Bilateral trade is the exchange of goods between two nations to promote commerce and investment. By reducing or eliminating tariffs, import quotas, export restraints, and other trade barriers, countries can enhance trade and stimulate economic growth.
In the United States, the Office of Bilateral Trade Affairs is instrumental in minimizing trade deficits by negotiating free trade agreements, supporting existing trade accords, and promoting economic development abroad.
Key Takeaways
- Bilateral trade agreements signify a cooperative effort between two countries to boost trade and commerce.
- These agreements eliminate trade barriers like tariffs and import quotas, encouraging trade and investment.
- The primary advantage of bilateral trade agreements is market expansion for a country’s goods through targeted negotiation between two nations.
- Such agreements can, however, lead to the closure of smaller companies unable to compete with large multinational corporations.
Understanding Bilateral Trade
The primary objective of bilateral trade agreements is to expand market access between two nations and spur their economic growth. Standardized business operations in areas like regulations, labor standards, and environmental protections help prevent unfair competitive practices, such as intellectual property theft, dumping goods at reduced prices, or using unfair subsidies.
The United States has signed bilateral trade agreements with 20 countries, including Israel, Jordan, Australia, Chile, Singapore, Bahrain, Morocco, Oman, Peru, Panama, and Colombia. Other notable agreements include the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), involving smaller Central American economies and the Dominican Republic, and the United States-Mexico-Canada Agreement (USMCA), which replaced the earlier NAFTA agreement.
Advantages and Disadvantages of Bilateral Trade
Bilateral trade agreements are more straightforward to negotiate compared to multilateral agreements, involving only two nations. These agreements can quickly initiate and yield trade benefits. When multilateral negotiations prove challenging, many countries opt for bilateral treaties.
However, the creation of new agreements can induce competition among other countries, thereby reducing the unique advantages offered by the original Free Trade Agreement. Additionally, while expanding the market for goods, these agreements might burden smaller companies unable to compete with larger multinational corporations possessing significant capital and resources.
Real-World Examples of Bilateral Trade
In October 2014, the United States and Brazil settled a longstanding cotton dispute under the World Trade Organization (WTO). Brazil terminated the case, agreeing not to bring further proceedings against U.S. trade policies, leading to the removal of significant trade barriers and countermeasures worth millions of dollars annually.
In March 2016, the U.S. government reached an agreement with Peru to remove restrictions on U.S. beef exports, previously limited to certified establishments. The agreement opened one of Latin America’s fastest-growing markets, significantly increasing market access for American ranchers by eliminating previous export verification program requirements.
Related Terms: Free Trade Agreements, Multilateral Trade Agreements, Trade Barriers, Economic Development.
References
- Office of the United States Trade Representative. “Free Trade Agreements”.
- Office of the United States Trade Representative. “United States-Mexico-Canada Agreement”.
- White House Archives. “President Bush Expanded and Enforced Trade Agreements to Open New Markets for American Products”.
- Office of the U.S. Trade Representative. “United States and Brazil Reach Agreement to End WTO Cotton Dispute”.
- Office of the United States Trade Representative. “United States Secures Full Access for U.S. Beef and Beef Products to Peru”.
