A bilateral trade agreement is a commercial relationship built between two nations. The two countries would have agreed to lower or eliminate taxes, tariffs, quotas, and other trade barriers to encourage trade and investment. Bilateral agreements usually involve more than trade deals. They often target policy areas to increase cooperation and the facilitation of trade. The goal of bilateral trade agreements is to expand market access and encourage economic growth between the two nations.
Bilateral agreements deal with five main areas, namely:
1. The most visible goal of bilateral agreements is to eliminate tariffs between the two nations. This will give companies from both countries a price advantage in the markets compared to companies that are not signatories to the agreement.
2. One of the chief aims of a bilateral agreement is to eliminate the practice of dumping. Dumping is when a nation sells its products in another country at below manufacturing cost to reduce competition. After the competition has been run out of business the prices of the goods will then be raised with little resistance in a virtual monopoly.
3. Bilateral agreements also seek to eliminate unfair national policies like subsidies. Subsidies can significantly lower costs for a nation's producers. For example, if electricity is subsidized, then manufacturers in that nation have an unfair advantage over others.
4. Bilateral agreements also standardize business operations, for example, with labor and environmental policies. This ensures that companies in either country are operating on a level playing field.
5. Another chief aim of a Bilateral agreement is the protection of intellectual property rights. This ensures that innovative goods are not stolen.
Bilateral agreements are beneficial for several reasons, such as:
- They are easier to negotiate because they are between two nations and not many nations.
- They are also quicker to conclude and hence reap benefits much faster than multinational agreements.
- Bilateral agreements expand markets for a country's goods.
- Trade is a great way to strengthen political and social relations between nations.
- Lower trade barriers mean that consumers will have access to products at lower prices.
- In general, bilateral agreements are favored because they are simpler and faster to set up.
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