Why Choose Bilateralism?
"
Bilateralism assumes that results are more easily obtained if only two parties are involved, partly because available economic or political pressure would be less diluted. In principle, fewer diverting factors are involved. This is true in cases where it is possible to isolate the purely bilateral dimension. Often this cannot be done since at least one of the parties may have obligations in the same matter towards third parties. Some advocates of bilateral negotiations see them as the only valid way for achieving results."
(Goode, W.,
Dictionary of Trade Policy Terms, Fourth Edition, Cambridge (UK): Cambridge University Press, 2003, p. 43)
How It Is Used
"The history of
bilateral negotiations since the mid-1980s casts doubt on the general validity of this proposition, but
bilateralism has been used with success for the resolution of some selected issues. The effectiveness of bilateral approaches depends on the amount of negotiating coin a country has to influence the behaviour of the other. It is largely an approach which works more in favour of the strong and against the interests of small and medium-sized countries.
Bilateralism can also introduce additional tensions into the multilateral system. One form of
bilateralism is used in the multilateral trade negotiations. WTO members often negotiate tariff concessions bilaterally, but they apply the results multilaterally in accordance with the most-favoured-nation obligation."
(Goode, W.,
Dictionary of Trade Policy Terms, Fourth Edition, Cambridge (UK): Cambridge University Press, 2003, p. 43)
Countries sign bilateral trade agreements which lower import tariffs and thereby facilitate trade. A country may sign any number of bilateral trade agreements, which will then define that country's trading regime.
Bilateral trade agreements played a key role in the early rounds of GATT in forging a multilateral trade agreement. The process of bilateral agreements can generate a free trade regime. It is argued that a multiplicity of countries involved in a multilateral trade agreement may find it harder to reach consensus on trade issues.
(adapted from Goyal, S., and S., Joshi,
Bilateralism and Free Trade, Erasmus Universiteit Rotterdam, 1999, visited 2009-04-05)
Effects
"There are three direct effects at work when a pair of countries sign a trade agreement which lowers import tariffs: one, the domestic firm is faced with greater competition from a foreign firm; two, the domestic firm gets greater access to the foreign market; and three, domestic consumers benefit from greater competition, in terms of lower prices.
In addition, there is an interesting indirect effect of such
bilateral agreements: they make the markets of the countries signing the agreement less valuable to other active firms on the market."
(Goyal, S., and S., Joshi,
Bilateralism and Free Trade, Erasmus Universiteit Rotterdam, 1999,visited 2009-04-05)