21st Century Counter Trade
By
William Cate

The U.S. Department of Commerce hates it. The World Bank questions its long-term economic impact. However, an estimated 130 countries are doing almost US$500 billion assessment of value of global trade under counter-trade-related schemes.

If the world relied solely upon Counter Trade, the U. S. wouldnt have a $278,000,000,000.00 trade deficit. The world debt crisis and growing weakness in the American Dollar has made trade financing very risky and thus increasingly costly. Western countries, watching jobs flee overseas, are slowly returning to the idea of bi-lateralism as a defined way to reduce trade imbalances.

There are five basic types of Counter Trade: barter; buy-back, counter-purchase; tolling and offset. We are going to compare a simple multi-country barter model against the traditional export model. Well assume that the exporter can get ninety day net terms from the American manufacturer. And, well presume that air cargo shipments take two days and surface shipments take forty days. Well assume that the pre-taxation profit at each step will be 33% and that the exporter will structure their company to minimize their legal taxation obligations. Keep in mind that there are tens of thousands of potential products, two hundred countries in the world and nearly an infinite number of ways to put counter trade deals together.

The Traditional Export Model

The Exporter will move to Reno and include the export business in Nevada. Their doing business is to export American-made computer microchips. They have a buyer in Singapore offering a 90 Irrevocable Letter of Credit (ILC) and their manufacturer is willing to defer payment for 90 days. They buy $200,000 worth of microchips, airship them and sell them in Singapore for $275,000. Ninety days later, they have a gross profit of $75,000 and a pretax profit of $66,000. After paying U.S. Federal income taxation , they earn about $44,800. Since they can repeat the microchip export four times each year, their after taxation profit is nearly $100,000. This is more funds than the majority of all the people earn living in Nevada. Not bad.

The Counter Trade Model

The Exporter incorporates their Counter Trade business in Belize. Their business office is in Barbados. They have the identical relationship with an American computer microchip manufacturer. They have a buyer in Singapore offering to barter their computers for the American microchips. They have an importer in Senegal willing to take the computers and pay for them in high quality textiles that a buyer in London wants and will pay for in 75-year-old scotch. And, they have a gem broker in South Africa who wants the scotch against a payment in uncut diamonds. The counter trader has a deal with a diamond dealer in Toronto. The Canadian wholesaler has retail buyers in the States, who want the diamond rough.

The Counter Trader buys $200,000 assessment of worth of American microchips and trades them in Singapore for $275,000 in computers. He ships the computers to Senegal as the Senegal buyer surface ships the textiles to France (no import duty on Senegal exports to France) and from La Harve, the textiles are surface shipped to Portsmouth. The London textile buyer air ships the scotch to Cape Town as the South African liquor buyer air ships the uncut diamonds to Toronto. The Canadian gem dealer distributes the stones to his American retail buyers. The Counter Trader starts with a $200,000 purchase. In Singapore, hes paid $275,000 in computers. In Senegal, he collects $352,000 in textiles. In England, he gets $450,000 in Scotch. In South Africa, he takes in $576,000 in uncut gems. In Canada, he is paid $738,000 for the uncut diamonds in cash. His pretax profit is $243,000. Since Canada has a double taxation treaty with Barbados, he pays the Barbados 8% income taxation on his profit. Our Counter Traders after-tax profit is about $224,000. He or she might repeat this series of barter trades four times each year. The Counter Traders annual after tax income will be nearly a million dollars.

Conclusion

Counter Trades are potentially ten times more profitable than the traditional export model. However, it takes ten times more effort to setup a series of successful barter trades. If you have the initial contact for an export business ruminate on operating a Counter Trade business rather than an export business. If you are seeking advice or a partner for a Counter Trade business, contact me at: Beowulftrading@Earthlink.net