Barter is the exchange of one commodity or service for another without the use of money as a medium of exchange. A barter agreement (also called "countertrade") among countries calls for the exchange of stated amounts of goods.
Within Canada bartering has been used by struggling companies. For example, a radio station may offer its weekly commentators a week's holiday, including free flights and hotels. This trip is paid for by a travel agency, which receives a discount on its advertising rates on the station.
In the 1960s, because of the growing use of such cashless commerce, the Canadian federal tax authorities began to restrict the practice of barter. Now companies giving individuals cashless benefits must issue a slip stating the value of the goods or services for income tax purposes. If such benefits are not reported as taxable income, the tax burden shifts to other Canadian workers who receive only monetary remuneration.
While increasing taxes and tough economic times have spawned the growth of barter and the so-called UNDERGROUND ECONOMY within Canada, the globalization of the world economy since the early 1970s has resulted in an increase in the amount of barter, or countertrade, between nations.
Countertraders accept payment in the form of goods or services. The countertraders must not only sell their own goods, but they must accept and sell someone else's too. Countertrade is therefore also known as "triangulation" because it requires at least 3 parties: buyer, seller and customers. A conservative estimate developed by Business International of New York suggests that 10% of world trade is affected by countertrade, although other estimates range from 1% to 40%.
Sophisticated dealings are conducted elsewhere in the world by gigantic trading companies such as Mitsubishi in Japan or Phibro-Salomon Corp in New York City, the world's largest trading company. The Royal Bank of Canada became the first Canadian bank to create a division to facilitate cashless transactions. A Canadian company selling computer equipment and programming services may have to accept teak from Thailand in exchange for its commodities. The bank finds a buyer for the teak, and pays the Canadian company cash for its goods and services when they are sent or completed. The bank, in turn, makes a profit by paying the Canadian company slightly less than it obtains for the teak.
Canadian companies have made countertrade transactions in several countries. Many large Canadian companies with worldwide operations now employ their own countertrade specialists, and there are many consultants and publications geared to assist traders.