This section briefly reviews members’ payments and countertrade arrangements among themselves, as well as regional associations. Although bilateral payments arrangements have declined since the 1960s and now account for a small fraction of world trade, countertrade practices have become far more commonplace. In the area of regional arrangements, significant developments affecting formal regional and bilateral arrangements for trade and finance have taken place, in particular in industrial countries and South America.

This section briefly reviews members’ payments and countertrade arrangements among themselves, as well as regional associations. Although bilateral payments arrangements have declined since the 1960s and now account for a small fraction of world trade, countertrade practices have become far more commonplace. In the area of regional arrangements, significant developments affecting formal regional and bilateral arrangements for trade and finance have taken place, in particular in industrial countries and South America.

Bilateral Payments Arrangements and Countertrade Practices

During the decade ending 1975, there was a significant decline in the number and importance of bilateral payments agreements, and bilateralism became a relatively unimportant feature of payments arrangements among Fund members.26 At the end of 1975, 50 Fund members maintained 220 bilateral payments agreements, compared with the 64 members maintaining 322 such agreements at the end of 1964. The decline in the reliance on bilateral payments agreements during this period is more significant than these numbers imply, because in this same period 6 countries that were maintaining a total of 24 bilateral payments agreements joined the Fund. During the decade 1976–85, continued but slower progress was made by Fund members in reducing the number of bilateral payments agreements; the total number of Fund members maintaining bilateral payments agreements declined from 50 to 41, and the total number of agreements maintained by these members declined from 220 to 148. If the number of bilateral payments agreements that were maintained by three new Fund members is netted out, the progress toward their termination during 1976–81 is more rapid. By the end of 1981, no bilateral payments agreements were being maintained between Article VIII countries. Since 1981 the total number of these arrangements maintained by Fund members has remained virtually unchanged, reflecting the fact that the remaining agreements, most of which are maintained by Fund members with non-Fund members, are difficult to terminate without far-reaching changes in the state trading practices of non-Fund members, particularly in Eastern Europe.

The 1988 AREAER reported that, at the end of 1987, bilateral payments arrangements maintained between Fund members and non-Fund members totalled 69 and 72, respectively. The corresponding numbers were the same at the end of 1988, because no Fund members concluded or terminated bilateral payments arrangements with other Fund members or non-Fund members during 1988. The total number of these arrangements maintained by Fund members thus remained unchanged for two years in a row.

Detailed information on the value of trade conducted under bilateral payments arrangements is not available for most Fund members maintaining such arrangements. Indications are that the volume of trade conducted under these arrangements, most of which are maintained between developing countries and the Eastern European countries, has been declining in recent years. The annual value of trade conducted under bilateral payments arrangements is usually balanced, unless a “swing limit” is provided for temporary accumulation of imbalances above an agreed level. Exports from developing countries under bilateral payments arrangements consist primarily of agricultural commodities. However, the share of agricultural products in the total trade of developing countries has been declining in recent years as the trade structure of many of these countries has become more diversified. As a result, the relative importance of trade conducted under bilateral payments arrangements in the total world trade has probably declined. Even if it is assumed that all trade between Fund members and non-Fund members maintaining bilateral payments agreements is being conducted under these arrangements, the total value of such trade was considerably less than 1 percent of the value of world trade of Fund members in 1988.

In recent years, an increasing number of countries have resorted to trading practices known as countertrade arrangements. These arrangements have taken a variety of forms, and based on the types of goods traded, the financial arrangements involved, and the length of time required to complete the transactions, countertrade arrangements have been variously described as barter, buy-back, counterpurchase, and compensation. These are not internationally standardized definitions of the arrangements, and a countertrade agreement might contain more than one type of arrangement.27 Countertrade arrangements basically involve barter or quasibarter arrangements between private firms and/or government entities, such as foreign trade organizations, under which the seller is obligated to accept specified goods or services from the buyer. Even though countertrade arrangements are for the most part carried out by private firms without official sanction, several countries have announced guidelines to be followed by individual entities while engaging in countertrade or have issued regulations making countertrade mandatory for certain international transactions. In some instances, governments have also directly engaged in countertrade activities involving agricultural commodities, military equipment, and oil.

Available information on countertrade business in Fund member countries is incomplete, especially in most of the instances where official guidelines or regulations do not exist, and an exchange or trade restriction is thus not involved. In many developing countries, private firms and/or public sector entities have entered into countertrade arrangements with private firms in the industrial, developing, and centrally planned Eastern European countries, with the objective of promoting trade in primary products (including crude oil) and manufactured goods, and in some instances, to service external debt. With the emergence and growth of countertrade practices, private and semigovernmental organizations have expanded in a number of countries to provide advice on potential countertrade opportunities, report periodically on the details of countertrade agreements known to be concluded or under negotiation, and describe difficulties that have been experienced in countertrade. Although the number of countertrade agreements reported in these publications seems to convey the impression that private and trade organizations in the industrial, developing, and the Eastern European countries are expanding countertrade activities, the published information should be interpreted with caution. As a result of growing interest in this area, the coverage of reports appears to have improved. Also, a conclusion of countertrade agreements may not necessarily lead to actual trade, because agreements are often canceled or modified, and the changes are not always reported in these publications.

The magnitude of trade conducted under countertrade arrangements is difficult to estimate for a number of reasons. Apart from the cancellation or modification of original arrangements, which is often unknown, the very nature of the trading arrangements makes it difficult to estimate the annual volume of trade. For instance, when countertrade arrangements are in the form of buyback arrangements that are linked to direct foreign investment, commodity trade takes place over several years and the annual volume of trade cannot be estimated. Also, where governments are involved in the countertrading of strategic goods and defense equipment, detailed trade data are not likely to be published. There are indications that countertrade activities peaked in 1985 and that they have since stabilized and declined somewhat, not only in terms of the number of agreements concluded but also in the average size of the agreements. In an earlier report (International Monetary Fund, AREAER (1986), p. 33, footnote 10), it was mentioned that at most 10 percent of world trade appeared to have been conducted under countertrade arrangements.28 In the light of the decline in countertrade activities observed during 1986–88 when the volume of world trade is estimated to have grown by 18 percent, the share of countertrade in world trade is likely to have declined substantially since.29

Although the volume of trade conducted under countertrade arrangements appears to have declined in relation to world trade, the reliance on such practices continues to be seriously detrimental to the maintenance of the multilateral system of trade and payments, and is a matter of concern for the Fund.30 Recourse to countertrade practices implies that the normal commercial methods of international trade based on international competition cannot be applied, and their use entails many of the undesirable restrictive and discriminatory practices traditionally associated with bilateralism.

The GATT has no provision dealing specifically with countertrade practices. However, a number of its important provisions, such as those on national treatment of internal taxation and regulation, antidumping and countervailing duties, quantitative restrictions, subsidies, state trading enterprises, and emergency action on imports of particular products, may involve certain aspects of countertrade practices. Altogether, their applicability has not been examined closely, and the outcome of the Uruguay Round on issues involving nontariff barriers, safeguards, subsidies and countervailing measures, trade-related investment, and trade in textiles and textile products may thereby indirectly affect countertrade practices. One aspect of these practices that may require a modification to the traditional approach of international rules on import trade is that, since products are imported and sold under countertrade arrangements in the importing country by domestic economic agents rather than by foreign suppliers, different criteria may have to be applied to enforce the international rules on trade barriers and market disruption.

Regional Arrangements

Recent important developments in regional arrangements have been in addition to the strong and increasing trends toward de facto bilateralism evident in export restraint agreements and antidumping actions noted in Section III. Major formal actions have included the conclusion of new bilateral free trade agreements between the United States and Israel (in 1985); between the United States and Canada; accords affecting trade between Argentina, Brazil, and Uruguay; countertrade arrangements (DICA) between certain Central American countries; and bilateral investment treaties negotiated in recent years between the United States and a number of other Fund members. In addition, increasing internal liberalization in certain existing regional and bilateral arrangements not matched by similar freedom for transactions with third-party countries has heightened the practical significance of regionalism and bilateralism. Further still, the increasing tendency of geographical factors to play a role in determining common negotiating positions (for example, Asian NIEs, European Free Trade Association (EFTA)/EC trade, and Latin American debtors) may also have heightened the practical impact of regionalism.

Considerable steps toward integration were taken in 1988 in the context of various regional trade arrangements such as the EC (both internally and with other countries), between the United States and Canada, between Australia and New Zealand, and among Brazil, Argentina, and Uruguay. Questions have been raised in various quarters about whether these developments signaled a shift toward bilateralism that might ultimately divide the world into a few major trading blocks, with adverse impacts on third countries. The response of countries engaged in such arrangements has been to maintain no increased restrictions that were inconsistent with multilateral commitments. Other than the arrangement between the United States and Mexico, no further new arrangements of a major regional or bilateral nature were under discussion in 1988. Minor setbacks were realized in other smaller regional arrangements such as the Caribbean Community Caricom in the Caribbean and the Preferential Trade Area in Eastern and Southern African States (PTA) when targeted dates for tariff reductions were postponed. There were no major developments in regional cooperation on trade during 1988 in Asia and the Middle East. The regional development banks in the three developing continents—the African Development Bank (AfDB), along with the African Development Fund (AfDF) and the Nigeria Trust Fund (NTF), the Asian Development Bank (AsDB), and the Inter-American Development Bank (IDB)—each committed about $2–2.4 billion to countries in its respective region during the fiscal year 1987/88.

In the Western Hemisphere, three groups of regional arrangements experienced changes in 1988: the United States-Canada Free Trade Agreement (FTA), the United States-Mexico bilateral agreement, the Argentina-Brazil-Uruguay accords, and Caricom.

The United States-Canada FTA was the largest regional trade arrangement concluded in 1988 in terms of its size and the comprehensiveness of trade categories included. This agreement, which entered into force on January 1, 1989, provides a schedule for the elimination of all tariffs and for the reduction of nontariff barriers over ten years and contains important provisions on trade in services. Moreover, no further quantitative restrictions except those covered under the GATT can be introduced. Since neither country changed its trade policy toward third countries, no new trade barriers against third countries were created. One aim of the agreement was to signify that bilateral arrangements could still serve as a model for progress toward broad multilateral trade. However, the direct trade-creating effect of this agreement is likely to be limited, since tariffs on trade between the two countries were already at low levels. The United States also signed a bilateral framework agreement with Mexico in February 1988. Although the agreement establishes consultation mechanisms and procedures for dispute settlement in a number of areas, bilateral agreements under the framework are to be negotiated beginning in 1989.

Movements toward a free trade zone in Latin America were made in 1988 with an arrangement between Brazil and Argentina and between Argentina and Uruguay. The accords for the Brazil-Argentina Integration and Economic Cooperation Program were signed in 1988. Significant progress was achieved in trade in food processing and automotive industries, as import duties were to be eliminated in 1989 for certain automobiles between the two countries. Similar accords were signed by Argentina with Uruguay and later, Colombia, which should enhance intra-regional trade and pave the way toward a common market in the region as targeted in 1998.

Caricom postponed its target date to achieve full trade liberalization among its 13 countries from October 1988 to 1991, as a list of 23 products were allowed protection, subject to periodic review. The commencement of the operations of the Caribbean Export Bank was also postponed from a planned early-1988 introduction, since it encountered difficulty in obtaining foreign financing. However, progress was made as the Organization of Eastern Caribbean States (OECS), a subregional group of seven countries under Caricom removed all trade barriers, including import licensing, and eliminated tariffs in mid-1988. In this context, Barbados and Trinidad and Tobago spearheaded the Caricom free-trade area by removing trade barriers between each other.

The Andean Reserve Fund (ARF) reported that for the first time, its operations in Andean pesos were conducted with a nonmember. Chile became an authorized holder of Andean pesos and accepted them from an ARF member country to settle its debit balance for a four-month compensation.

The EC continued to be active in 1988 in regional trade relations, both internally and with other countries (that is, the EFTA, the ACP31 countries, and the GCC in the Middle East, Hungary, and Morocco). Under the impetus of the Single European Market Act signed in 1986, the EC has pursued the reduction of internal regulatory barriers, harmonization of standards, and liberalization of trade and factor movements within the Community, with the goal of creating a unified internal market by the end of 1992. By the end of 1988, 126 of the 279 directives to establish the single market had been adopted, and a further 122 draft directives had been circulated for discussion. Since it is expected that national restrictions on imports from third countries will no longer be enforceable by 1992, a major question remains as to the ramifications of the EC-wide measures for third-country trade. The same question, of course, also applies a priori to all such preferential trade agreements. Since 1975 intra-EC imports have increased at an annual rate of 10.9 percent, whereas non-EC imports have risen at a much slower 7.5 percent.32

Internally, the EC pressed ahead with its single-market program for achieving an internal market without borders in 1992, particularly with the adoption of a new directive on capital movements in 1988. A list of nearly 300 trade barriers has been examined and about one third have been resolved. In addition, the Community agreed to examine the means to achieve economic and monetary union. Although decisions regarding the external regime after 1992 have not been made, it is hoped that the EC would continue to observe its obligations under the GATT, so that it would not increase restrictions on exports from countries outside the common market. This could involve continuing to require reciprocity from third-country trading partners and continuing restraints on imports from outside the Community on some items such as automobiles and textiles. Nevertheless, concerns were expressed by major trading partners about a reciprocity concept that might trigger restrictions and be inconsistent with OECD obligations if interpreted narrowly, particularly in areas not presently covered by the GATT and other multilateral provisions.

On trade arrangements with other countries, significant progress was made as the EC agreed with the EFTA to target an 18-nation free trading zone by 1992. The EFTA, at its Ministerial meeting of the Council in June 1988, announced a number of steps to strengthen cooperation with the EC to contribute to the development of a European economic space. A timetable for negotiating the harmonization of EC and EFTA rules concerning certain technical barriers to trade was established; specific measures were announced for increasing cooperation in the fields of public procurement, state aid, and processed agricultural products; and a list of areas on which further cooperative efforts are to be concentrated was agreed.

The EC and the ACP developing countries, under the fourth Lomé Convention discussed in 1988, would allow tariff-free entry to the EC markets for virtually all ACP commodities. Trade concessions to the 66 ACP countries were proposed to be permanent after the current Lomé Convention ends in 1990. The EC and the GCC agreements committed both sides to granting each other MFN status and to not introducing new tariffs or trade restrictions. The EC-Hungary trade agreement was the EC’s first such pact with an Eastern bloc country. The agreement included, among others, elimination of the EC restrictions on more than 2,000 import items from Hungary. In addition, the EC-Morocco agreement on fishery provided for the dismantling of customs duties for Moroccan traditional exports to the EC to the extent of fixed quotas. With this agreement, the EC has completed its bilateral arrangements with all Mediterranean countries.

Also in June 1988 the EC signed a declaration of mutual recognition with the Council of Mutual Economic Assistance (Comecon). The EC was negotiating in 1988, or renegotiating, trade accords with Czechoslovakia and Romania.

In Oceania, significant progress was made in 1988 between Australia and New Zealand on trade cooperation. Under the Australian-New Zealand Closer Economic Relations Trade Agreement (Anzcerta) liberalization of trade between the two countries would be accelerated by a dismantling of tariff and import restrictions. The scope of liberalization was enlarged to include services. In August 1988 Australia and New Zealand signed a bilateral free-trade agreement which foresees the elimination of remaining barriers to trade in goods and services by July 1990. Since 1975 liberalization measures under the long-standing Australia-New Zealand agreement helped to expand the growth of bilateral imports, but only at a somewhat faster pace (9.6 percent) than that of other imports (8.2 percent). Starting from January 1, 1988, import duties on trade between the two countries have been removed. The target date of full liberalization was brought forward from 1995 to July 1990. In addition, the South Pacific Regional Trade and Economic Agreement (Sparteca), which provides free access to these two markets for the exports from the island countries in the South Pacific, is still in effect.

In Africa, despite numerous attempts by a number of regional organizations to foster trade and economic integration among countries in various subregions, only modest progress was made in 1988, with the exception of the increased activities of the regional Development Bank. The PTA, which aimed at a tariff cut by 10 percent a year until a free trade zone was realized in 2000, postponed its tariff cuts in 1988 until mid-1989. Only three members—Mauritius, Zambia, and Zimbabwe—cut tariffs by 10 percent as scheduled in October 1988. The PTA clearing house allowed domestic currencies to settle transactions among members, so that only net balances required settlement in hard currencies. Nevertheless, the full clearing mechanism has functioned well below its potential, and more than half of the trade payments arranged through the clearing house were still settled in hard currency. Moreover, the existing exchange and trade arrangements as well as the economic problems confronting member countries made it difficult for the clearing house to function properly, since members aimed for straight hard currency sales rather than going through the clearing house. In 1988 exemption to settle through the PTA was granted to Mozambique, since it was a new member, in respect of transit fees, which were important sources of hard currency to that country. Lesotho and Swaziland were exempted from mutual tariff-cutting obligations until 1992, because of their membership in the Southern African Customs Union. Traveler’s checks denominated in the PTA unit of account, PTA, were introduced in the PTA region in 1988.

The Economic Community of Central African States (CEEAC) proposed to adopt procedures to protect regional traders against any new nontariff barriers. It adopted, among others, the principle of stabilizing customs duties and taxes on imports within the customs tariff bands. The six-nation Customs and Economic Union of Central African States (UDEAC) announced the Yaounde Declaration, which pledged to integrate development of the sub-region in line with the 1980 Lagos Plan of Action. A drop in economic activity and trade in the region led to a large reduction in tax and customs revenue, which adversely affected development expenditure programs. The group called for a “Marshall Plan” to help deal with the debt problem. The Bank of Central African States (BEAC) as the central bank for the region, raised interest rates by 1 percentage point in January 1988 and by 0.5 percentage point in October 1988.

The Economic Community of West African States (Ecowas) approved a special compensation fund to compensate member states that might suffer material losses as a result of the implementation of the organization’s trade liberalization scheme in 1990. The West African Monetary Union (WAMU) and its Central Bank (BCEAO) raised interest rates by 0.5–1.5 percentage points in late 1988 and expressed the need to maintain financially restrictive policies to promote economic recovery in the region, which involved tighter control over bank notes leaving the franc zone, and effective repatriation of the export proceeds. The Mano River Union experienced financial difficulties, but all three of its members affirmed their desire to settle their arrears to the Union in 1988. A monetary union and a central bank unique to the three countries have been discussed, since they belong to three different monetary zones.

The AfDB (with the AfDF and NTF) committed more than $2 billion in 1987 and expected to lend $10 billion to the region during 1987–91. In addition, it approved a $3.15 billion replenishment of the African Development Fund (AfDF) for the period 1988–90. The AfDF extends loans to the poorest countries in the region at concessional interest rates.

In the Middle East discussion continued in a number of regional meetings in 1988 on promoting economic integration and intraregional cooperation on trade and finance. The Islamic Development Bank, which mainly finances foreign trade operations and projects in the region, slowed down its activities in 1987.

In Asia there were few developments in 1988 affecting organizations responsible for promoting economic integration and intraregional trade. Buoyant economies and strong export growth meant little focus on intraregional trade. The ADB committed $2.4 billion in loans to countries in the region during the fiscal year 1987/88, mainly for development purposes.

Table 5.

Organizations Regulating Exchange and Trade: Membership Lists

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Bilateral payments arrangements maintained between Fund members give rise to restrictive exchange practices subject to Article VIII or Article XIV of the Fund’s Articles of Agreement when they involve exchange restrictions or multiple currency practices. Bilateral payments arrangements maintained between Fund members and non-Fund members involving restrictive exchange measures will also fall within the ambit of the Fund’s Articles of Agreement (by virtue of Article XI) if these arrangements operate in a manner contrary to the provisions of the Articles of Agreement and the purposes of the Fund. The jurisdictional implications of bilateral payments arrangements are summarized in International Monetary Fund, AREAER, 1985, p. 40.


For a discussion of various types of countertrade arrangements, see Kyung Mo Huh, “Countertrade: Trade Without Cash?” Finance and Development, International Monetary Fund and World Bank (Washington), Vol. 20 (December 1983), pp. 14–16.


In the late 1970s the OECD estimated that up to 15–20 percent of the trade between East European and West European countries was conducted under some form of countertrade arrangements (OECD, East-West Trade: Recent Developments in Countertrade (Paris, 1981)).


A study prepared recently by a research firm in the United Kingdom (Produce Studies, Third World Countertrade (London, 1988)) concluded that, following a sharp growth in countertrade activity during the first half of the 1980s, it declined significantly. The study reported that the number of known countertrade deals involving developing countries declined from a peak of 304 in 1985, to 270 in 1986, and 272 in 1987.


In September 1982 the Executive Board reviewed the Fund’s policy with respect to bilateral payments and countertrade arrangements. The conclusions of that review were summarized in International Monetary Fund, AREAER, 1983, pp. 44–45.


Lomé Convention between certain African, Caribbean, and Pacific states.


Defining the EC in terms of its present membership for the whole period through 1987.