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 Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...

conducted bilateral trade with two nations,

India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...

and

Finland Finland ( fi, Suomi ; sv, Finland ), officially the Republic of Finland (; ), is a Nordic country in Northern Europe. It shares land borders with Sweden to the northwest, Norway to the north, and Russia to the east, with the Gulf of B ...

. 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 (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

. The option was to sell obligations to the international market, and pay interest in hard currency. Capital, such as

icebreaker An icebreaker is a special-purpose ship or boat designed to move and navigate through ice-covered waters, and provide safe waterways for other boats and ships. Although the term usually refers to ice-breaking ships, it may also refer to smaller ...

s, train carriages or

consumer good A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...

s, 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 plants ( 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 In business, total value added is calculated by tabulating the unit value added (measured by summing unit profit sale price and production cost">Price.html" ;"title="he difference between Price">sale price and production cost], unit depreciation ...

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. When ...

; 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

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. An early form of trade, barter, saw the direct excha ...

See also

References