Managing Countertrade Risks

Managing countertrade risks is necessary when conducting global exchanges.

As exporting/importing becomes more commonplace with the globalization of small businesses, certain risks should be recognized. If a business is involved in trading with developing countries or when financing is not available, it can find itself exposed to risks around the act of countertrading. Countertrading is when an exporter accepts payment in the form of goods or services, instead of receiving a monetary payment. When conducting a countertrade transaction, there are several risks that should be addressed in order to have a successful exchange.

Instructions

1. Do not take title of the products to avoid liability risk. If the product being imported causes damage to your customers or other third parties, you will be liable for damages. To avoid this risk, it is best to not take title by using a trader, intermediary or creating an in-house trading company. If one of these options is not possible, then reduce the risk by taking insurance, ensure the contract names the seller as being liable or have the supplier provide insurance coverage.

2. Reduce the changes for non-performance risk by making reasonable contracts, using experienced traders to handle the transaction, insurance, and financial guarantees. This is the most common type of risk, especially when conducting transactions in developing countries. Even though there are many measures that can reduce this risk, it cannot be completely avoidable.

3. Establish a pricing structure to reduce pricing risks. If you have a long-term contract or a product with high volatility, it may be best to base the prices on the world market price or in relation to other components in the countertrade product. Furthermore, it could be useful to base the prices on an inflationary index if engaged in a long-term contract.

4. Investigate to potential legal risks associated with conducting the trade, such as anti-dumping, embargoes, quotas, licensing, sovereign and immunity. Determining these risks can be very time-consuming and involve complicated measures; therefore, it could be beneficial to have a broker import the product or include within the contract a measure for the seller to take the risk.

5. Avoid the risk of settlement disputes by designing the contract so that there will be little chance of dispute. In addition, have guarantees and insurance in place in order to provide coverage in case of disputes. If not all causes of dispute can be handled by guarantees or insurance, then have in place the right to exercise arbitration or litigation as a method for finding resolution.

References

• BarterNews.com: Managing Risks In Countertrade Transactions