Commercial activities and types of contracts. Other Forms of Basic Activities. Steps to Conclude a Contract, страница 2

In the valued barter two problems arise. The first is the disposal of the goods received by the exporter from the overseas customer. Secondly, arrangements have to be made for the payment of the settlement balance which at the end will arise in favour of one of the parties to the barter. A settlement account or evidence account will have to be constituted, preferably in a hard currency country which does not operate an exchange control system. The value of the bartered goods is set off in the settlement account and on termination of the transaction the credit balance is paid in cash to the party entitled thereto.

A typical example of barter by means of trust accounts would be the sale of trucks by a UK manufacturer to an African country, such as Kenya, with payment to come from the sale proceeds of local produce, say, coffee. The sequence of events is as follows:

 a) The coffee is shipped to the .UK and the payment is retained in a UK bank in a trust account, also called an escrow account.

 b) The Kenyans arrange a documentary credit in favour of the UK truck manufacturer. The credit will be confirmed by the UK bank which maintains the escrow account, once there are sufficient funds from the sale of the coffee to cover the credit. The credit is then advised to the UK manufacturer who ships his goods and then presents the required documents to obtain payment

      3) Buyback or compensation deals are another form of countertrade. Suppliers of capital goods agree to be paid by the future output of the factory which they are supplying. Buyback occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country - and agrees to take a certain percentage of the plant's output as partial payment for the contract. For example, one country can sell a chemical processing plant to another country and take part of the plant's future output of chemicals as payment.     Buyback refers to long-term contracts and is connected with the development projects supported with huge credits. Buyback involves two phases, one for the delivery of equipment to the buyer and a second for the delivery of the end product to the seller. In other words, buyback is a payment for products and services by the subsequent counter delivery of the ready goods made with the use of the earlier received products and services.

4) Offset

     It is an agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future. Agreement by one nation to buy a product from another subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation. Offset is widely used in high technology products. Export orders are given for items such as aircraft on condition that the exporter incorporates components or sub-assemblies manufactured in the importing country. 

 5) Switch Trading

      Switch trading is a practice in which one company sells to another its obligation to make a purchase in a given country. This is best described by way of example. Columbia sells coffee to Germany and instead of being paid builds up a credit balance. If Columbia then wishes to import coal from Poland, arrangements can be made to use the credit balance from the coffee sales to pay for the coal. Germany would thus settle with Poland.

Other Forms of Basic Activities

 Apart from the mentioned above, basic activities include leasing, tolling, consignation and futures.