Bilateral Trade Mechanism : Absolute Golmal

So much world trade business is transacted thru bilateral trade mechanisms that it may shock you.You only see the well heeled black armani suited guys sipping mineral water ( generally avian) at bilateral trade summits, but what goes behind is eye popping.The mechanism goes as follows:

Typically these agreements are common for big ticket items like aircraft purchases.Say Boeing wants to sell 20 aircrafts to China.China to start with ( you could replace China by India or any other country), would make unreasonable demands of sourcing airlines parts locally to extent of 60%.Boeing would go thru the motions of proving as to why it cannot locally source materials due to quality, delivery, reliability reasons ( China anyway knows that too well, but no harm in trying).

Stage 2- China demands that well atleast 30% has to sourced locally.No way, the Boeing executives would shout loudly-the planes would fall you see!!.

Stage 3-Crunch time- China asks Boeing to help sell Chinese goods worth 30% of aircraft costs.Well suddenly it starts making sense.

Stage 4-Boeing agrees.It creates an elaborate system of set-off points with Chinese government equivalent to 30% value spread over negotiable years.

Stage 5-Boeing spreads the word amongst countless middlemen to hawk these set-off points.People start approaching companies who buy Chinese goods anyway.The middlemen show these deals as deals supported by Boeing Co. to enable Boeing to gain valuable points.Boeing would not be averse to parting away 3-5% of points to various emissaries.Everybody makes money.

Actually there is an informal secondary market of set-offs in USA and is played surreptitiously thru various finance companies and omnipresent SPV ( Special Purpose Vehicles).

About sanjay

A power industry professional. I did my schooling from DPS, R K Puram, New Delhi ( Class of 1982). Earned my engineering degree from DCE ( Delhi College of Engineering) in 1986. Worked in Tata Motors ( 2 years), Thermax India (5 years), ABB (2 years), Wartsila (13 years) and now work for Tata Power. Stay in New Delhi and works in Noida. Have travelled extensively worldwide and in India. Loves to travel and see the world.
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One Response to Bilateral Trade Mechanism : Absolute Golmal

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