Countertrade is truly a ubiquitous feature of the global marketplace. It appears in many forms such as barter, the oldest form where goods are exchanged without money. Counter-purchase requires a seller to buy some agreed goods or services from the buyer as a condition of the primary sale. Buy-back requires a seller to provide means of production (technology or equipment) and accept output as partial payment as a condition of a sale. Switch-trading involves a third party assumption of the seller's countertrade obligations and offset requires a seller to buy goods and services in the buyer's country or provide something of value after the major sale. In every case except barter, countertrade is a "sweetener" that makes the deal happen and offsets are the most common form.

Modern offset was conceived by Switzerland in 1968, and today 120 nations employ the practice, including the U.S., and 88 countries have official policy requiring countertrade in foreign transactions. Since 50% of world trade is managed and half of this is countertrade, there is an unsatisfied backlog of offset obligations that is estimated to be several trillion dollars; these are hard, contractual obligations. Features and trends of offsets are worth examining.

Offset volume is increasing fastest in developed countries but is under attack by World Trade Organization and the European Union; the most active offset players are in Europe (Denmark, Greece, Netherlands, Norway, Portugal, Spain, and Switzerland) and are associated with defense contracting. Offset trends are moving toward diversified, creative, quality-oriented, industrial programs that embody long-term alliances because the majority of benefits are in the private sector with the public gaining through enhanced employment and economic growth due to creation of infrastructure. Recent surveys in Europe found that 75% of obligations were discharged through subcontracting and purchasing and only 10% via technology transfer. The notable counter trend is with China where technology transfer is the second most important method to satisfy offsets. Yet another trend is a growing proportion of the total transaction in offsets; in Europe they average 96% of primary contract value. In the past, offset was associated directly with the major purchase, but indirect offsets now account for two-thirds of obligations. This is significant because the large multinational companies that incur offsets are not necessarily adept at satisfying indirect or non-associated projects. Therefore, when a foreign government buys $100 million worth of helicopters from a U.S. manufacturer, there will be a requirement to provide $100 million of something the buying country wants, whatever is mutually agreed, such as a new technology park, manufacturing plant or schools and housing. So the world of indirect offsets needs competent third party providers and managers and an array of good ideas to fit the world needs.

Understandable reasons exist for countertrade. First, it is a means to reduce flows of hard, convertible currency. Second, countries with poor credit ratings accounted for 16% of all buy-backs, 25% of all counter-purchases and 38% of all barters last year, but they cumulatively accounted for only 9% of world trade. Nations restricting foreign direct investment have propensity to use buy-backs; 80% of all buy-backs were imposed by 28 states with such barriers. However, it was determined by survey that with these constraints, a majority of U.S. firms would rather lose a sale than engage in countertrade, a pity in spite of the opportunities and ways to solve the problems.

After examining the offset process, the following practical suggestion is offered to readers, no cost, no obligation, no guarantees. Most large defense and manufacturing industries have ongoing offset requirements, and they need ideas and means to implement them in a cost effective manner. So a clearinghouse is offered. Submit your ideas and I will pass them along to a third party provider or multinational company (MNC) countertrade official. Typical candidates for indirect offset are technology transfer under license, your firm's desire to build a foreign production facility, your interest in long term cross licensing, marketing alliances or joint ventures. Typical offset projects range from $500,000 to $10 M with financing arranged by the MNC. Call or e-mail me to discuss your concepts and answer questions. Remember, there are a few trillion dollars worth of unsatisfied offset needs out there, so there must be a niche for you.