The primary difference between bilateral and multilateral trade lies in the number of participants, i.e. in a bilateral trade agreement involve two participants i.e. two nations, whereas in the case of multilateral trade agreements, entails three or more nations without discrimination between the countries involved.
International trade means the exchange of goods and services among multiple nations, wherein domestic companies can export their specialties to other nations and import specialties from other nations. It can be of two types bilateral trade and multilateral trade.
Trade Agreement refers to the contract between trading nations, with regard to their trading relationship. These are meant to lower trade barriers between the contracting countries, and as a result of which degree of economic integration between the participating nation increases.
This post will help you understand the difference between bilateral trade and multilateral trade in detail.
| Basis for Comparison | Bilateral Trade | Multilateral Trade |
|---|---|---|
| Meaning | Bilateral trade is the trading of goods and services between two countries. | Multilateral trade is the trading of goods and services among several countries. |
| Encourages | Economic Cooperation between two countries. | Globalization that integrates many countries in the world. |
| Negotiations | Separate negotiations must be done with different countries on one to one basis. | Negotiations can be done with many countries together. |
| Nature of Trade | Complementary | Supplementary |
The trade that takes place between two nations is called bilateral trade. In this trade, the member nations exchange their goods and services with one another on a preferential basis, based on an agreement, a bilateral trade agreement. In bilateral trade, the countries involved enjoy a number of privileges like favorable import quotas.
The aim of a bilateral trade agreement is to widen the access between the markets of the two nations and increase their economic growth and trade. It grants preferential trading status amidst the two nations.
On the basis of the above points, we can say that bilateral trade refers to the trade of goods and services between two nations encouraging trade and investment. Hence, the two nations lift or reduce trade barriers like tariffs, quotas, export restraints, etc. The primary benefit of these agreements is the expansion of markets for a country’s goods by way of collaborative negotiation between two countries. Its objective is to expand
Multilateral Trade Agreement refers to the trade agreement that is executed among multiple nations to buy from and/or sell to one another preferentially or a country may be in agreement with several countries to trade with the rest of signatories, either preferentially or on terms restricting trade among themselves. Multilateral Trade Agreement is a trade treaty among various nations. This promotes the global economy, by opening markets for both developed and developing countries.
In other words, trade agreements undertaken by more than two countries are called multilateral trade agreements, and the trade following as a consequence of such agreement is known as multilateral trade.
After discussing the meaning of these two terms, let us move further to understand the difference between bilateral trade and multilateral trade:
Bilateral or multilateral trade agreements are generally entered between the biggest supplier and/or biggest importer of the commodities. An ideal example of this is International Wheat Agreement. As per this agreement the maximum price at which the exporting nations are guaranteed to provide a specified amount of wheat to the importing nations, and the minimum price at which the importers are ready to purchase specified amounts of wheat from exporters.
Trade Agreements that raise access to the participating country’s markets are generally encouraged by those sectors that export their products. However, they are resisted by those sectors which face competition from imports.
