Difference Between Bilateral and Multilateral Trade Agreements

Bilateral vs Multilateral Trade Agreements
 

Bilateral and Multilateral Trade Agreements are not uncommon terms, and that makes it easier to determine the difference between them. Indeed, although most of us might not be aware of their precise definition, we have a general idea as to their meaning. In simple terms, Bilateral refers to something between two people, groups or countries while Multilateral suggests something between three or more people. Before proceeding to examine each term in detail, it is necessary to define a Trade Agreement. A Trade Agreement, sometimes called a trade pact, refers to a document that contains conditions in relation to the trade of certain goods, the reduction or suspension of trade tariffs or quotas and investment guarantees.

What are Bilateral Trade Agreements?

As mentioned above, Bilateral refers to something that is made between two parties. Thus, a Bilateral Agreement is an agreement made between two nations in relation to political, economic, or military matters. A Bilateral Trade Agreement is an economic agreement made between two countries, trade blocs, or groups of countries. Such trade agreements typically contain the terms of trade in relation to certain goods and/or restrictions on the trade of a particular good. However, for the most part, Bilateral Trade Agreements are made with the objective of enhancing and promoting trade and investment between the two countries in the agreement. This enhancement and promotion of trade is achieved through the reduction or exclusion of trade tariffs, quotas, restraints on exports, and any other barriers to trade. Above all, Bilateral Trade Agreements assist in the reduction of trade deficits. Another feature attached to such agreements is the concept of ‘most favoured nation’ status. This is a trade status accorded to certain countries wherein preference is given to these countries to obtain certain goods. A classic example of a Bilateral Trade Agreement is an agreement signed between two countries, such as the United States and India.

What are Multilateral Trade Agreements?

A Multilateral Trade Agreement is between many parties, usually more than two. Thus, it is an economic agreement between three or more countries at the same time. As with Bilateral Trade Agreements, the purpose of a Multilateral Trade Agreement is to promote, enhance, and regulate trade between the contracting nations in an equal manner. Traditionally, such agreements are entered into with the objective of reducing trade barriers between the contracting countries and promoting economic integration. Given the multiplicity of parties in such an agreement, it is far from simple and produces a high degree of complexity during negotiations. However, if the negotiations are successful and the terms are collectively agreed upon by all countries to the agreement, then it constitutes a very effective and powerful international agreement.

As mentioned before, the defining feature of such an agreement is that all nations involved in the agreement are treated in an equal manner in relation to the terms of trade and restrictions. Thus, developing and developed countries have an equal position in such an Agreement. The benefit of a Multilateral Trade Agreement is that the duties, tasks, and risks are evenly distributed among the nations. Thus, it does not detrimentally affect one party alone. Examples of Multilateral Trade Agreements include the North American Free Trade Agreement (NAFTA), which facilitates trade between the United States, Canada, and Mexico, and more significantly, the General Agreement on Trade and Tariffs (GATT), a Multilateral Trade Agreement signed mid-20th century between 150 countries. The ultimate objective of this agreement was to facilitate the reduction of trade tariffs and other trade barriers.

What is the difference between Bilateral and Multilateral Trade Agreements?

Identifying the difference between Bilateral and Multilateral Trade Agreements is a relatively simple task. At the very outset, the two terms differ in quantity, particularly with reference to the contracting parties.

• Number of Parties:

• A Bilateral Trade Agreement is an agreement signed between two parties or countries.

• In contrast, a Multilateral Trade Agreement is a trade agreement signed between three or more countries.

• Purpose:

• A bilateral trade agreement is signed in relation to the trade of certain goods, opportunities for the promotion of trade and investment and the reduction of trade barriers.

• The main purpose of a multilateral trade agreement is reducing trade tariffs. Most importantly, Multilateral Trade Agreements guarantee the equal treatment of all nations or parties involved and evenly distribute the risks associated with such Agreements.

Images Courtesy:

1. Prime Minister Goh Chok Tong and U.S. President George W. Bush signing the US-Singapore Free Trade Agreement via Wikicommons (Public Domain)
2. Trans-Pacific Strategic Economic Partnership Agreement (TPP) by Gobierno de Chile (CC BY 2.0)