The primary difference between bilateral and multilateral trade lies in the number of participants, i.e. in a bilateral trade agreement involve two participants i.e. two nations, whereas in the case of multilateral trade agreements, entails three or more nations without discrimination between the countries involved.
What is International Trade?
International trade means the exchange of goods and services among multiple nations, wherein domestic companies can export their specialties to other nations and import specialties from other nations. It can be of two types bilateral trade and multilateral trade.
What is Trade Agreement?
Trade Agreement refers to the contract between trading nations, with regard to their trading relationship. These are meant to lower trade barriers between the contracting countries, and as a result of which degree of economic integration between the participating nation increases.
Also Read: Difference Between GATT and WTO
This post will help you understand the difference between bilateral trade and multilateral trade in detail.
Content: Bilateral Trade Vs Multilateral Trade
|Basis for Comparison||Bilateral Trade||Multilateral Trade|
|Meaning||Bilateral trade is the trading of goods and services between two countries.||Multilateral trade is the trading of goods and services among several countries.|
|Encourages||Economic Cooperation between two countries.||Globalization that integrates many countries in the world.|
|Negotiations||Separate negotiations must be done with different countries on one to one basis.||Negotiations can be done with many countries together.|
|Nature of Trade||Complementary||Supplementary|
Definition of Bilateral Trade
The trade that takes place between two nations is called bilateral trade. In this trade, the member nations exchange their goods and services with one another on a preferential basis, based on an agreement, a bilateral trade agreement. In bilateral trade, the countries involved enjoy a number of privileges like favorable import quotas.
The aim of a bilateral trade agreement is to widen the access between the markets of the two nations and increase their economic growth and trade. It grants preferential trading status amidst the two nations.
- It eliminates tariff and non-tariff barriers, which results in price advantage to both countries, especially when the two nations specialize in different industries.
- Also, the trading nations agree to offer products at fair prices only, and not at cheap rates to get unfair market share and eliminate competition.
- Government refrains from taking unfair advantage of subsidies, for those industries which are subsidized by the government, due to which the cost is reduced and the producers export them into another country.
- Standardization of regulation, labor laws, and environmental protection, which helps in getting a competitive edge over its competitors.
- Countries adopt copyright and intellectual property laws, and so they agree to not steal innovative products from one another.
On the basis of the above points, we can say that bilateral trade refers to the trade of goods and services between two nations encouraging trade and investment. Hence, the two nations lift or reduce trade barriers like tariffs, quotas, export restraints, etc. The primary benefit of these agreements is the expansion of markets for a country’s goods by way of collaborative negotiation between two countries. Its objective is to expand
Also Read: Difference Between Free Trade and Fair Trade
Definition of Multilateral Trade
Multilateral Trade Agreement refers to the trade agreement that is executed among multiple nations to buy from and/or sell to one another preferentially or a country may be in agreement with several countries to trade with the rest of signatories, either preferentially or on terms restricting trade among themselves. Multilateral Trade Agreement is a trade treaty among various nations. This promotes the global economy, by opening markets for both developed and developing countries.
- This facilitates the reduction or lifting of trade barriers among the trading countries like tariffs, taxes, subsidies, and embargoes and thus makes it easy to import and export.
- All those nations which sign the trade treaty are considered equal. Therefore, no nation can provide better trade deals to a single country only.
- Boosts trade in the member nations and so they can take the benefit of a low tariff, as their exports become economical.
- Agreement standardizes trade regulations for all participants. This reduces legal costs as all the nations have similar rules for import and export.
- Negotiation of trade deals with multiple countries at a time. Thus, it saves a lot of time.
- This leads to the development of emerging markets which results in the development of the economy over a period of time.
In other words, trade agreements undertaken by more than two countries are called multilateral trade agreements, and the trade following as a consequence of such agreement is known as multilateral trade.
Key Differences Between Bilateral Trade and Multilateral Trade
After discussing the meaning of these two terms, let us move further to understand the difference between bilateral trade and multilateral trade:
- Bilateral trade implies the exchange of goods and services between two nations. As against, Multilateral trade refers to the trade between three or more than three nations.
- While bilateral trade results in economic cooperation between two countries, multilateral trade promotes globalization that integrates all the participant nations.
- When it comes to negotiations in the case of bilateral trade, the country has to go through separate negotiations with different countries at different points in time on a one-to-one basis. Conversely, negotiations with multiple countries can be done in the case of multilateral trade at the same time.
- Bilateral trade usually takes place between those countries which specialize in different industries. Hence, the commodities exchanged are complementary in nature. On the other hand, in the case of multilateral trade, the commodities exchanged are supplementary in nature.
Bilateral or multilateral trade agreements are generally entered between the biggest supplier and/or biggest importer of the commodities. An ideal example of this is International Wheat Agreement. As per this agreement the maximum price at which the exporting nations are guaranteed to provide a specified amount of wheat to the importing nations, and the minimum price at which the importers are ready to purchase specified amounts of wheat from exporters.
Trade Agreements that raise access to the participating country’s markets are generally encouraged by those sectors that export their products. However, they are resisted by those sectors which face competition from imports.