Bilateral Trading

Bilateral trading is a trade agreement between two countries where each country agrees to open its market to the other country's products.

Countries generally agree to remove tariffs and non-tariff barriers, which are taxes on imports. Bilateral trading agreements also standardize regulations across countries to ensure trading partners play by the same rules.

Further, they often include information-sharing, enforcement, and dispute resolution provisions. A bilateral trade agreement is usually more narrow than a regional or multilateral trade agreement because it only includes two countries.

Since they are created to address specific issues between each country, bilateral agreements can be easier to negotiate and implement than multilateral agreements.

The Office of Bilateral Trade Affairs in the United States is committed to reducing America's trade deficits through free trade negotiations with new countries and supporting existing ones. They also promote economic development abroad, as well as other actions that will help them achieve their goals in this area.

The United States has signed agreements with 20 countries representing a wide range of trade partners, including Singapore, Morocco, Jordan, Israel, Australia, Oman, Chile, Bahrain, Colombia, Panama, and Peru.

Benefits of Bilateral Trading

Bilateral trade agreements are beneficial to the countries involved for the following reasons:

Economic Growth Expansion

Bilateral trade agreements increase access to new markets, enabling smaller economies to increase their exports. These increases return on foreign direct investments, which helps the countries' economic growth.

Standardized Business Operations

Trade agreements between two countries standardize regulations, labor standards, and environmental protections to prevent one country from stealing another's innovative products, dumping goods at a small cost, or using unfair subsidies. This ensures predictable business practices between two trading partners.

Stronger Trade Relations

The countries involved establish stronger business relationships which can help create trust. This trust could eventually lead to other types of agreements or create a dynamic bilateral trading relationship.

Creation of a Stable Business Environment

Bilateral trade agreements create a stable business environment that prevents governments from changing the rules of the game by creating new tariffs or barriers to entry. It gives businesses predictability regarding import and export regulations.

More Job Opportunities

These agreements increase economic growth, which creates many new job opportunities. The job opportunities also lead to higher salaries, which equals higher living standards.

Drawbacks of Bilateral Trading

Bilateral trade agreements are not without pitfalls. Here are some drawbacks to consider:

Lack of market size

The ability to trade with another country only expands market access if that country is large enough compared to the trading partner. Often, this trade agreement requires sacrificing some competitive advantage due to the relatively small size of these markets.

Higher costs

One disadvantage of bilateral trading agreements is the cost of complying with additional regulations and standards. It can also cause businesses to face higher production costs if they export higher-cost products.

Less influence

Bilateral trade agreements typically create less influence in politics, especially when getting attention from larger economies or the international community. This can create problems if a country tries to negotiate a global trading agreement.

Examples of Successful Bilateral Trades

There are many successful bilateral trades around the world. These include:

United States - Chile Free Trade Agreement (FTA)

The United States - Chile Free Trade Agreement (FTA) took effect on January 1, 2004. This agreement eliminates all tariffs and opens markets, reduces trade barriers in services, and provides protection of intellectual property rights.

The agreement also ensures regulatory transparency between the parties by guaranteeing nondiscrimination when selling digital products.

There are also commitments within this agreement ensuring competition laws will be maintained, so no individual firm becomes too powerful at the expense of other businesses, and it further requires effective labor and environmental enforcement.

United States - Morocco Free Trade Agreement (FTA)

The United States - Morocco Free Trade Agreement (FTA) went into effect on January 1, 2006. This agreement addresses barriers to trade and investment by lowering tariffs and removing barriers for significant economic and political reforms.

The U.S has seen a sharp increase in trade with Morocco since the FTA went into effect, reaching $1.8 billion in 2011. In that year, U.S. goods exports reached $2.8 billion, and imports from Morocco were $996 million, 45 percent higher than the previous year.

Morocco became the 55th largest export market for U.S. goods with these numbers.

United States - Brazil Agreement on Trade and Economic Cooperation

The United States - Brazil agreement went into effect in 2011 and has benefited both countries by enhancing cooperation on trade and investment. It includes expansion on direct trade and investment relationships through cooperation on issues such as innovation, technical barriers to trade, and trade facilitation.

In 2019, U.S. goods and services with Brazil reached $105.1 billion, with exports at $67.4 billion, and imports were $37.6 billion. Brazil became the 9th largest goods export market in the U.S. in 2019.

The Future of Bilateral Trading in a Globalized Economy

Companies need to grow their own market share. As the world becomes ever more integrated through the growth of technology, businesses need to look at potential new opportunities in different countries or regions worldwide.

Looking at bilateral trading may be an option for some industries. However, many businesses will need to diversify and expand their trading portfolio to remain competitive.

Some countries are creating trading blocs that are working on establishing free-trade agreements between partners, further minimizing tariffs and increasing market access for businesses.

Businesses need to remain up-to-date on different trade agreements and market opportunities to take advantage of them when the time is right.

Further, global businesses that plan to expand into new markets must consider that country’s political and socio-economic conditions. If a business is looking into setting up production facilities, it will need to be cognizant of the environment, such as safety regulations and import/export policies.

It is also important for companies to analyze how global trade has impacted existing markets and how it could potentially affect their product or service. In the 21st century, a world without borders is a possibility, and companies must be proactive to remain competitive in the global marketplace.

FAQs

1. What is bilateral trading?

Bilateral trading is a trade agreement between two countries where each country agrees to open its market to the other country's products.

2. What are the benefits of bilateral trading?

Bilateral trading benefits both countries, including higher trade volume and economic growth resulting from increased market access.

3. What are the drawbacks of bilateral trading?

Bilateral trading has its disadvantages, such as the loss of market share for less competitive industries and higher prices due to lack of competition.

4. What is the difference between bilateral trading and multilateral trading?

Multilateral trading comprises many countries, while bilateral trading is between two specific countries.

5. What are examples of successful bilateral trades?

The United States and Morocco, the U.S and Brazil, and the European Union and Japan trade agreements are all examples of successful bilateral trades.