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 In macroeconomics, hard currency, safe-haven currency, or strong currency is any globally traded currency that serves as a reliable and stable store of value. Factors contributing to a currency's ''hard'' status might include the stability and ...

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 The Union of Soviet Socialist Republics. (USSR), commonly known as the Soviet Union, was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 until Dissolution of the Soviet ...

conducted bilateral trade with two nations,

India India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...

and

Finland Finland, officially the Republic of Finland, is a Nordic country in Northern Europe. It borders Sweden to the northwest, Norway to the north, and Russia to the east, with the Gulf of Bothnia to the west and the Gulf of Finland to the south, ...

. 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 icebreakers, 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 A nuclear power plant (NPP), also known as a nuclear power station (NPS), nuclear generating station (NGS) or atomic power station (APS) is a thermal power station in which the heat source is a nuclear reactor. As is typical of thermal power st ...

s (

Loviisa Loviisa (; ; formerly Degerby) is a town in Finland, located on the southern coast of the country. Loviisa is situated in the eastern part of the Uusimaa region. The population of Loviisa is approximately , while the Loviisa sub-region, sub-regi ...

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

, 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 is the conduct of political, economic, or cultural relations between two sovereign states. It is in contrast to unilateralism or multilateralism, which is activity by a single state or jointly by multiple states, respectively. Wh ...

; in contrast, multilateralism and in particular multilateral trade agreements became more important. Strategic goods, such as

nuclear technology Nuclear technology is technology that involves the nuclear reactions of atomic nucleus, atomic nuclei. Among the notable nuclear technologies are nuclear reactors, nuclear medicine and nuclear weapons. It is also used, among other things, in s ...

, are still traded bilaterally rather than in a multilateral open market

References

* Juri Piskulov: ''Näin teimme idänkauppaa.'' Ajatus-kirjat, Gummerus, 2009. * Juhani Laurila: ''Finnish-Soviet Clearing Trade and Payment System: History and Lessons'', Suomen Pankki 1995. {{DEFAULTSORT:Bilateral Trade

Trade Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. Traders generally negotiate through a medium of cr ...

See also

References