Bilateral trade or clearing trade is trade exclusively between two states, particularly,

barter trade In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distingu ...

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 A clearing account is usually a temporary account containing costs or amounts that are to be transferred to another account. An example is the income summary account containing revenue and expense amounts to be transferred to retained earnings ...

where deficit would accumulate. The

Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen national ...

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 ...

train carriage In rail transport, a train (from Old French , from Latin , "to pull, to draw") is a series of connected vehicles that run along a railway track and transport people or freight. Trains are typically pulled or pushed by locomotives (often kno ...

s 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 t ...

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 Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crude ...

, or as orders such as

nuclear power plant A nuclear power plant (NPP) is a thermal power station in which the heat source is a nuclear reactor. As is typical of thermal power stations, heat is used to generate steam that drives a steam turbine connected to a electric generator, generato ...

s (

Loviisa Loviisa (; sv, Lovisa ; formerly Degerby) is a municipality and town of inhabitants () on the southern coast of Finland. It is located from Helsinki and from Porvoo. About 43 per cent of the population is Swedish-speaking. The municipality co ...

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 depreciatio ...

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

, 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