Bilateral trade
Encyclopedia
Bilateral trade or clearing trade is trade exclusively between two states, particularly, barter trade based on bilateral deals between governments, and without using hard currency
for payment. Bilateral trade agreements often aim to keep trade deficits at minimum by keeping a clearing account where deficit would accumulate.
The Soviet Union
conducted bilateral trade with two nations, India
and Finland
. On the Soviet side, the trade was nationalized, but on the other side, also private capitalists negotiated deals. Relationships with politicians in charge of foreign policy were especially important for such businessmen. The framework limited the traded goods to those manufactured domestically and as such, constituted a subsidy to domestic industry.
Bilateral trade was highly popular within Finnish business circles, as it allowed the commission of very large orders, additionally with less stringent requirements for sophistication or quality, if compared to Western markets. The Soviet side was motivated to participate in clearing trade because the arrangement essentially provided cheap credit
. The option was to sell obligations to the international market, and pay interest in hard currency. Capital, such as icebreaker
s, train carriages or consumer goods, could be obtained from Finland, and the cost would simply become clearing account deficit, eventually to be paid back as e.g. crude oil, or as orders such as nuclear power plant
s (Loviisa
I and II).
Clearing trade was at its busiest up to the 1970s, but began to lose its momentum in the 1980s. In the last of its years, the Soviet Union's debt began accumulating on an alarming rate into clearing accounts. As a result, the Soviet Union started to pay the deficits with oil, a good with little value added
and easily exchangeable to hard currency
, which militated against the principle of bilateral trade. With the dissolution of the Soviet Union, this form of trade has mostly disappeared. Bilateral trade is a manifestation of bilateralism
; in contrast, multilateralism and in particular multilateral trade agreements became more important.
Strategic goods, such as nuclear technology
, are still traded bilaterally rather than in a multilateral open market.
Hard currency
Hard currency , in economics, refers to a globally traded currency that is expected to serve as a reliable and stable store of value...
for payment. Bilateral trade agreements often aim to keep trade deficits at minimum by keeping a clearing account where deficit would accumulate.
The Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
conducted bilateral trade with two nations, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
and Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
. On the Soviet side, the trade was nationalized, but on the other side, also private capitalists negotiated deals. Relationships with politicians in charge of foreign policy were especially important for such businessmen. The framework limited the traded goods to those manufactured domestically and as such, constituted a subsidy to domestic industry.
Bilateral trade was highly popular within Finnish business circles, as it allowed the commission of very large orders, additionally with less stringent requirements for sophistication or quality, if compared to Western markets. The Soviet side was motivated to participate in clearing trade because the arrangement essentially provided cheap credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
. The option was to sell obligations to the international market, and pay interest in hard currency. Capital, such as icebreaker
Icebreaker
An icebreaker is a special-purpose ship or boat designed to move and navigate through ice-covered waters. Although the term usually refers to ice-breaking ships, it may also refer to smaller vessels .For a ship to be considered an icebreaker, it requires three traits most...
s, train carriages or consumer goods, could be obtained from Finland, and the cost would simply become clearing account deficit, eventually to be paid back as e.g. crude oil, or as orders such as nuclear power plant
Nuclear power plant
A nuclear power plant is a thermal power station in which the heat source is one or more nuclear reactors. As in a conventional thermal power station the heat is used to generate steam which drives a steam turbine connected to a generator which produces electricity.Nuclear power plants are usually...
s (Loviisa
Loviisa Nuclear Power Plant
Loviisa Nuclear Power Plant , is a nuclear power plant located close to the Finnish city of Loviisa. It houses two Soviet-designed VVER-440/213 PWR reactors, each with a capacity of 488 MW....
I and II).
Clearing trade was at its busiest up to the 1970s, but began to lose its momentum in the 1980s. In the last of its years, the Soviet Union's debt began accumulating on an alarming rate into clearing accounts. As a result, the Soviet Union started to pay the deficits with oil, a good with little value added
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...
and easily exchangeable to hard currency
Hard currency
Hard currency , in economics, refers to a globally traded currency that is expected to serve as a reliable and stable store of value...
, which militated against the principle of bilateral trade. With the dissolution of the Soviet Union, this form of trade has mostly disappeared. Bilateral trade is a manifestation of bilateralism
Bilateralism
Bilateralism consists of the political, economic, or cultural relations between two sovereign states. For example, free trade agreements signed by two states are examples of bilateral treaties. It is in contrast to unilateralism or multilateralism, which refers to the conduct of diplomacy by a...
; in contrast, multilateralism and in particular multilateral trade agreements became more important.
Strategic goods, such as nuclear technology
Nuclear technology
Nuclear technology is technology that involves the reactions of atomic nuclei. Among the notable nuclear technologies are nuclear power, nuclear medicine, and nuclear weapons...
, are still traded bilaterally rather than in a multilateral open market.