Difference Between Bilateral and Multilateral Trade

By Ritika Pant|Updated : January 23rd, 2023

The main difference between bilateral and multilateral trade is that bilateral trade has agreements that involve two countries, whereas more than two countries are involved in multilateral trade. These trade agreements aim to reduce trade barriers and achieve high levels of monetary unification between the countries participating in trade. 

Difference Between Bilateral and Multilateral Trade PDF

Several trade barriers, such as tariffs and export restrictions, are removed due to these agreements. 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.

Table of Content

Difference Between Bilateral and Multilateral Trade

The main difference between Bilateral and Multilateral trade is the number of nations involved in exchanging goods. The trading nations decide to offer products at fair prices only to earn unfair market share and stop competition. 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.

Bilateral vs Multilateral Trade

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.

Bilateral and Multilateral Trade

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 are 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

There is less time for negotiations as only two countries are involved in this 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)

Bilateral and Multilateral Trade Agreements

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

What is Bilateral Trade Agreement?

Bilateral trade occurs between two nations. In this trade, the partner countries trade their goods and services on a favoured 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, labour 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.

What is Multilateral Trade Agreement?

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.
  • They promote trade in the countries and benefit from low taxation as their exports become inexpensive.

Bilateral and Multilateral Trade Laws - Examples

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.

Summary:

Key Difference Between Bilateral and Multilateral Trade

The number of nations involved defines the key difference between Bilateral and Multilateral 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 meaning of trade is an agreement between two or more countries to boost the economy through trading goods and services among the member nations.

  • A perfect example is International Wheat Agreement. The agreement states that: The highest price at which the exporting countries are authorized to provide a set amount of wheat to the importing countries and the lowest price at which the importers are ready to buy specified quantities of wheat from exporters.

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

    • 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.
  • Bilateral is better than multilateral as they are easier to bargain than multilateral trade agreements since they only involve two nations.

    • They can go into impact quickly, reaping trade benefits faster.
    • Additionally, bilateral trade has a smaller market and is less complex.
  • Yes. Under bilateral trade, economic benefits are attained only by the two nations involved, and a global economic boost is established under multilateral trade. WTO, or World Trade Organization, facilitates bilateral and 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.

  • Yes. Bilateral trade takes less negotiation time, while multilateral trade negotiations take a long time as multiple nations are involved. This is one of the essential differences between the two trade categories.

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