THIS PAST JUNE, when I was with Bankers Trust for about a week and one half (having left United Technologies on May 3 1st), I was asked if I would like to write an article about 'countertrade'.

With my ego tweaked, coupled with the opportunity to 'speak, as a true mavin*, to an extremely knowledgeable and prestigious group, I jumped at the offer. Now, having worked solely in the world of trading for three months, I've discovered, much to my consternation, this is a complex extremely broad specialty that no one really knows very well. Although I have found my first twenty years in international business extremely enjoyable and stimulating I can't wait, for the next twenty.

Heralding the unprecedented growth of so-called 'countertrade' and barter the United States International Trade Commission (ITC) recently asked the Office of Management and Budget (OMB) to approve a broad study to analyze the growing use of these mechanisms by world trading partners and to examine the effect of such trade on US industry. Based on the past relationship of US industry to government the international business world should be cautious of the Government's overt announcement. We in American business get nervous when someone in Washington announces 'I'm from the government and I'm here to help you'. In this instance an analysis performed by government could be helpful.

Many of those involved in international trading think it is 'free trade' in action. It most certainly is not. Governments are busily establishing formal policies and in some instances dictating terms and conditions. This is not a criticism but simply a reality of the marketplace. Indonesia requires 100% counterpurchase on all government contracts. New Zealand utilizes this trading method as a tie- breaker in bids when price and quality are the same from the bidders.

Political pressures, the lack of bard currency as well as concerns with balance of payments are the primary culprits in what is becoming the most sophisticated version of the eternal 'reinvention of the wheel'. The US House of Representatives has twice passed (defeated by the Senate) legislation requiring minimum local content for automobiles imported into the US. All Ministries of Defense are rightfully concerned with security and the expansion of their military capacity thus defense procurements lead to co-production and offset demands. Reciprocity is extremely logical where there exists limited marketing experience and limited resources coupled with the need to access international markets. On the other side the aggressive creative exporter utilizes a broad multilateral trading approach very often as a marketing tool.

The Germans, in the 1930's invented the first form of countertrade as it is practiced today in certain countries. The Arab countries did not have enough liquidity to trade with Germany. A clearing system was invented and special units of account were created which related to the Deutschemark. At the beginning of each year the countries would draw-up lists of products for exchange and at the end of the year the difference would be settled in hard currency or gold.

In Germany, this was called Kompensationsgeschaeft -- compensation -- also it was referred to as Gegengeschaeft which means countertrade.

At the end of World War lithe bilateral payments arrangements, which appeared to constrict and distort international trade, were dismantled. The resulting liberalization created unprecedented growth in world trade. As a natural response to world recessions and decreased lending to debtor countries, East-West countertrade developed and is now spreading to trade between market economies. Inasmuch as I do not pretend to be an economist I refuse to join the debate as to whether it is beneficial or detrimental to trading partners. I have always been a realist and I know the world's exporters have products to sell. There are concomitantly many buyers for these goods but they lack the hard currency the exporter demands.

The loose use of the term countertrade' conceals a multiplicity of practices. I will not attempt to define and put a label on the various forms of trading. It has been done too often by people more expert than I, thus I prefer to term the entire concept 'Multilateral Trade'; an all encompassing broad generic term which I believe covers the spectrum in which we at Bankers Trust are focusing.

You may have heard or at least read of the US Export Trading Company (ETC) legislation. I worked on the second draft of the then proposed legislation for Senators Adlai Stevenson and John Heinz. It obviously went through many incarnations over the next four years before it was signed by President Reagan in 1982. I certainly did not realize one day I would have the opportunity to prove the concept I believe in so strongly.

International trading is a fact of life. It is a useful and creative way to do business in a world which is becoming more and more non-traditional. Bankers Trust's practical business oriented approach to banking coupled with its large but select quality customer base and its worldwide representation and reputation made an ETC a natural synergistic fit. Some banks view a multilateral trading capability merely as an extension of trade finance or merchant banking. Aside from true (pure) barter (rare exception) money will play some part in the transaction.

Trade finance or as we call it - Trade banking - complements the ETC. BTITC needs the full support of our 'financial engineers' to interject the appropriate technology** in developing the financial and trading structure to what is usually a complex transaction. Bear in mind this is the world of non-traditional international business. What is today termed non-traditional tomorrow will be traditional.

BTITC has the capability to assist the 'new to export' as well as working with the large multinational corporation in uniquely structuring a transaction, taking title, if necessary, to ensure the exporter consummates the sale and receives hard currency in return.

Setting The Pace

The banks and giant commodity traders will set the pace in multi-lateral trade. Their worldwide networks and ability to handle a wide range of goods justify this position. To succeed an organization must understand the motivation and modus operandi of the buyer and seller thus is must possess trading, commercial and banking skills to be successful in today's dynamic world.

Financing and trading complement each other thus it is natural' for select financial institutions to develop a multilateral trade capability. Most of the great Japanese trading companies were organized by banks. We lack Western models to emulate thus we do not know all the pitfalls to avoid nor the strengths to capitalize upon. This portends to be a great 'commercial adventure' a daring opportunity for supposed conservative financial institutions. I firmly believe it will be these adventurous opportunists of the 1980's with their well thought out plans and a firm commitment who will become the future leaders in an interdependent, one world business environment. We at Bankers Trust will be a key leader in this endeavor.

* Mavin - Yiddish-New York expression loosely meaning a know-it-all.

** Albert Wheway, Chairman of the Hogg Robinson Group graciously suggested the term technology as appropriately descriptive of the type of financial creativity we employ.

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