BEYOND THE COUNTERTRADE TABOO: WHY THE WTO SHOULD TAKE ANOTHER LOOK AT BARTER AND COUNTERTRADE

Abstract

Associated during the Cold War with currency controls, unreal exchange rates, administratively managed trade, and other pathologies of command economies, barter and other forms of countertrade such as counterpurchase have more than survived the end of Communism. In official trade-policy circles, however, there is a marked and long-standing distaste for countertrade, stemming from their strong association with the dysfunctions of command economies. In this essay I explore the emergence of the prejudice against barter and countertrade in the gatt era during the 1980s; I then draw on a body of economic literature that applies transaction costs theory to international barter and countertrade transactions to suggest why these transactions may have ‘legitimate’ economic rationales rather than being attributable to pathologies such as corruption, cronyism, wasteful subsidization, and currency manipulation. In light of this analysis, I then proceed to examine relevant provisions of the wto treaties, in order to assess the extent to which these disciplines may limit the scope of countertrade between wto members.