Because importers in Poland, Hungary, the CIS republics, and the region's other former communist countries lack hard currency, they pay for foreign goods with the commodities available to them: timber, aluminum ingot, steel, and other raw materials. This adds a host of potential problems to any transaction. For example, if a local exporter is selling personal computers to Hungary in return for steel bars, he must first check the quality and specifications of the steel, then determine how much metal equals the value of his PCs. And, since few computer manufacturers have a use for several tons of steel, he has to figure what to do with it once it is his.
Transactions of this sort are rarely a straight swap, or pure barter arrangement. Most are "counter trade" deals in which the Eastern European product is sold to a third party and the ROC trader is paid in cash. In other words, before a Taiwan computer exporter can secure payment for his PC" he must find a market for the Hungarian steel. All of this requires much new expertise.
"You must market their product first, then sell something to them," says Alex Hu (胡業民), senior specialist for the trading department of the Central Trust of China. "That's why Taiwan traders have to develop expertise in selling raw materials if they want to do counter trade on a large scale."
"Our merchants are very smart and they are quite familiar with trading in the free world," Hu continues. But he adds that many don't foresee the difficulties involved in counter trade. Transporting the raw materials, for instance, can create problems, since ROC-Eastern Europe transportation links are minimal. And even if all arrangements are made, the quality of the Eastern European product must be monitored. After all, few of these formerly state-controlled economies have experience in meeting commercial specifications. Taking Russia as an example, Carl Chang (張城), acting general manager of the trading department of the Central Trust of China, points out that although the country has abundant natural resources, traders lack experience in meeting international standards. "They are good at high technology or military technology," says Chang, "but not at commercial merchandise."
Despite these problems, two-way trade with Eastern Europe, Russia, and the other Commonwealth members, in creased by 63 percent in 1991, to about US$708 million—nearly all of which consisted of counter-trade arrangements. One area that has spurred great interest in both Taiwan and Eastern Europe is the possibility of arranging counter trade with ROC national corporations such as China Steel Corp., Taiwan Power Co., and Chinese Petroleum Corp. These companies need vast amounts of raw materials, especially for the massive projects outlined in the Six-Year National Development Plan. Chang believes that the potential trade volume is "tremendous." Although no such deals have been reached, "both sides are talking quite aggressively," Chang says. "Eastern European countries want to sell; our national corporations want to buy." He expects China Steel to reach counter-trade agreements as early as 1993.
"Counter trade is not very easy right now, but I think it's absolutely workable sometime in the near future," Chang adds, stressing that working the kinks out of the system is important since counter trade will likely remain a necessity for the next ten years or so. Speaking of the CIS republics, he says: "Unless the shortage of foreign exchange and the scarcity of daily necessities diminish, counter trade will last quite a long time. There is no evidence that the shortage of foreign exchange will improve in the next five to eight years. With the scarcity of daily necessities, there are no means to make payments in the CIS." Although some other Eastern European countries are reforming their economic systems more quickly, bartering will most likely be a necessity for any company doing business in the region through the 1990s. —By Laurie Underwood. ▪