Journal of Comparative Business and Capital Market Law 5 (1983) 347-351 North-Holland

ADVANTAGES AND DISADVANTAGES OF COUNTERTRADE *

Jacques de MIRAMON **

1. Introduction Countertrade practices have expanded during the past decade. Long associated primarily with East-West trade, they appear to be spreading to other areas. The international community, however, has not been effective in addressing these practices which are, in large measure, contrary to the basic tenets of free and multilateral trade. The Eastern countries had refused to discuss the matter with their trading partners until a meeting with Western countries at the U.N. Economic Commission for Europe (Geneva) in November 1981. Unfortunately, this meeting ended in a deadlock. In light of the fundamental differences between centralized Eastern European economies and the decentralized Western markets, it is not surprising that the two sides have divergent opinions on countertrade. The Eastern European countries are almost unanimously in favor of such deals, the inference being that they find countertrade mainly to their advantage. Western opinion of countertrade, however, has been mostly unfavorable.

2. Reasons why the Eastern European countries find countertrade attractive With few exceptions (e.g. Hungary), there has been no public discussion of the advantages and disadvantages of countertrade in the Eastern European countries. The ambiguity of the terms used, especially the confusion between industrial and commercial compensation, hinders constructive discussion. East-

* This note presents a brief outline of the main advantages and disadvantages of trade in the

form of compensation deals. The arguments for and against this type of trade are discussed in greater detail in an OECD publication: East-West Trade - Recent Developments in Countertrade (Paris, 1981). The views expressed in this paper are