Many international organizations believe that, through countertrade, protectionism is accelerated. But for Third World countries, countertrade represents an essential component of their trade policies. Thus, countertrade could turn out to be a major source of contention between developed countries and the Third World. As the use of countertrade continues to expand, resistance against it is building up in the developed world. The United States, the countries of Western Europe, the International Monetary Fund (IMF), the General Agreement on Trade and Tariffs (GATT), and the. World Bank unanimously claim that countertrade will eventually reduce world trade. Even the United Nations Conference on Trade and Development (UNCTAD) predicts that the balance of payment situation in the Third World will not improve through the use of countertrade, and that bi-lateralism will grow. An OECD report on East-West countertrade concluded that countertrade causes serious trade distorting effects, introduces unnecessary complications into the transaction process, and presents additional risks for Western firms which are not accompanied by any significant advantages.

The dangers of countertrade are fairly clear. The overriding concern is a reduction of world trade. Statistics from various international organizations have shown that world trade is reduced by countertrade agreements. A free exchange of goods and capital in an open market still seems to be the best guarantee for growth in international trade and for a healthy economy. Countertrade agreements often exclide other competitive exports. They. force unwanted goods onto an otherwise free market. Industries protected by the unequal conditions of a countertrade agreement do not have to compete in a free economy, and without this competition, the protected industry has little incentive to improve the quality of its goods and the efficiency of their production. Countertrade tends to remove the flow of goods from normal financial channels, and by doing so, it inhibits the growth of world trade. Nevertheless, for developing countries, which lack sufficient quantities of hard- currency and are burdened with enormous debts, no countertrade often means no trade at all. A greater amount of capital investment and hard currency in the Third World could reduce the need for countertrade agreements, and thereby assist in promoting international trade.