GLOBAL SELLING BLOG

What is bilateral trade? Meaning, advantages, and example

Bilateral trade is an agreement between two countries to mutually expand their markets. Learn more about 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 activities. ¹ The involved countries attempt to reduce or eliminate various trade barriers, including tariffs, import quotas, export restrictions, and others, to foster 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 is a formal accord between two countries which outlines specific terms for trade, commerce, transit, or investment. Typically, these agreements involve mutually beneficial concessions. The type and nature of a trade agreement depends on the agreed terms and concessions.

Broadly, bilateral trade agreements have two primary objectives:
• To broaden market access between participating countries.
• To increase economic growth.
These agreements standardize business operations to prevent unfair practices, such as dumping goods at low prices or using unfair subsidies. Bilateral trade agreements also standardize regulations, labor standards, and environmental protection rules to ensure fair and sustainable trade practices between countries.²

Advantages of bilateral trade agreements

Some of the benefits of bilateral trade agreements are as follows:

1. Access to new markets

Bilateral trade agreements open up new markets, which enhances economic opportunities for businesses.

2. Standardizing business operations

Bilateral trade agreements standardize operations by establishing regulations, labor standards, and environmental protection rules. This prevents intellectual property theft, dumping of goods at unrealistically low prices, and unfair subsidies. Common labor standards protect workers’ rights and include environmental protections to promote sustainability, creating a stable and fair trade environment between partner countries.

3. Stronger trade relations

With only two countries involved, bilateral trade agreements enable quicker decision-making and negotiations. This efficiency not only speeds up the realization of trade benefits but also fosters stronger and more direct relationships between the nations.³

Disadvantages of bilateral agreements

Some of the drawbacks of bilateral agreements are as below:

1. 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.

2. Limited regional impact

Bilateral trade agreements may not promote regional economic integration as effectively as multilateral agreements.

3. Higher complexity

Managing multiple bilateral agreements can become complex for countries that are engaging in numerous trade partnerships.⁴

Example of bilateral trade

Australia-India Economic Cooperation and Trade Agreement (ECTA) is a great example of a bilateral trade agreement. This agreement came into force in 2022 with the objective of improving trade and economic relations of both the countries by eliminating tariffs and other trade barriers.

Key outcomes of the India-Australia ECTA include:

1. Tariff reductions:

This is India’s first trade agreement with 100% tariff elimination by its partner country. Major tariff cuts on food, medical devices, gems and jewelry, textiles, etc. have improved market opportunities in both countries.

2. Increased trade volume:

The ECTA has boosted bilateral trade, benefiting exporters and consumers in both India and Australia. For instance, Indian exports of iron and steel, apparel, jewelry, and agriculture products saw significant growth in the first year, while Australia’s agricultural exports to India rose by 50%, particularly in sheep meat, seafood, and citrus.⁷

3. Investment growth:

Australian investors have increasingly invested in key sectors like infrastructure, with substantial growth potential in metallurgical coal, copper, and gold exports to India by 2035. Additionally, attracting Indian investment into Australia's resource sector can drive capital inflows and job creation.⁸

The India-Australia CECA explains how countries can unlock economic activity and promote trade relations through bilateral trade agreements that can be beneficial to both nations.

Differences between bilateral trade and multilateral trade

Bilateral trade involves an agreement between two countries, while multilateral trade involves an agreement between three or more countries. Some key differences between bilateral and multilateral trade agreements are as follows:

Amazon Global Selling: Easy e-commerce exports and hassle-free shipping

If you are a business owner and you want to sell your products across the world, Amazon Global Selling enables you to list and sell ‘Made in India’ products on 18+ Amazon global marketplaces. As an e-commerce exports program, Amazon Global Selling provides support and guidance at every step of your exports journey – documents and licenses, logistics, payments, advertising, and more.

Registered sellers can choose to ship their products by themselves through Merchant Fulfilled Network (MFN) or they can opt for Fulfillment by Amazon (FBA) and outsource order fulfillment to Amazon including packing, storage, delivery, and returns. Amazon Global Selling simplifies the process of international shipping, helping businesses navigate customs and reach a vast audience.

Frequently Asked Questions

Who facilitates bilateral trade agreements?

Bilateral trade agreements are typically facilitated by the governments of the two countries involved. In some situations, the World Trade Organization (WTO) may also facilitate a bilateral trade agreement.

Are bilateral trade negotiations superior to multilateral negotiations?

Both bilateral and multilateral trade negotiations have their own advantages and challenges. However, since bilateral trade negotiations deal with fewer parties, they can be completed more swiftly than multilateral trade agreements.¹⁰

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 exports.

Published on November 14, 2023.

Sources:
1. https://www.investopedia.com/terms/b/bilateral-trade.asp

2. https://www.investopedia.com/terms/b/bilateral-trade.asp

3. https://www.carboncollective.co/sustainable-investing/bilateral-trading

4. https://www.carboncollective.co/sustainable-investing/bilateral-trading

5. https://www.dfat.gov.au/trade/agreements/in-force/australia-india-ecta

6. https://commerce.gov.in/wp-content/uploads/2022/09/FAQs-for-IndAus-ECTA-2.pdf

7. https://www.thehindubusinessline.com/economy/australia-india-ecta-working-well-for-both-countries-australian-official/article68135555.ece

8. https://www.dfat.gov.au/publications/trade-and-investment/india-economic-strategy/ies/chapter-4.html

9. https://www.geeksforgeeks.org/difference-between-bilateral-trade-and-multilateral-trade/

10. https://trade.ec.europa.eu/access-to-markets/en/content/unilateral-trade-arrangements#:~:text=Unilateral%20trade%20agreements%20are%20one,economic%20development%20in%20beneficiary%20countries

What is international trade: All you need to know about its importance and advantages

International shipping with Amazon: Everything you need to deliver globally

Sell across the world with Amazon Global Selling

Ready to start exporting from India?

Want to learn about Amazon Global Selling?

Here's your guide

Read more blogs

Disclaimer: Whilst Amazon Seller Services Private Limited ("Amazon") has used reasonable endeavours in compiling the information provided, Amazon provides no assurance as to its accuracy, completeness or usefulness or that such information is error-free. In certain cases, the blog is provided by a third-party seller and is made available on an "as-is" basis. Amazon hereby disclaims any and all liability and assumes no responsibility whatsoever for consequences resulting from use of such information. Information provided may be changed or updated at any time, without any prior notice. You agree to use the information, at your own risk and expressly waive any and all claims, rights of action and/or remedies (under law or otherwise) that you may have against Amazon arising out of or in connection with the use of such information. Any copying, redistribution or republication of the information, or any portion thereof, without prior written consent of Amazon is strictly prohibited.

*Map not to scale. The map has been used for design and representational purpose only, it does not depict the geographical boundaries of the country. These do not conform to the external boundaries of India recognized by the Survey of India.