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What is bilateral trade?

Bilateral trade is an agreement between two countries to mutually expand their markets. Learn more advantages and disadvantages in bilateral trade.

Bilateral trade refers to the exchange of goods between two nations, with the primary objective of promoting trade and investment activities¹. In this, the involved countries engage in efforts to reduce or eliminate various trade barriers, including tariffs, import quotas, export restrictions, and others. By doing so, the countries aim to create a productive environment that fosters and encourages increased trade between the countries. In this blog post, we will discuss bilateral trade in detail.

What are bilateral trade agreements?

A bilateral trade agreement represents a formal accord established between two or more countries outlining specific terms and conditions governing trade, commerce, transit, or investment between them. Typically, these agreements involve concessions that are mutually advantageous to the participating nations. The type and nature of a trade agreement depends on the terms and concessions agreed upon by the involved entities.

Bilateral trade agreements have two primary objectives: one, to broaden market access between the participating countries and, two, to increase economic growth. They standardize business operations in five domains to prevent unfair practices — these include dumping goods at low prices, or using unfair subsidies. Additionally, bilateral trade agreements standardize regulations, labor standards, and environmental protection rules that ensure fair and sustainable trade practices between the countries².

Advantages of bilateral trade agreements

The benefits of bilateral trade agreements are as follows:

Access to new markets

Bilateral trade agreements open up new markets for country’s goods that enhance the economic opportunities for businesses.

Standardizing business operations

In bilateral trade agreements, a crucial aspect is the standardization of business operations including establishing consistent regulations, labor standards, and environmental protection rules. This helps prevent practices such as intellectual property theft, where one country might steal another’s innovative products and deter the dumping of goods at unrealistically low prices. Additionally, they address unfair subsidies to businesses and set common labor standards to protect workers’ rights and ensure fair employment practices. Environmental protections are also included to promote sustainability. By standardizing these elements, bilateral trade agreements create a stable and transparent trade environment, ensuring fairness between the two trading partners.

Stronger trade relations

Bilateral trade enables quicker negotiations because only two parties are involved in the agreement. This helps the parties reaps stronger and faster trade benefits as compared to other types of agreements, such as multilateral trade agreements.

Disadvantages of bilateral agreements

Some of the drawbacks of bilateral agreements are as below:

Disruption of local markets

Entry of large multinational corporations into local markets can disrupt smaller players, possibly leading to business closures due to heightened competition.

Limited regional impact

Bilateral trade agreements may not promote regional economic integration as effectively as compared to other types, such as multilateral agreements.

Higher complexity

Managing the multiple bilateral agreements can become complex for countries that are engaging in numerous trade partnerships.

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Frequently Asked Questions

Who facilitates bilateral trade agreements?

The World Trade Organization (WTO) facilitates bilateral trade agreements⁶.

Are bilateral trade negotiations superior to multilateral negotiations?

Neither bilateral trade negotiations nor multilateral organizations are superior. Only bilateral trade negotiations deal with fewer parties as compared to multilateral, which enhances the overall speed of trade².

What is unilateral trade?

Unilateral trade agreements involve developed countries granting one-sided trade preferences to developing nations without expecting reciprocal concessions. The aim is to stimulate economic growth in developing countries by increasing their exports⁷.

Published on November 14, 2023.

Sources:
1. https://www.investopedia.com/terms/b/bilateral-trade.asp
2. https://www.tpci.in/research_report/types-of-trade-agreements/
3. https://commerce.gov.in/international-trade/trade-agreements/indias-current-engagements-in-rtas/india-eu-broad-based-trade-and-investment-agreement-btia-negotiations/
4. https://commerce.gov.in/international-trade/trade-agreements/indias-current-engagements-in-rtas/asia-pacific-trade-agreement-apta-as-of-july-2014/
5. https://ustr.gov/trade-agreements/free-trade-agreements/morocco-fta
6. https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr_e.htm#:~:text=The%20WTO's%20overriding%20objective%20is,a%20forum%20for%20trade%20negotiations
7. https://trade.ec.europa.eu/access-to-markets/en/content/unilateral-trade-arrangements#:~:text=Unilateral%20trade%20agreements%20are%20one,economic%20development%20in%20beneficiary%20countries

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