which the merchandise is exported."
19 C.F.R. 353.8(b)(1) (
). See Baker & Cunningham, supra note 173, at 386. The regulations
permit the use of prices and constructed value in "noncomparable" free-market countries only if a
comparably developed country cannot be found. 19 C.F.R. 353.8(b)(2) (
). The prices and cost
must be "suitably adjusted for known differences in the costs of material and labor." Id. Finally,
when no other option remains, antidumping administrators are to use the market price established
produced in a comparably developed free-market-country as defined in
the regulations.2 °5 The preferred method of determining the home
market price of the NME good is the domestic price charged in a comparably
developed free market economy country.20 6
For those firms involved in countertrade with NMEs, the sweeping
discretion conferred on the administrators of the antidumping laws
causes great uncertainty. The broad administrative discretion mainly
comes in the form of the United States Commerce Department's ability
to reach its desired result by characterizing as not-comparable those
home-market prices that are too high or too low and thereby excluding
them.20 7 The key to NME antidumping cases is to decide "which
freemarket country is comparable to which NME.' ' 218 This decision is often
subject to political discretion, as the case of Electric Golf Carsfrom
Poland demonstrates. 20 9 Initially, Polish costs were compared with those of
a Canadian manufacturer.2 10 Then, five years later after much protest,
the Polish costs were compared with Spanish costs, but the case was
eventually dropped "in light of changed circumstances" for failure to
show material injury.2 11 In this case, administrative discretion benefitted
the NME exporter because the Polish manufacturer ended up
undercutting United States prices without suffering any dumping liability.21 2
Although there have been dumping investigations involving imports
from a Communist country, only one has involved a countertrade
contract. In Truck TrailerAxlesfrom Hungary2,1 3 the Commission found in
a preliminary investigation that truck-trailer axles from Hungary
materially injured United States truck-trailer axle producers by sale of axle and
brake assemblies at less than fair value.214 To determine the fair value of
the axle-and-brake assemblies, the Commission compared the United
States price, as determined by the purchase price, with the foreign
market value, as determined by the constructed value of such or similar
merchandise in a " 'non-state-controlled,' or free market country." 5
Because a settlement was reached between the parties, no final valuation
took place and no dumping duties were assessed.2 16
From the perspective of domestic industries seeking relief, the
Antidumping Law has failed to prevent countertrade injuries.2 17 The
domestic industries opposing countertrade claim that the marginal pricing
prevalent in countertrade agreements generally will not violate the
antidumping standards. They also see the Commerce Department's lack of
a method to calculate the value of the reciprocal contract as a further
inadequacy. 8 In the opinion of some domestic producers, then, the
antidumping laws operate largely in favor of NMEs.
There are, however, arguments to counter the dumping complaints.
It is commonly believed that the United States party engaged in a
countertrade deal may face the temptation to dump the countertrade
imports and therefore be subject to the imposition of antidumping duties.
Yet, countertrade is often conducted at market prices, and goes through
"market channels" without any "big discounts. '21 9 One way to avoid
the potential problem of dumping complaints might be to sell goods
bought under a counterpurchase agreement in markets outside the
United States where markets for the goods from a particular
countertrading country may already exist.220
Countervailing duty law
The Countervailing Duty law (CVD) 221 complements the
Antidumping Law by providing a penalty for another often-used foreign
unfair trade practice, the foreign subsidization of exports.2 22 The CVD Law
imposes an additional duty on an imported product equal to the amount
of net subsidy when the Secretary of Commerce determines that a
country or citizen is providing, directly or indirectly, a subsidy of the
manufacture, production or exportation of merchandise imported into the
215 Id. at 46, 153.
216 ITC COUNTERTRADE ANALYSIS, supra note 60, at 36.
217 Baker & Cunningham, supra note 173, at 387; Potter, supra note 16, at 426.
218 Baker & Cunningham, supra note 173, at 388.
219 Difficulties, supra note 156, at 388. Statement of George Horton, senior vice-president of
Metallgesellschaft Services, a firm which arranges countertrade transactions.
221 19 U.S.C.A. § 1671 (West 1982 & 1985 Supp.).
222 CountervailingDuties, [Reference File] INT'L TRADE REP. (BNA) No. 49, at 40:0101 (Sep.
19, 1984) [hereinafter cited as CountervailingDuties].
United States.2 23 With a few exceptions, the International Trade
Administration (ITA) of the Department of Commerce must also determine
that an industry in the United States is materially injured, threatened
with material injury, or its establishment is materially retarded by reason
of imports of such merchandise.2 24 Unlike antidumping duties, which
always require a showing of "material injury" to a domestic industry,
CVDs "do not require proof of material injury in the case of subsidized
exports from countries which (i) are not parties to the GATT code on
subsidies, (ii) have not otherwise made an appropriate commitment
directly to the United States . . .or ('iiha)ve not received unconditional
[most-favored nation] (MFN) status," (such as Venezuela).225
Consequently, with regard to some NMEs and LDCs, no material injury need
Nevertheless, the CVD Law has not been easily applied to imports
from NMEs or LDCs. The Commerce Department's 1984 landmark
decision-that CVD Law cannot be applied to imports from NME
countries-underscored this difficulty. 227 Petitioners appealed the Commerce
Department's actions to the Court of International Trade (CIT),
claiming that subsidies can be found in non-market economy cases.228
Petitioners sought a remand to the Commerce Department for examination
of the specific allegations.2 29 On appeal, the CIT rejected the Commerce
Department's conclusions and held that the CVD "was plainly intended
to apply to all countries. '230 Perhaps now the CVD Law will be applied
223 19 U.S.C.A. § 1671(a) (West 1982 & 1985 Supp.).
224 The Countervailing Duty Law defines material injury as "harm which is not inconsequential,
immaterial, or unimportant." 19 U.S.C. § 1677(7)(A) (1982). It directs the Commission to
consider, among other factors, the following:
(i) the volume of imports of the merchandise which is the subject of the investigation.
(ii) the effect of imports of that merchandise on prices in the United States for like products,
(iii) the impact of imports of such merchandise on domestic producers of like products.
19 U.S.C.A. 1677(7)(B) (1982).
225 Hayward, supra note 209, at 87-88.
226 Id. at 88. For example, imports from Argentina and Mexico which are not signatories of the
GATT subsidies code may be subjected to countervailing duties "without the showing of material
injury that is required in the case of Brazilian imports." Id.
227 Commerce Ruling that CVD Law Does Not Apply to Non-Market Economy Cases Appealed to
CIT [Current Reports] I INr'I. TRADE Rrp. (BNA) No. 4, at 97 (July 25, 1984) [hereinafter cited as
Commerce Ruling]. The challenged rulings were FinalNegative CountervailingDuly Determination,
49 Fed. Reg. 19,370 (
), CarbonSteel Wire Rod from Czechoslovakia; and CarbonSteel Wire Rod
from Poland,FinalNegative CountervailingDuty Determination, 49 Fed. Reg. 19,374 (
228 Commerce Ruling,supra note 227, at 97.
230 Countervailing Duties, supra note 222, at 40:0105 citing ContinentalSteep Corp. v. United
States and Amax Chemical, le. and Kerr-McGee Chemical Corp. v. United States, slip op. 85-77,
July 30, 1985 7 ITRD 1001.
with more frequency and efficacy to imports from
NME countries. c.
Unlike the Antidumping and CVD Laws which are premised on free
trade principles and which aim at wiping out unfair advantages, escape
clause provisions attempt to offer relief from the "certainties of free trade
obligations."2 3 1 Section 201 of the Trade Act of 1974 addresses the
problem of injury to an industry resulting from import competition, which
does not rise to the level of an unfair trade practice. The United States
has written the escape clause of Article XIX of the GATT into Section
201 of the Trade Act of 1974.232 Section 201 requires the ITC to
recommend import restrictions, including tariffs or quotas, on goods imported
"in such increased quantities as to be a substantial cause2 33 of serious
injury, or the threat thereof' to a United States industry. 3 4 If the ITC
affirmatively finds that an article is causing injury, it recommends to the
President that import relief be granted. The President may then change
or nullify the ITC decision,235 but the President's decision is, in turn,
subject to review by Congress.2 3 6
An international legal advisor should be aware that relief under the
Section 201 escape clause may be available regardless of whether an
unfair trade practice or a government subsidy causes the injury.23 7 For
relief from injury by imports from non-Communist countries, Title II of
the Act provides either import relief or adjustment assistance 231 to firms,
workers and communities, or both.2 39 Since the purpose of the escape
231 Baker & Cunningham, supra note 173, at 383.
232 19 U.S.C.A. § 2251 (West 1982 & 1985 Supp.). See Baker & Cunningham, supra note 173, at
233 Imports being the "substantial cause" of injury is the key to an escape clause proceeding. 19
U.S.C.A. § 225 1(b)(2) (West 1982 & 1985 Supp.) sets forth the economic factors which the ITC uses
to determine whether an article is being imported into the United States in such increased quantities
as to be a substantial cause or serious injury, or threat thereof, to the domestic industry producting
an article like or directly competitive with the imported article. 19 U.S.C. § 2251(b)(1) (1982).
"Substantial cause" means a cause which is "important and not less than any other cause." 19
U.S.C. § 2251(b)(4) (1982). According to the ITC, the increased imports must be more than just one
of the many causes of equal weight to be an important cause of the serious injury; for example, if the
imports are one of only two equally-weighted factors, they probably constitute an important cause.
Escape Clause (Safeguards), [Reference File] INT'L TRADE REP. (BNA) No. 49, at 58:0103 (Sep. 19,
1984) [hereinafter cited as Escape Clause].
234 Hayward, supra note 209, at 89.
236 19 U.S.C.A. § 2253(c) (West 1982 & 1985 Supp.).
237 Potter, supra note 16, at 425.
238 As an alternative to import restrictions, adjustment assistance to workers and firms is
authorized in some cases. Escape Clause, supra note 233, at 58:0101.
239 19 U.S.C. § 2251(a)(1)(B) (1982). Relief from injury due to imports from Communist
counclause is not to be a permanent protectionist provision against foreign
imports, but to help workers and firms make adjustments to increased
imports which are substantially injurious, the import restrictions
imposed are to be of limited duration. 40 If the ITC investigates and makes
an affirmative finding that an article is causing injury, the President
provides some form of import relief. 4 1 Any such relief must end after five
years, unless extended.2 42 The President may extend the relief for one
period not exceeding three years, and only at the then existing level2. 43
Also, if the proclamation of relief is for a period of greater than three
years, it must be gradually phased down starting no later than three
years from the date the relief started. 44
An important feature of the escape clause is its heavily political
nature. Use of the escape clause invites retaliation because "[e]xporting
countries affected by such a protective measure are licensed to retaliate
by suspending 'substantially equivalent concessions.' ,,245 In addition to
inviting retaliation by foreign countries, a Section 201 escape clause
proceeding may also be fraught with Executive-Congressional disagreement.
As stated earlier, if the ITC makes an affirmative finding of injury and
recommends relief, the President may modify or nullify the relief, and
then Congress may in turn overturn the action. 246
tries is available only in the form of "import relief" and not adjustment assistance. Escape Clause,
supra note 233, at 58:0101. This article will discuss the market disruption statute in the next section.
240 Escape Clause, supra note 233, at 58:0101.
241 Once the injury standard is met, the forms of relief which the President shall provide, unless
he determines that provision of such relief is not in the national economic interest, are provided in 19
U.S.C. § 2252(a)(1)(A) (1982):
(1) increase in, or imposition of, duties on the article causing or threatening to cause injury;
(2) tariff-rate quotas;
(3) modification of, or imposition of,any quantitative restrictions on the import into the U.S.;
(4) orderly marketing agreements with foreign countries limiting the export from foreign
countries and import into the U.S. of such articles;
) any combination of the above.
19 U.S.C. § 2253(a) (1982).
242 19 U.S.C. § 2253(h)(1) (1982).
243 19 U.S.C. § 2253(h)(3) (1982).
244 19 U.S.C. § 2253(h)(2) (1982).
245 Baker & Cunningham, supra note 173, at 378.
246 19 U.S.C.A. § 2253(c) (West 1982 & 1985 Supp.). Section 2253(c), concerning Congressional
actions with regard to the provision of import relief, was amended in 1984 to state that the action
recommended by the ITC shall take effect upon the adoption by both Houses of Congress of a
concurrent resolution disapproving the action taken by the President or his determination not to
provide import relief under 19 U.S.C. § 2252(a)(1)(A) (1982) because it is not in the national
economic interest of the United States. Id.
An additional development concerning Section 201 actions was H.R. 5952, 98th Cong., 2d Sess.
), Rep. Schulze's recently proposed bill requiring Congress to approve certain presidential
decisions. The Section 201 legislative veto replacement would require Congressional approval of the
President's import relief determination in cases if they differ from the ITC's recommendations. The
Northwestern Journal of
International Law & Business
Section 406 market disruption statute
Section 406 of the Trade Act is procedurally similar to Section 201,
but substantively different from it. Section 406 provides a less
demanding standard to justify relief than the Section 201 requirement.2 4 7 Section
406 provides a special escape clause that applies only to imports from a
Communist country.248 Relief is available if the imports are "increasing
rapidly, either absolutely or relatively" and if they are "are a significant
cause of material injury, or threat thereof" to a domestic industry. 24 9 It
is easier for a domestic company to prove under Section 406 that imports
of an article, which is similar to or directly competitive with an article
produced by a domestic industry, are increasing rapidly and are a
significant cause or threat of material injury than to satisfy the more stringent
Section 201 standard.2 50
The procedure to obtain relief under Section 406 parallels the one
under Title II for dealing with import injury resulting from foreign
countries' imports in general.2 51 As with Section 201, Section 406 requires the
ITC to grant relief when increased imports cause domestic injury.25 2
Even though the importation in question cannot be challenged as unfair,
both sections also provide remedies against imports causing injury to
domestic industry.2 53 Here again, the President may override the ITC's
recommendation of relief2 54 if he finds it is contrary to the economic
interest of the United States; Congress in turn may veto the President's
action.2 5 If the President prescribes an orderly marketing agreement as
a remedy, the remedy must be entered within sixty days after the import
relief determination date, as contrasted with ninety days in proceedings
bill further states that if Congress should decline to adopt the required joint resolution of approval,
or if the President fails to sign it, then the ITC's original recommendation for import relief would be
implemented. Schulze IntroducesBill RequiringCongress to Approve Certain PresidentialDecisions,
[Current Reports] 1 INT'L TRADE REP. (BNA) No. 2, at 36-37 (July 11, 1984). H.R. 5952, 98th
Cong., 2d Sess. (
) was introduced to the House on July 6, 1984 and then sent to the House Ways
and Means Committee's Subcommittee on Trade. No action has been reported.
247 Market DisruptionBy Communist Countries, [Reference File] INT'L TRADE REP. (BNA) No.
49, at 64:0101 (Sep. 19, 1985) [hereinafter cited as Market Disruption].
248 19 U.S.C. § 2436 (1982).
250 Section 201 requires proving that increased imports are a "substantial cause of serious injury
or the threat thereof." 19 U.S.C. § 2252(a) (1982).
251 Market Disruption,supra note 247, at 64:0101.
252 Baker & Cunningham, supra note 173, at 379.
253 Market Disruption, supra note 247, at 64:0102.
254 ITC must make a report within three months after the date on which a petition is filed or a
request or resolution is received, as opposed to six months under Title II. 19 U.S.C. § 2436(a)(4)
255 Baker & Cunningham, supra note 173, at 379.
under Title II. If the President finds that emergency action is necessary,
he may proclaim import relief without waiting for the determination of
the ITC under Sections 2252 and 2253.256 The President's emergency
action is terminated or altered if the ITC later comes up with a negative
determination on market disruption,25 7 or if it recommends a different
form or amount of import relief and the President makes a determination
This highly political process under Section 406 "indirectly addresses
countertrade by addressing imports from Communist countries."2 5 A
significant percentage of countertrade transactions has traditionally
involved trade with Communist countries.2 5 9 Although the ITC has not
used Section 406 often, the ITC did subject the imports by Occidental
Petroleum Corporation (Occidental) of anhydrous ammonia from the
U.S.S.R. under a countertrade agreement to a Section 406 proceeding
twice in one year. Under the twenty-year fertilizer counterpurchase
agreement arranged in 1973 between Occidental and the Ministry of
Foreign Trade of the U.S.S.R., Occidental agreed to buy approximately four
million metric tons of ammonia and related fertilizer products from the
Soviets each year from 1978-1997, in exchange for one million tons of
super-phosphoric acid annually.2"' The agreement provided that the
Soviets must use a portion of the revenues from the sale of the Soviet
ammonia to repay the $900 billion which the Soviet Government borrowed
from the United States Export-Import Bank and other United States and
foreign banks to build the ammonia production facilities and
transportation facilities.26 1 The agreement also provided that Occidental would
transfer to the Soviets certain equipment, technology and design services
relating to the building of the Soviet plants.2 62
The ITC investigations of the ammonia imports present an excellent
example of the danger that Section 406 poses to long-term
countertrade.26 3 In 1973, the United States government reviewed and approved
the arrangement, which the President then endorsed. Occidental then
took several steps to avoid disrupting the domestic market for ammonia:
(i) The agreement stipulated that the ammonia prices were to be no
lower than prevailing market prices.
(ii) The agreement provided for importing steady quantities of ammonia,
which were to increase over the first five years and then level off.
(iii) Over the period of the agreement, the quantities would never be
greater than ten percent of United States consumption and would
begin to decline as a percentage of United States consumption in the
middle 1980s.2 4
In 1979, five years after the United States endorsed the agreement,
but only one year after Occidental began to derive benefit from its
investment, a Section 406 investigation began. A petition for import injury was
filed on behalf of twelve United States producers and one United States
distributor of anhydrous ammonia.2 65 In October of 1979, the ITC
recommended a three-year quota after determining by a three-to-two vote
that market disruption had occurred and that a risk of dependence
existed.2 66 In December 1979, President Carter rejected the ITC's
recommendation and decided that provision of import relief to the United
States producers and distributors was not in the national economic
One month after his denial of relief, however, President Carter
reversed his decision following the Soviet invasion of Afghanistan,26 8
stating that "recent events ha[d] altered the international economic
conditions" under which he made his original determination. 269 The
President then ordered a new ITC investigation and found that
emergency action was necessary, imposing a one-year interim emergency
quota on ammonia imports. 270 The emergency quota would limit the
quantity of anhydrous ammonia entering the United States from January
24, 1980 through January 24, 1981 to one million short tons.2 71
In the second Section 406 investigation which the ITC conducted
within the same half year on imports of Soviet ammonia, the ITC voted
three-to-two that market disruption did not exist and ended the
President's temporary quota.272 The ITC found "no indications whatsoever
that imports of Soviet ammonia were a significant cause of material
265 44 Fed. Reg. 71,809 (1979).
260 Potter, supra note 16, at 439. The dissent in the first case and majority and concurring
opinion in the second case constitute the ITC interpretation of Section 406 as applied to countertrade
cases. 45 Fed. Reg. 27,570, 27,574 (Apr. 1980).
267 44 Fed. Reg. 71,809 (1979).
268 45 Fed. Reg. 3,875 (1980).
270 ITC COUNTERTRADF ANALYSIS, supra note 60, at vii.
271 45 Fed. Reg. 27,570 (1980).
272 U.S. INT'l. TRADE. COMM'N, Pull. No. 1051, ANHYDROUS AMMONIA FROM Ti11: U.S.S.R.
jury or the threat there of to the domestic industry. '2 73 As a result, the
ITC provided no relief.
In the end, "the case was over but there were no winners."27 4 In
addition to huge legal fees on both sides, "domestic ammonia producers
obtained no relief and Occidental saw its twenty billion
agreement brought to the brink of dissolution twice in a singdloellyaerart.ra2d7e5
Although the ITC ultimately found no injury and lifted all quotas,
Occidental had suffered a loss of time, energy and money.27 6 Such an
unpredictable and politically volatile application of Section 406 causes
uncertainty for countertraders and jeopardizes their long-term
investments in countertrade arrangements.
THE NEED FOR A CONSISTENT, WORKABLE
POLICY ON COUNTERTRADE
The United States needs a consistent, workable policy on
countertrade. The United States government's goal of multilateralism,
consistent with GATT principles, conflicts with a desire to support United
States companies engaged in countertrade. This conflict of interests,
which sometimes exists between exporters and governments in Western
countries,27 7 prevents the United States government from openly
supporting countertrade. Yet the present official policy-that countertrade
creates overall distorting effects on the flow of goods and services
worldwide, and that fiscal policies and incentives represent better ways to
improve the trade balance than the production-sharing joint ventures and
protectionist policies which countertrade engenders2 7 8 -belies economic
Debt Problems of LDCs
Countertrade has become a necessary option for developing
countries to pay for their imports. In the words of an international business
consultant, "nobody likes countertrade, but less developed countries are
without cash and commodity X is coming out of their ears. It's the one
medium of exchange the LDCs have when they need manufactured
273 45 Fed. Reg. 27,570, 27,572 (1980).
274 Baker & Cunningham, supra note 173, at 380.
276 Hayward, supra note 209, at 90. See 44 Fed. Reg. 71,809 (1979) and 45 Fed. Reg. 27,570
277 deMiramon, Statement, 5 J. CoMP. Bus. & CAP. MK'. L. 367, 368 (1983).
278 L. WEI:x, supra note 64, at 75.
Northwestern Journal of
International Law & Business
goods and they have borrowed up to the hilt."2 7 9
Developing countries presently have debt of about $700 billion,
which means that these countries will face a heavy debt service burden
for years to come. 280 As a result, the prospect is for sustained and severe
pressure on the LDCs' trade accounts, as a large share of their export
earnings continues to be diverted to debt service. 281 For example, in
1983, Mexico, Brazil and Argentina paid debt service costs equal to
about fifty percent of their combined 1983 export earnings, which after
subtracting substantial essential imports of food and energy leaves very
little for the imports needed to sustain economic activity.28 2
The brunt of developing country adjustment cannot be borne much
longer by developing country trade accounts.2 83 The combination of
recessions, which undercut political support for economic adjustment
programs, and a rapid drop in lending, which prevents access to necessary
imports to pursue economic adjustment goals and required investment,
lead countries to try to meet export targets by selling whatever products
they have. 8 4 These developing countries often try to sell their products
2. Monetary Importance of Countertrade
Another economic reality requiring a consistent pragmatic United
States policy on countertrade is that countertrade is important
monetarily to United States firms and industries. The ITC recently completed
an analysis of the effects of the increasing involvement of United States
industries in countertrade transactions.2 8 5 In its report, the ITC
estimated that "almost $5.5 billion in total U.S. exports resulted from
countertrade (excluding offset) agreements during 1980-84, and
approximately $4.6 billion dollars worth of goods and services are currently
planned for export during 1985-2000. 286 Non-offset countertrade
exports for United States firms almost quadrupled from $285 million in
1984, to about $1.4 billion in 1984.287
279 Administration,supra note 8, at 58. Statement by John C.L. Donaldson, international
280 Olmer, New Directions in Trade Finance in COUNTERTRADE AND TRADING COMPANI-S:
TRADE TRENDS INTHE '80s 17 (P. Ehrenhaft chair 1984). Lionel H. Olmer served as Under
Secretary for International Trade in the Department of Commerce for four and a half years.
282 Id. at 18.
285 USITC (1985), supra note 2.
286 Id. at ix.
The ITC reports that United States imports from non-offset
countertrade totaled $1.8 billion during 1980-1984.288 Imports resulting from
countertrade (including military offsets), which peaked in 1984 at $525
million represent an "insignificant share of total United States
imports., 289 This share was only about 0.1 percent of total United States
imports of goods and services for the year. Nonmilitary-related
countertrade imports (as opposed to military-related countertrade imports) make
up the vast majority of imports from countertrade-almost all of
countertrade imports in 1980 and approximately eighty percent ($420
million) of the total figure in 1984.290
Consistent with a 1982 ITC analysis of recent trends in
countertrade, which suggested that countertrade may in fact be advantageous to
United States trade because "countertrade exports exceed imports,"2 9 1
these figures for 1980 to 1984 confirm that projection. The 1985 ITC
report states that the "total value of United States exports obtained
under nonmilitary countertrade exceeded that of United States
imports."2'92 In the period from 1980 to 1984, total United States
countertrade exports (excluding offsets) were greater than countertrade imports
in each year except 1980.293 In each year from 1982 to 1984, the United
States has had an annual trade surplus in nonmilitary countertrade,
rising from $538 million in 1981 to $1.5 billion in 1982, and then declining
to $940 million in 1984.294 Furthermore, United States exports
associated with countertrade generally far exceed United States imports from
United States countertrade obligations and well exceed the value of such
In a time of reduced export demand because of foreign exchange
shortages and foreign import reduction programs, 296 export promotion
merits priority attention.2 9 7 Countertrade promotes exports because it
291 ITC COUNTERTRADE ANALYSIS, supra note 60, at vii.
292 USITC (1985), supra note 2, at x.
293 Id. In 1980, nonmilitary countertrade figures represented a trade deficit of $38 million,
resulting from countertrade imports of $323 million and countertrade exports of $285 million. Id.
295 Id. The obligation agreement is the part ofa countertrade deal associated with the underlying
export sales agreement in which the exporter agrees to fulfill certain obligations; fulfillment of the
obligation agreement may stretch out for a period as long as ten years or more. Id. at viii. For
example, in 1984, countertrade imports represented only 19 percent of total obligations for that year.
Id. at ix.
296 Id. at viii.
297 Ehrenhaft, Insuring U.S. Participants' Interests in Counterrade, 5 J.COMIP. Bus. & CAP.
MKT. L. 425, 436 n.40 (1983).
helps United States firms develop long-term associations with foreign
buyers, who in turn serve as local producers or distributors.2 9 8 The
United States must seriously consider countertrade as a viable trade tool.
Figures such as a $21 billion drop in net United States exports to Latin
America between 1981 and 1983, which translated into 500,000 United
States jobs lost, illustrate this point.29 9 One of countertrade's attractions
is that it would expand the potential market for United States goods.
United States firms would be able to sell goods or services in foreign
markets where buyers lack the resources to pay for their purchases.30 0
Given the projections on countertrade and United States export needs,
the United States government must develop some workable policy to
address the issues created by countertrade and to help United States firms
who want to get involved in countertrade.
Countertrade could be a way for Western enterprises to expand into
Eastern markets as well as Latin American markets. It is not just the
East which needs Western technology and goods. The idea that
countertrade is imposed upon unwilling United States companies is not entirely
correct, if the Polish case is any indication. Even without any specific
legislation or policy requirements favoring countertrade, United States
enterprises took the initiative in a majority of countertrade arrangements
between Polish and United States entities during 1982 and the first half
of 1983.301 United States companies had a demand for Polish coal,
sulphur, cement and ham.
Thus, contrary to popular misconceptions, Westerners sometimes
seek to use countertrade. Especially where the arrangement involves the
production of minerals, Western countries and parties often seek
buybacks and production-sharing joint ventures more often than do
LDCs. 3°2 As much as forty-three percent of the buyback goods imported
by the OECD countries from Eastern Europe are energy products, for
which there is a steady demand in the West.30 3 Another thirty percent
consists of intermediate goods, mostly chemicals, which also can be
299 World Bank PresidentRaps Protectionism,Calls Auto VRA with JapanSelf-Dcfeating, 9 U.S.
IMPORT WEEKLY (BNA) No. 34, at 1070 (May 30, 1984). A. W. Clausen is president of the World
Bank until expiration of his term in June 1986.
300 Ehrenhaft, supra note 297, at 425.
301 Wujek, Polish Conception of Countertrade,in COUNTERTRADI.t AND TRADING COMPANIES:
TRADE TRENDS IN THE '80S 29 (P. Ehrenhaft chair 1984). This information comes from the results
of a survey conducted by the Polish Embassy's New York office relating to countertrade proposals in
1982 and the first half of 1983 between Polish and American entities. Id.
302 L. Wi.s.r, supra note 64, at 98.
303 Soltysinski, Statement: In Defense ofCountertrade,5 J. CoMP. Bus. & CAP. MKT. L. 341.
342 n.9 (1983).
ily sold in Western markets.3"
These arrangements, called develop-for-import or resource
diplomacy, arise where a Western government, which wants to ensure a
guaranteed supply of a certain raw material or strategic mineral, offers
lowcost loans to finance the countertrade deal. 30 5 Then, Third World
countries accept Western participation in a mineral project conditioned upon
the subsidy element in the credit arrangements. For example, France,
Germany and Japan subsidize exploration costs by certain private firms
in return for a commitment from the resource-rich country to a part of
any discovery.3 °6
Countertrade also appeals to Western banks and trading companies.
Banks see money-making opportunities in countertrade in a time of
declining loan business.307 Trading companies find that countertrade is
often a cheaper means of obtaining Third World commitments while still
earning their customary fees.
ProtectionistActions of Developed Countries
The protectionist actions of developed countries overlap both
economic and political considerations. Rising protectionism in the United
States and other developing countries may be forcing developing
countries to engage in countertrade. ° s Western legislators and importers
have taken steps to greatly decrease the risks of market disruption and
cut-throat competition from countertraded goods in the domestic
marketplace.30 9 Legislators have provided Western competitors with a
variety of special relief measures; some, like Section 201, are available even in
the absence of proof of material injury.31 0
Because some developing countries are short on cash and credit
needed for conventional trade deals, using countertrade may be a
valuable tool in improving relations with developing countries.3 1' In this
sense, countertrade can serve foreign policy goals by easing political
306 L. WEL.T, supra note 64, at 99.
307 Truell, supra note 35, at 21, col. 1.
308 Administration, supra note 8, at 58. See, e.g.. 26 Senators Back Bipartisan Trade Bill, N.Y.
Times, Nov. 21, 1985, at 17, col. 1.
309 Soltysinski, supra note 303, at 343.
310 Id. See supra note 213 and accompanying text.
311 Note, supra note 122, at 259.
sions and facilitating normal relations. 31 2 Countertrade, especially in the
form of offset, can also facilitate the acquisition of critical materials and
thereby promote United States national defense goals.313
In addition to playing a role in United States trade relations, a clear
Administration policy would alert countertraders to the political nature
of some of the import relief measures which could be imposed upon their
countertraded goods. 314 A clear policy would also make them aware of
possible retaliatory measures by foreign governments. It is not fair to put
all the blame on foreign governments, who allegedly demand
countertrade.3 15 Countertrade is not always competition from abroad; it
sometimes results from competition between United States firms abroad to
offer more attractive offset deals.3 16 Concern over countertrade is more
than just a question of "simple protectionism;" concern over the issue
"cuts to the root causes of policies and trade relations with allies."53 17
Given the complex economic factors, the protectionism which
countertrade engenders, and the political ramifications of engaging in
countertrade, a policy is needed to educate United States countertrade
participants about the unique risks involved on each of these levels.
Long-term countertrade arrangements are especially vulnerable to the
possibility that United States export or import restraints may be imposed
on the merchandise or services moving in either direction, well before the
entire deal is completed.31 8
Products may be subjected to import quotas or ceilings, or they may
be barred entirely from importation into certain sources.319 Companies
should be particularly careful when engaging in countertrade involving
import-sensitive goods such as textiles, leather goods and watches.3 20
They should also be cautious about dumping the goods, especially if large
quantities offered at a low price are involved. They must take great care
to avoid underpricing or suddenly raising the volume of the imported
goods. 32' Furthermore, quotas apply to goods on the basis of their
314 See supra notes 44, 52-53, 55-59 and accompanying text.
315 House Panel, supra note 63, at 1072. (Statement of Rep. Bruce Vento).
318 Ehrenhaft, supra note 297, at 425.
319 Hayward, supra note 209, at 84-85.
320 U.S. Firms,supra note 61, at 390.
321 Soltysinski, supra note 303, at 343. See supra note 265 and accompanying text.
gin, regardless of the nationality of their owner or of the importer.322
In addition to import quotas, competitors of United States
countertrade participants may initiate actions under a number of United States
trade laws.323 A prime example of United States import restraints being
imposed during the term of a countertrade arrangement was Occidental's
potential loss of payments from the U.S.S.R. due to actions initiated by
United States competitors to prevent or limit Occidental's receipt of
payment.32 4 Another major risk is the revocation of United States export
licenses due to political disputes.3 25 The Department of Commerce's
Office of Export Administration must issue a validated export license before
a United States firm may export commodities or technology to (CMEA)
countries326 or the People's Republic of China.
Customs duties pose another risk. Although most imports from
LDCs may currently enter the United States free of duty under the
Generalized System of Preferences, 327 imports from Eastern bloc countries
which are not entitled to MFN treatment 328 are subject to United States
duty rates that at thirty to forty percent may seem surprisingly high to a
supplier accustomed to dealing with rates applicable between GATT
partners. 32 9 Also, MFN status is always subject to review and may be
withdrawn, as was the case with Poland. 3 °
In addition to federal laws and customs duties creating potential
problems for countertrade imports, United States countertraders may
face problems relating to the products themselves. The goods may be
subject to governmental or other national standards in proposed
countries of importation, such as the United States Food and Drug
Administration's or the Department of Agriculture's requirements on food
products. 331 The buyer may be unable or unwilling to comply with these
standards. Even if no regulatory standards apply to the goods, the
sup322 For example, the current quota on imports of Japanese cars affect General Motors affiliates
Isuzu and Suzuki, as well as other Japanese producers. Hayward, supra note 209, at 85.
323 See supra notes 196-228 and accompanying text.
324 Ehrenhaft, supra note 297, at 426.
325 Id. at 427.
326 The CMEA, established in 1949, includes Bulgaria, Czechoslovakia, German Democratic
Republic, Hungary, Mongolia, Poland, Rumania, Yugoslavia, and U.S.S.R.
327 Hayward, supra note 209, at 85.
328 Id. (all Eastern bloc countries except Hungary and Romania).
329 Hayward, supra note 209, at 85-86.
330 Id. at 86. See 47 Fed. Reg. 49,005 (1982).
331 For example, under the Food, Drug & Cosmetic Act, food products offered in countertrade
may be refused admission if they appear to have been manufactured, processed or packed under
unsanitary conditions, ifthey are forbidden or restricted in their country of production or export, or
if they are adulterated, misbranded, or in violation of drug requirements. Hayward. supra note 209.
plier may not be able to sell the products purchased under countertrade
because such goods may be surplus, obsolete, or of poor quality.33 2 In
addition, the supplier may be faced with buying and disposing of goods
in markets in which the supplier is totally unfamiliar.3 33 Finally, the
supplier's lack of sales people trained to handle their additional role of
purchasing may hinder the buying and disposing of goods quickly and
efficiently. 334 Therefore, it is essential for the successful negotiation and
completion of a countertrade deal that a company thoroughly research
market potential and be assured of a corporate commitment to the
project before engaging in a countertrade deal.33 5
Suggested United States Government Action
The Administration must be realistic and take affirmative steps to
help United States firms who choose to engage in countertrade to develop
the necessary expertise for completion of a successful deal. The United
States government must recognize that "countertrade is emerging as a
major form of international commerce in its own right,' 3 36 and that it
can be a viable trade tool for promoting business abroad. Rather than
seeing countertrade as a necessary evil, the United States government
should instead look at the opportunities it can create and the costs of
failing to recognize the importance of countertrade. 337
Some developments by private entities in the United States are
occurring to help United States companies contemplating countertrade.
These include the development of export trading companies, spurred in
part by passage of the Export Trading Company Act,338 in-house
countertrading organizations of multinationals and special units of law
firms specializing in international law. 33 9 Although these developments
are helpful, they are not enough to enable companies to develop an
expertise on their own, especially smaller firms which can not afford some
of these costly services. In order to close a major deal, companies often
agree to countertrade without full knowledge of all the consequences. 3 41
This Comment suggests several concrete steps which the United
States government can take to develop a coherent, practical policy.
Indications that the federal government is rethinking its position is shown by
the initiation of government-conducted studies on countertrade and
barter. The Office of the United States Trade Representative (USTR),
which is responsible for coordinating trade policy within the United
States government, recently chaired an interagency committee341 to
develop a policy on barter and countertrade. The administration should
continue to encourage such studies and carefully consider their
This author particularly advocates the interagency committee's
recommendation that the government provide advisory and market
intelligence services to United States businesses, including information on the
application of United States trade laws.34 2 It must do more than simply
make information available on the countertrade requirements of foreign
countries. The advisory and market intelligence services should give
suggestions on how to lessen the risks of countertrade, for example: (1)
becoming familiar with how the trading partner does business; (2) doing a
detailed analysis and considering a number of factors; (3) becoming
familiar with the product; (4) involving purchasing personnel in the
analysis of the countertrade obligations; (
) what to do about determining the
purchase price; (
) what quality considerations to make; and (7) the
possibility of obtaining insurance from either the Overseas Private
Investment Corporation or private insurers.3 43
In addition to providing advisory and informational services, the
government should take note of the Canadian government's steps to deal
with countertrade. Although the Canadian government objects to
countertrade as an economically inefficient reversion to bilateralism, it
"recognizes it as a fact of life."'3 " Certain Canadians are urging the
Canadian government to take action to help Canadian exporters in
foreign markets by increasing the use of countertrade.3 4 5 With the rising
importance of barter in international trade, the lack of government
ex341 The Committee was composed of representatives of the Departments of Commerce,
Agriculture, State, Treasury, Labor, Justice, Defense, Interior, Transportation, and Energy, the Office of
Management and Budget, the Council of Economic Advisors, the National Security Council, the
International Development Cooperation Agency, the Export-Import Bank, the Overseas Private
Investment Corp., and the United States International Trade Commissions. Suro-Bredie, supra note
81, at 12.
343 Hayward, supra note 209, at 98.
344 NFTC, supra note 78, at 500.
345 Canada-Lo.vof Countertrade Exports, Needfor More Protection Against Unfair Competition
Noted, [Current Reports] INT'l. TRADIE Rit'. (BNA) No. 6, at 161-62 (Aug. 8, 1984) [hereinafter
cited as Canada]. Statement by Stuart Smith, chairman at the Science Council of Canada.
pertise on barter and countertrade is causing Canada to lose out on
export business.34 6
Consequently, the Canadian government is considering several ways
to deal with countertrade. Possible actions include setting up an
information center run by the private sector, or allowing Canadian banks to
take a more active role in countertrade. 34 7 A Science Council of Canada
survey suggested that the federal government amend certain provisions
of the Bank Act that forbids Canadian Banks from taking title to goods
temporarily during trade transactions, which thereby effectively
precludes their participation in countertrade deals.348 In addition, there is
some support for the federal government to establish a countertrade
section within the Department of External Affairs to advise and guide
Canadian industries. 349 The motivation behind these suggestions is the need
to "develop greater expertise on countertrade .... [F]irms ... have
turned down jobs because of the complications of countertrade. ' 35 °
The United States government should recognize, as did the
Canadian government, that some firms may be forced to turn down jobs
because they lack the expertise on countertrade.35 1 Instead of refusing to
educate United States firms on the mechanics of completing a
countertrade transaction and insisting that firms should use private
consultants,3 52 the United States government should use its expertise to make
up for the severe shortage of skilled competent countertraders.3 5 3
Although the volume of countertrade has been growing rapidly, there are
few knowledgeable traders who have experience and success at
negotiating successful countertrade deals.3 5 4
In addition, the need for insurance in export trade is threefold:
(1) the overwhelming debt problem in many developing countries; (2) the
trade recession; and (3) the government direction of many trade
transactions.355 Since governmental and quasi-governmental export credit
agencies are not insuring against countertrade risks, exporters apparently are
turning to the private insurance market which, though more expensive
than government credit, has no requirements about the goods' origin.3 56
347 NFTC, supra note 78, at 500.
348 Canada, supra note 345, at 162.
350 Id.Statement by Stuart Smith, Chairman of the Science Council of Canada.
351 See id.
352 See Information, supra note 112, at 797.
353 Austrian Conference, supra note 336, at 488.
If the United States companies are willing to take the risks of
engaging in countertrade, then the federal government should provide advice
and guidance. Even if the United States government does not go as far as
the Canadian government, it should set up training programs and
information exchanges. The Administration should advertise the Department
of Commerce's offer of assistance in setting up countertrade deals rather
than keeping such aid a secret. In addition, it could set up an
information center run by the private sector, as the Canadian government
The government must be open to suggestions that the government
initiate, and if necessary, operate a plan of countertrade insurance.35 7
Businessmen have cited the refusal of governmental credit institutions,
such as the United States Export Bank, to insure against countertrade
risks as a "serious complication of the business. '358 Furthering the
United States goal of increased exports, United States participants in
countertrade have a good claim to protection against risk of government
reaction to imports, especially when the government has promoted and
often insured the initial exports. 359 The proposed insurance would
protect exporters against political risks arising from acts of the United States
government that threaten countertrade transactions. 360 One suggestion is
to create an expanded version of the insurance plan of the Export-Import
On a broader level, the government should also continue to pursue
reaching bilateral or multilateral agreements on countertrade.3 6 2 Even
an opponent of countertrade recognized that one way to fight the more
troublesome effects of countertrade might be to set operating standards
for countertrade through multilateral negotiations with the trading
partners.3 6 3
Given the economic realities of the world economy and the need to
promote United States exports, the confusion about the application of
357 Ehrenhaft, supra note 297, at 224-26.
358 Austrian Conference. supra note 336, at 488. The businessmen referred to here are
participants in a September 1985 International Marketing Information System seminar on countertrade
and offsefotr the aerospace, energy and defense industries.
359 Ehrenhaft, supra note 297, at 427.
360 id. at 486.
361 Id. at 430. The author also considers other existing programs as models: Overseas Private
Investment Corporation (OPIC), Federal Credit Insurance Association (FCIA), Agriculture and
Food Act of 1981. Id. at 428-30.
362 See House Panel, supra note 63, at 1072.
363 de Miramon, supra note 277, at 368.
364 According to countertrade expert, Leo G.B. Welt, companies are never forced to
countertrade. Instead, they face a choice: "to bow out of contract negotiations, or as the case may be, a
particular market altogether; to negotiate price discounts or other concessions in lieu of assuming
countertrade obligations; or to agree to countertrade obligations." L. WELT, supra note 64, at 81.
365 Lowenfeld, Interface IV- Countertradein Economic Relations Between East and West-An
Introduction, 5 J. COMP. Bus. & CAP. MKT. L. 329, 331 (1983).
B. Types of Countertrade Transactions ................... 1. Barter............................................ 2. Counterpurchase.................................. 3. Compensation..................................... 4. Offset ............................................ 5. BilateralClearingAgreements ..................... 6. Switch Trading ...................................
A. Current Government Position ........................ 1. Current Official Policy ............................ 2. Ambiguities in Government Position ................ a. Countertrade by the federal government ........ b. Federal government assistance ................. c. Conflicting signals ............................. d. Congressional action .......................... 3. Objections to Administration Policy.................
Laws to Countertrade ................................ L Countertradeand the GATT ....................... 2. Application of United States Trade Laws to
Countertrade ..................................... a. Antidumping law .............................. b. Countervailing duty law ....................... c. Escape clause ................................. d . Section 406 market disruption statute ..........
A. Economic Realities ................................... 1. Debt Problems of LDCs ........................... 2. Monetary Importance of Countertrade.............. 3. ProtectionistActions of Developed Countries ........
155 9 Gadbaw, The Implications of Countertrade Under the General Agreement on Tariffs and
Trade , 5 J. COMP . Bus. & CAP. MKT . L. 355 , 356 ( 1983 ). 10 Some of these include counterpurchase, compensation agreements, offset, bilateral clearing
MERCE , INTERNATIONAL COUNTERTRADE : A GUIDE FOR MANAGERS ANt) EXiCUTIVEs , at 8- 15
( 1984 ). For a general discussion of counterpurchase see P. VERZARIU, INT'I. TRADi ADMIN .. U.S.
CHINA: AN INTRODUCTORY GUIDE TO BUSINEss , at 7- 8 ( 1980 ). II ECONOMIC RESEARCH SERVICE , INT'L ECON. Div ., U.S. Di:P'Ti " OF AGRIC., BARTIER OF A(-
RICUi.TURAL COMMODITmS , 5 ( 1982 ) [hereinafter cited as IED REPORT]. 12 Grabow , Negotiatingand DraftingContractsin InternationalBarterand CountertradcTrans-
actions , 9 N.C.J. INT'L L . & COM. RimG . 255 , 255 ( 1984 ). 13 Welt, An Introduction to Countertrade, in COUNTERTRADE AND TRADING COMPANIIs:
TRADE. TRENDS IN THE '80s, 2 (P . Ehrenhaft chair 1984 ). 14 Id. 15 See lED REI'ORT,. supra note 11. at 5 . 35 They often involve a third party, such as a countertrade department of a bank, or a state
Accounts for a Growing Portionof World TradeDespite Its Inefficiency , Wall St . J., Aug . 15 , 1983 , at
21, col. 2. An example of a counterpurchase arrangement is McDonnell Douglas' sale ofjet aircraft
coats. Grabow, supra note 12, at 258 . 36 Walsh, supra note 20, at 4. 37 Indonesia leads requires that all government imports in excess of $ 500 ,000 be compensated by
Indonesian products . USITC ( 1985 ), supra note 2 , at 130. 38 Truell, supra note 35, at 21, col. 2 . 39 Walsh, supra note 20, at 4. 40 Walsh, supra note 20, at 5. See generally, USITC ( 1985 ), supra note 2, at 3-4. 41 USITC ( 1985 ), supra note 2, at 3 . 42 Potter, supra note 16, at 46 . 43 Id. 44 Park, CountertradeRequirements in East-West Transactions, 5 J. CoMiP. Bus . & CAP. MKr.
L. 335 , 336 ( 1983 ). 45 Walsh, supra note 20, at 5. 46 Id. 59 Grabow, supra note 12, at 259 . 60 What distinguishes offset from other forms of countertrade is that it is not contractual , but
COMM'N, PUB . No. 1237, ANALYSES OF RECENT TRENDS IN U.S. COUNTERTRADE, 8 n.1 ( 1982 )
[hereinafter cited as ITC COUNTERTRADE ANALYSIS] . 61 U.S. Firms At Conference Given Warning Not to Violate U.S. Customs, Trade Laws, 9 U.S.
IMPORT WEEKLY (BNA) No. 10, at 390 (Dec. 7 , 1983 ) [hereinafter cited as U.S . Firms]. 62 Id. at 390 . 63 House Panel Tells Commerce , Treasury. USTR Officials To Provide Offset Data, 9 U.S. IM-
PORT WiEEKLY (BNA) No . 34 , at 1071 (May 30, 1984 ) [hereinafter cited as House Panel] . For
defense articles . IED REPORT, supra note 11, at 6 . 64 L. WELr, TRADE WITHOUT MONEY: BARTER AND COUN'ERTRADE , 25 ( 1984 ). 65 Id. at 97. 66 Id . 67 Id. at 25-26.
6. 90 Kravis, Statement, 5 J. COMP . Bus. & CAP. MKT . L. 409 , 409 ( 1983 ). 91 Id. 92 GATT Report, supra note 4 , at 1071. 93 Growth of Countertradein Mexico, BrazilHighlights 'Nonconventional'TradeSession , 9 U.S.
IMPORT WEKLY (BNA) No . 28 , at 905 , 907 (Apr. 18, 1984 ) [hereinafter cited as Growth of
Department of the Treasury. 94 Id. at 906 . 95 GATTReport, supra note 4, at 1071. 96 Transactions,supra note 1, at 679. 97 The Foreign Credit Insurance Association is an insurance syndicate backed by the United
States Export-Import Bank . Growth of Countertrade,supra note 93, at 907. 98 McVey, supra note 22, at 198. 9 Growth of Countertrade, supra note 93 , at 907 . 1001 Truell, supra note 35, at 21.