Definition of a Bilateral Trade Agreement

Agreement between two nations

A bilateral trade agreement is defined as an economic contract between two nation states. Bilateral agreements are used to improve economic trade imbalances between nations. Taxes, tariffs and quotas are often lifted, reduced or restricted on specific goods or services to realign trade deficits and restore economic stability between the two parties.

Bilateral Vs. Multilateral Trade Agreements

Trade contracts

The term bilateral denotes two sides to a given issue or issues. A multilateral trade agreement involves more than two nations and denotes multiple sides or viewpoints on a given issue or set of issues. Bilateral trade agreements most often occur between border nations such as the U.S., Canada and Mexico or superpower nations such as Russia, the U.S. and China. Multilateral trade agreements often occur between nations with mutual regional interests. For example, NAFTA (North American Free Trade Agreement) among Canada, the U.S. and Mexico is a recent example of a multilateral trade agreement.

Reciprocal Nature of Bilateral Trade Agreements

Bilateral agreements

Bilateral trade agreements are reciprocal in nature wherein one nation provides greater access to its economic markets in return for the ability to buy and sell goods and services within the borders of the other nation. Most reciprocal aspects of bilateral trade agreements involve the exchange of agricultural, automotive, and other industrial products. Natural resources and access to energy commodities are also a major concern of most bilateral agreements. In recent decades, however, worker unions and Internet technologies have also become topics of debate between nations.

Role of Bilateral Trade Agreements

Economic diplomacy

Bilateral trade agreements often play an important role in maintaining political as well as economic stability. The governments of the United States and China have often used bilateral trade discussions as a platform for finding mutual points of interest and understanding. As a result when political tension arises from outside parties governments often cite their bilateral trade agreements as evidence and reasoning for acting or not acting politically against one another. In some instances, bilateral agreements have opened the door to greater diplomatic discussions on health and human rights issues between countries.

Private Sector and Bilateral Trade Agreements

Environment and bilateral trade

Bilateral trade agreements now encompass environmental issues such as emission controls and private sector business concerns. Most notable of these concerns are private company investments in infrastructure within a given nation. Although multilateral agreements also take on these issues, bilateral agreements on trade, environmental and investment concerns are quickly enacted and thus more effective in the short term. However, such agreements also offer preferential positions economically and politically to those involved. Agreements specifically involving investment interests are often referred to as bilateral investment treaties.

Use of Bilateral Trade Agreements

Presidential use of bilateral trade agreements

Bilateral trade agreements were a favored tool during the presidency of George W. Bush. Rather than hold wide, sweeping multilateral discussions, his administration favored bilateral agreements for specific issues between the U.S. and other nations. Some critics believe this was in part because U.S. laws allow a president to enter into and sign bilateral agreements without Congressional oversight. Others, however, believe this was an attempt to simply solve trade issues unique to each nation's interests.

References

• Council on Foreign Relations: The Rise of Bilateral Free Trade Agreements
• Office of the U.S. Trade Representative: Bilateral Investment Treaties
• Library of Economics and Liberty: International Trade Agreements