Difference Between Bilateral and Multilateral Trade

By Shivank Goel|Updated : September 15th, 2022

The difference between Bilateral and Multilateral Trade is discussed here. No country can exist in isolation or achieve self-sufficiency in goods and services. Every government relies on one another for various goods and supplies, and trade is a standard method for nations to exchange goods and services. Countries use trade agreements to agree on applicable terms and conditions to establish a trading connection. These trade agreements aim to reduce trade barriers and achieve high levels of monetary unification between the two countries. 

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Several trade barriers, such as tariffs and export restrictions, are removed due to these agreements. The difference between bilateral and multilateral trade agreements involves two countries (bilateral trade) or more than two countries (multilateral trade). India has actively participated in regional, bilateral, and multilateral trade. India has 11 Free Trade Agreements (FTA) and 6 limited Preferential Trade Agreements (PTA) with more than 50 countries. Read more about the difference between Bilateral and Multilateral Trade in detail.

Bilateral and Multilateral Trade Agreements

To know what is bilateral and multilateral trade agreements, read the below important points about both trades.

Bilateral Trade Meaning

Bilateral trade occurs between two nations. In this trade, the partner countries trade their goods and services with one another on a favored ground based on a bilateral trade agreement.

  • The countries included in bilateral trade enjoy benefits like profitable import allocations.
  • The purpose of bilateral trade is to broaden the entry between the markets of any two nations and raise their financial development and trade.
  • It gives a preferential trading position between the two nations.
  • Standardization of rules, labor regulations and environmental preservation help obtain an advantage over its rivals.
  • Countries acquire copyright and scholarly property laws, so they compromise not to steal creative yields from one another.
  • It removes tariff and non-tariff obstacles, resulting in price benefits to both countries if they specialize in different enterprises.
  • The trading nations decide to offer products at fair prices only to earn unfair market share and stop competition.

Multilateral Trade Agreement Meaning

Multilateral Trade Agreement implies the agreement accomplished among numerous countries to purchase and sell to a country with the rest of the attestor, limiting trade among themselves.

  • A business treaty among diverse countries is defined as Multilateral Trade Agreement.
  • It promotes the international economy by extending markets for advanced and evolving nations.
  • Negotiating trade deals with numerous countries simultaneously, thereby saving time.
  • It leads to the growth of emerging markets and the economy over time.
  • It facilitates the lowering or boosting of trade among the member countries through donations, tariffs, and sanctions, making it more manageable to export and import.
  • All those nations that sign the exchange accord are regarded as identical, and no country can only deliver better trade contracts to a single country.
  • Promotes trade in the countries and benefits from low taxation, as their exports become inexpensive.

Examples of Bilateral and Multilateral Trade Laws

Bilateral and Multilateral Trade agreements are joined between the entities' largest suppliers or biggest importers. A perfect example of this is International Wheat Agreement. The agreement states that:

  • The highest price at which the exporting nations are certified to provide a fixed amount of wheat to the importing countries and the lowest price at which the importers are willing to buy specified quantities of wheat from exporters.

Difference Between Bilateral and Multilateral Trade

The Main Difference Between Bilateral and Multilateral Trade is the number of nations involved in exchanging goods.

However, a few other factors are also different in bilateral and multilateral trade. The following table lists the differences between multilateral and bilateral trade agreements.

Feature

Bilateral Trade

Multilateral Trade

Definition

A trade agreement between two countries is referred to as bilateral trade.

Trade agreements between more than two countries are referred to as multilateral trade.

Type of Nations Involved

Big and powerful nations are involved in bilateral trade.

Several small nations are involved in multilateral trade.

Type of Exchange

Only commodities is exchanged.

Goods and services are both exchanged.

Type of Commodity

In bilateral trade between two countries, the commodity is mostly complementary. A product that adds value to the other. For example, DVDs and a DVD player.

In a multilateral trade, commodities can be raw materials, services, or finished goods, making the trade supplementary.

Level of Complexity

Less complex

More complex

Type of Market

Smaller market

Larger market

Time is taken for Negotiations

Less time is taken for negotiations as only two countries are involved in this type of trade.

The time taken for negotiations in this type of trade is longer.

Promotes

Economic cooperation between the two countries involved

Globalization

Examples

Agreement between India and Finland

India Malaysia agreement on economic partnership

NAFTA (North American Free Trade Agreement)

SAFTA (South Asian Free Trade Area) of South Asian Association for Regional Cooperation (SAARC)

The Difference Between Bilateral and Multilateral Trade is defined by the number of nations involved in a trade.

  • A bilateral trade agreement involves two countries and is thus less complex, leading to faster negotiations, and benefits the two countries' economic growth.
  • On the other hand, multilateral trade agreements are more complex and take longer to negotiate because they involve multiple nations.
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FAQs on Difference Between Bilateral and Multilateral Trade

  • The Main Difference Between Bilateral and Multilateral Trade is that the former is a trade agreement between two nations while the latter is between more than two nations.

  • The difference between multilateral and Bilateral trade is that Bilateral trade involves complementary commodity exchange, while multilateral trade involves supplementary commodity exchange.

  • Yes. Under bilateral trade, economic benefits are attained only by the two nations involved, and a global economic boost is established under multilateral trade.

  • Yes. Bilateral trade takes less negotiation time, while multilateral trade negotiations take a long time as multiple nations are involved.

  • WTO or World Trade Organization facilitates bilateral as well as multilateral trade agreements.

  • The main difference between bilateral and multilateral trade agreements is the number of parties. Bilateral trade agreements comprise two countries, whereas, Multilateral trade agreements include three or more nations.

  • Bilateral trade is bargained more effortlessly than multilateral trade as only two countries are involved in the agreement. Bilateral trade starts and produces trade advantages quicker than multilateral trade.

  • The meaning of Multilateral trade is that they are agreements made between two or more countries to boost the economy by the trading of goods and services among the member nations.

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