BUSINESS

The new free agents

Old-fashioned swaps make a comeback

DEIRDE McMURDY March 16 1992
BUSINESS

The new free agents

Old-fashioned swaps make a comeback

DEIRDE McMURDY March 16 1992

The new free agents

BUSINESS

Old-fashioned swaps make a comeback

When sports czar Bruce McNall of Los Angeles bought the Toronto Argonauts football team last April, the faltering franchise got more than an injection of California-style glitter. With celebrity partners Wayne Gretzky and actor John Candy, McNall paid $30.1 million to attract U.S. football phenomenon Raghib (Rocket) Ismail to Toronto. But he also brought lower-profile innovations to his new franchise. Soon after taking over the Argonauts, McNall’s executives began scouring southern Ontario for a barter network. What they had to trade was unsold Argonaut tickets and advertising at games; what they sought in return was printing and other services that the football club needed. Eventually, McNall’s emissaries settled on BarterPlus Systems Inc., a two-year-old Toronto organization whose 425 members routinely swap anything from dental services to office equipment— without a penny changing hands. Explained BarterPlus president Michael Caron: “Los Angeles is where the roots of barter trade lie, and McNall is very familiar with it. It is considered common practice and good business there.”

In fact, barter predates Los Angeles by thousands of years. But at a time when both personal incomes and corporate profits are under intense pressure, the time-honored practice of direct exchange of goods and ser-

vices is enjoying a vigorous rebirth. In many smaller communities, where neighbors have traditionally traded, bartering has taken on new importance among the victims of rising unemployment. But increasingly, cashless transactions are taking place in the heart of the country’s largest cities—and in the most respectable boardrooms. Trade exchanges similar to Caron’s BarterPlus now operate in several Canadian cities. And a growing number of Canadian businesses are following a path initially blazed by such corporate giants as Xerox Ltd., McDonnell Douglas Helicopter Co. Ltd. and Boeing Co. They first created so-called counter-trade divisions to organize exchanges of excess inventory during the last recession. Although barter transactions are legal in themselves, they create a growing zone for tax evasion when businesses and professionals fail to report exchanges that are supposed to be reported for taxation. At the same time, for Canadian companies trying to do business with the former Eastern Bloc, barter may be the only way of securing a deal (page 38).

Although urban Canadians, at least, have been slower than Californians to embrace bartering, John Madsen, president of the BarterCard Trade System in Vancouver, declared: “Barter has grown from an under-the-table activity to a respectable status.” Individuals

and small businesses can now choose from about 450 commercial trade exchanges across North America, many of which have been established over the past decade. In Canada, the five major exchanges operating in Montreal, Toronto and Vancouver claim from 250 to 1,000 members each—in all, about 3,000 people who annually make trades valued at about $10 million.

Most exchanges operate on roughly the same principles, collecting initiation and annual membership fees of about $500 in exchange for regular bulletins listing the goods and services that members have available for trade. On offer through Calgary-based Trademark explosives used in mining and seismic equipment in exchange for a new four-wheel-drive vehicle, and welding services in exchange for real estate in neighboring British Columbia. In addition to membership fees, most trade exchanges also attempt to collect a service charge (10 per cent is average) on the estimated value of trades between members. Said Caron: “We provide a return to

the tradition of trade within a small community. We’re like a village nestled within a city.”

The appeal of barter has heightened since the federal government introduced its Goods and Services Tax in January, 1991, greatly expanding the number of taxable commercial transactions. In a survey of its 25,000 members that the Canadian Federation of Independent Business reported last month, 27 per cent of owners said that they had lost business to the expanding black market because of the GST. For that same reason, experienced shoppers report that cash payment for goods now routinely commands a discount. Noted one retailer who willingly lowers his prices in return for cash, of Canada’s black market: “For the little guy, avoiding the GST is about avoiding administrative headaches. It’s not just the money.” For the growing number of unemployed, barter also offers a way to supplement government benefits without incurring the reductions in welfare or unemployment insurance benefits that would result from paid labor. Said one fishplant worker in Port aux Basques, Nfld., who, like most other barterers, asked for anonymity out of concern about possible prosecution: “We’re talking babysitting to painting, carpentry to working on your car engine—anything and everything.” Added the Newfoundlander: “Usually, it’s someone on unemployment insurance looking to make a few more bucks. What the government doesn’t know won’t hurt it.”

But the practice is also increasingly popular among white-collar professionals. Trade exchange operators report that some dentists are turning to barter as the basis for treating newly unemployed patients whose dental bills are no longer covered by company health-insurance plans. For his part, lawyer David Klein is a member of all three of Toronto’s trade ex-

changes. Over the past several years, he has traded his legal services for a telephone system, office furniture, stationery and printing. Said Klein: “A cash sale is always better than barter. But if you have some extra capacity in your business and it doesn’t take away from cash clients, it can reduce your overhead and help you tap into a new market.”

It can also get barterers into trouble with tax

authorities if they fail to report and pay tax on their transactions—and wind up getting caught. Although Klein, for one, says that it is highly imprudent for businesses to risk being prosecuted by not paying tax on every one of their barter transactions, he adds that he is nonetheless convinced that few individual traders actually do declare their full value. Said Revenue Canada’s director general of audits, Edouard Gauthier: “Barter is a concern for Revenue Canada.

The department realizes that it’s impossible to track most of these deals—they’re never recorded. And in rural areas, where it’s most common, barter is a way of life.”

For their part, trade exchange operators say that they inform their members that it is their responsibility

to report any transaction to provincial and federal tax authorities. They, in turn, will charge provincial sales tax and the GST on the trade value of the transaction. For businesses, many trades are also eligible for deductions as operating expenses. Still, few participants in Canada’s thriving unregulated economy dis-

pute Klein’s claims that most of it occurs beyond the reach of the law.

But there are other potential drawbacks to barter. In some cases, traders report problems in collecting the reciprocal goods or services that they have been promised. Said Madsen: “You always have to use your head. Barter is not for lazy shoppers. Cash is like turning the key on a powerboat, but barter is like sailing.

You have to tack across the lake. It’s not a straight line.”

Canadian trade exchange operators say that they try to weed out potentially troublesome members in advance. They add that they quickly withdraw membership from anyone who fails to hold up his side of a trade. The same

standards apply when trade exchanges arrange deals with other networks in Canada or the United States. But while the 13-year-old Virginia-based International Reciprocal Trade Association polices U.S. trade systems, its fledgling counterpart, the five-member, Vancouverbased Canadian Reciprocal Trade Association, acknowledges that it has neither the money nor the staff to oversee the activities of Canadian

trade exchanges.

Before its latest surge in popularity, barter was an accepted practice in some businesses. Publishing companies have long exchanged advertising space and art services for such items as computer equipment, airline travel credits and hotel rooms. Even investment dealers have developed a form of bartering that they call “softdollar” trading, in which security brokers reward their most valued clients with such benefits as free research, computer software and news wire services. Said Garrett Herman, president of Toronto-based Loewen, Ondaatje, McCutcheon and Co. Inc.: “With soft dollars, the dealer gets the business and the client gets the trade, plus something else he needs but doesn’t have to write a

cheque for.” But as the economy continues its sluggish recovery, more and more businesses and consumers are finding that doing business does not always mean exchanging money.

DEIRDE McMURDY

JOHN DeMONT

JOHN HOWSE