Types of Trade Agreements

 

Trade agreement is any contractual arrangement between countries concerning their trade relationships. Trade agreements are usually unilateral, bilateral, or multilateral.

Unilateral Trade Agreement

In a unilateral trade agreement, the agreement is imposed on one country, organization or groups by another. So the action or decision is taken by one of the countries, groups or organizations. Here, the unilateral agreement is benefited to one country, organization or group. Trade restriction, minimizing of imports, imposing of higher import duty and taxes etc. are imposed to such group, country or organization. So least developed countries are more alert on such unilateral trade agreement against the imbalance of power by developed countries.

These occur when a country imposes trade restrictions and no other country reciprocates. A country can also unilaterally loosen trade restrictions, but that rarely happens. It would put the country at a competitive disadvantage. Developed countries only do this as a type of foreign aid in order to help emerging markets strengthens strategic industries that are too small to be a threat. It helps the emerging market's economy grow, creating new markets for foreign exporters.

Bilateral Trade Agreements

Bilateral trade agreements are the agreements between two nations for the purpose of exchange of goods and service each other for mutual benefit of both of the countries. Under Bilateral trade agreements; the exchange of agreements takes place in commercial relationship, trade facilitation, finance investment etc. So the trade between both of countries makes simple by simple procedures of imports and exports, cutting down or minimizing the taxes or duties on overseas trade among others.

The ultimate aim of any bilateral trade agreement between countries is to improve the economic status of both of the countries. Compared to multilateral agreements, bilateral agreements are easy to negotiate with terms and conditions of agreements.

Bilateral agreements involve two countries. Both countries agree to loosen trade restrictions to expand business opportunities between them. They lower tariffs and confer preferred trade status on each other. The sticking point usually centers on key protected or government-subsidized domestic industries. For most countries, these are in the automotive, oil, or food production industries.

Multilateral Trade Agreements

Multilateral trade agreements are made between two or more countries to strengthen economy of member countries by exchanging of goods and services among them. The multilateral trade agreement builds commercial relationship, trade facilitation and financial investments among member countries of such multilateral trade agreement. Compared to bilateral trade agreement, multilateral trade agreements are difficult in negotiation of agreement, as more member countries are involved in multilateral trade agreements. Up to the level of norms in multilateral trade agreement, the member countries are treated equally.

The multilateral trade agreements can be formed in regional basis also. There are many multilateral trade agreements between countries worldwide regionally for the development of economy of each member countries signed in each multilateral trade agreement. South Asian Association for Regional Cooperation (SAARC), North American Free Trade Agreement (NAFTA), among others are some of the multilateral trade agreements constructed geographically. The multilateral trade agreements are moved globally for public health, environment etc. also other than economic development of each member country and in turn over all development of world nations. 

In addition, multilateral agreements among three countries or more are the most difficult to negotiate. The greater the number of participants, the more difficult the negotiations are. By nature, they are more complex than bilateral agreements, as each country has its own needs and requests.

Multilateral agreements are very powerful once negotiated and they cover a larger geographic area, which confers a greater competitive advantage on the signatories. All countries also give each other most-favored-nation status—granting the best mutual trade terms and lowest tariffs.