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Russian: Байбэк

Buyback, or compensation deal, involves repayment in the form of goods derived from directly from, or produced by, the technology, plant, or equipment provided by the seller. A buyback occurs when a firm builds a plant in a country--or supplies technology, equipment, training, or other services to the country--and agrees to take a certain percentage of the plant's output as partial payment for the contract. For example, Occidental Petroleum negotiated a deal with the former Soviet Union under which Occidental would build several ammonia plants in the Soviet Union and as partial payment receive ammonia over a 20 - year period.

The buyback is a such form of countertrade that often involves two separate and parallel contracts. In one contract, the supplier agrees to build a plant or provide plant equipment, patents or licenses, or technical, managerial, or distribution expertise for a hard currency down payment at the time of delivery. In the other contract, the supplier company agrees to take payment in the form of the plant's output equal to its investment (minus interest) for a period of as many as 20 years[1].

Essentially, the success of compensation trading rests on the willingness of each party to be both a buyer and a seller. The People's Republic of China has used compensation trading extensively. Egypt also used this approach to develop an aluminum plant. A Swiss company, Aluswiss, built the plant and also exports alumina (an oxide of aluminum found in bauxite and clay) to Egypt. Aluswiss takes back a percentage of the finished aluminum produced at the plant as partial payment for building the plant. As this example shows, compensation differs from counterpurchase in that the technology or capital supplied is related to the output produced[2]. In counterpurchase the goods taken by the supplier typically cannot be used directly in its business activities. The Hungarian government had purchased jean production equipment and technology from Levi’s, in return the firm agreed to purchase a percentage of the jeans manufactured by the Hungarians[3].

International buy-back contracts[4]

In the buyback deals, the object of the primary transaction is machinery, equipment, patents, know-how, or technical assistance (hereinafter "equipment/technology") that will be used to set up production facilities for the buyer. In buyback arrangements the seller and buyer of a primary transaction agree that the seller will subsequently buy (or will cause third parties to buy) products from the buyer (or from third parties in the buyer's country). Therefore, two or three parties could be involved into the deal. As in counterpurchase, both flows of products are paid for in money, and the value of the products bought back may be lower than, equal to or higher than that of the products of the primary transaction.

Only two parties. Buy-back in its simplest form involves only two parties. One of the parties assumes the rights and obligations of a seller with regard to the primary transaction and those of a buyer in the buy-back transactions, while the other party takes the roles of seller and buyer in reversed order.

Third parties as implementing sellers. However, it is possible that more than two parties are involved in a buy-back transaction. Thus, it may happen that the equipment/ technology which is the object of the primary transaction will not be used by the buyer itself (who might be a foreign trade organization or a trading-house), but is being bought, licensed or otherwise acquired by it in the interest of a third party who will then set up the actual production facilities. In such a case, the buy-back products may be purchased from that third party, and not from the buyer of the primary transaction.

Third parties as implementing buyers. In cases where the products sold in buy-back are not suitable for in-house use by the original seller, it is often agreed that he will have the right to assign his buy-back obligation to third parties, who will then discharge buy-back obligation of the original seller.

When the parties are negotiating the details of a buy-back transaction, one of the first questions they must agree on is this is the contractual structure: will the various rights and obligations of the parties be evidenced in a single contract or will several contracts be drawn up for this purpose? The answer to this question will depend on the specific features of the individual transaction in question.

One contract. It may be said that, if, at the time when buy-back is agreed on, it is possible for the parties to lay down the exact specifications of the buy-back products, and if there are no third parties involved, there is usually no reason why the whole of the parties' rights and obligations could not be included in the same contract.

Separate contracts. In some cases, e.g., for financing reasons, separate contracts may be necessary.

Buyback Arrangement Scheme [5]


LEGEND (third parties involvement excluded):

  • [1] Negotiating and signing the buyback contract (contracts) having the subject to construct an object of industrial infrastructure in developing country under "turnkey" terms and conditions.
  • [2] Contractor invites investors.
  • [3] Contractor contracts subcontractors.
  • [4] Contractor exports goods/services under the said contract; contract deliveries could partly be made directly by subcontractors.
  • [5] When the primary transaction is executed and the contract object is ready the Contractee begins to deliver outputs (products) produced with help of the subject of the contract.
  • [6] Contractor offers the buyback products on the market.
  • [7] Contractee, as Contractor's agent, offers the buyback products on the market.
  • [8] Contractee transfers funds received from the buyback products sold to the Contractor; agent's commission is deducted in favor of the Contractee.
  • [9] In the case of simultaneous buyback products sales on the world market, the contract parties have to stipulate the market distribution in the said contract (or in special agreement).


  1. Keegan, W.J., Green, M.C. Global Marketing. Pearson, Boston, etc., 2011 - p.392.
  2. Daily, P., Ghazanfar, S. M. Countertrade: Help or Hindrance to Less-Developed Countries? // Journal of Social, Political, and Economic Studies 18, no. 1 (Spring 1993)
  3. Vorton, J. Understanding the different types of countertrade -
  4. International buy-back contracts -
  5. Черенков В.И. Внешнеэкономическая деятельность предприятия: основные операции (серия «Высшее образование»). Ростов-на-Дону «ФЕНИКС», 2007 - с. 113-116. (redesigned)
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