Counter-purchase

Counter-purchase is probably the most common form of counter-trade. Counter-purchase differs from barter in its use of financial payments in both the sale and purchase of the countertraded goods.

A counter-purchase involves an exporter who secures a sales order undertaking to purchase in return certain goods and services from the importing country.

There are two parallel but separate contracts, one for the principal order which is paid for in normal cash or credit terms, and another for the counter-purchase.

The counter-purchase may vary in value between 10 to 100% of the original export order. The import bought need not be related in any way to the goods/services exported.

Penalties, which are usually in the range of 10-15 per cent but may be higher, are enforced for failure to carry bout the counter-purchase, even when the main reason for it’s the bad quality or limited choice of goods on offer.

Nevertheless, the western partner may deliberately choose to pay the penalty rather than buy the goods.
Counter-purchase