Multilateral and bilateral trade

negotiations

Is it reasonable to assume that gains from trade accruing as a result of bilateral

arrangements are as good as, or as great as, those accrue from multilateral trade

agreement?

Multilateral and bilateral trade negotiations

The World Trade Organisation (WTO), which is the most known multilateral trade

organisation, is being put under a huge pressure concerning the liberalisation of the world

trades and markets. The main topic of the negotiations in April of 2006 in Geneva and in

Brussels was the liberalisation of the agricultural and the industrial commodity market. The

organisation endeavours to decrease the agricultural subsidies and the export opportunities

for industrial commodities and services. Through the large decrease of tariffs the WTO is in a

big critical discussion. Their behaviour leads to an aggravation crisis because they do not

pay attention to warnings against a deindustrialisation of developing countries and a downfall

of industries, which are still in growth stage and are not yet competitive.

Generally there seem to be incompatible interests of different countries or groups, especially

between advanced and developing nations. Whereas the public is getting involved on a

multilateral level, many nations begin to negotiate on a bilateral level. The bilateral

agreements have tremendously enlarged, to more than 50 percent of the negotiations which

have taken place within these 300 agreements in 2005. This development is considered

quite critical. There are two main opinions within the public, the first being, that bilateral free

trade is a first step towards a multilateral free trade, while others think that bilateral trade

agreements are discriminatory and lead to a fragmentation of the world trade system as well

as to a decline of the multilateral free trade system.

The objective of this essay is to present information to form a discussion about the

advantages and disadvantages of multilateral and bilateral trade agreements which is also

related to actual topics (Hausarbeiten, 2006).

The main difference between multilateral and bilateral free trade agreements (FTA) is the

number of participants. Multilateral trade agreements involve three or more countries without

discrimination between those involved, whereas bilateral trade agreements consist between

two countries. Both countries have certain privileges for example; they have favourable

import quotas which are not available for other trading partners and only for the two nations

which have the bilateral contract. Examples for bilateral free trade agreements are the

Australian - New Zealand FTA and the Canada ­ United States FTA (Dictionary of Political

Economy, 2006; Onpulson, 2006).

Multilateral negotiations are the most effective way of liberalizing trade in an interdependent

global economy, because concessions in one bilateral or regional deal may undermine

concessions made to another trading partner in an earlier deal. It is also important to mention

that under multilateral trade agreements, regional trade arrangements take place and

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examples of this are the North American Free trade Agreement (NAFTA) and the European

Union (EU). The most important organisation concerning multilateral negotiations,

agreements and contracts is the WTO. This organization owns a unified package of

agreements to which all members are committed and enforces global rules for international

trade. The most important requirements are to reduce barriers to trade between nations and

to secure that member nations are acting within the predetermined rules. The General

Agreement on Tariffs and Trade (GATT) is the basic multilateral contract between WTO

members (Farm Foundation, 2002, ITCD online 2004, Carbaugh, 2004).

A multilateral contract indicates guidelines from which the minimum and maximum purchase

price is set, so that importers have an indication of guaranteed purchase quantities and for

producing nations to know what guaranteed amounts they will sell to importers.

Such contracts deliver advantages through a price-stabilisation device, which causes less

distortion to the market mechanism and the allocation of resources. This kind of contract

does not contain restrictions and includes or improvement of the development of more

efficient low-cost producers. A support of limited market stability also leads to the advantage

that nations can enter or withdraw relatively easy without various problems.

A quite practical advantage that relates to bilateral (FTA) is that they are quicker and easier

to negotiate than multilateral agreements, because only two parties are included in bilateral

negotiations. Furthermore bilateral FTA′s are a significant driver for trade liberalisation,

although multilateral agreements are more extensive. As indicated in the example from which

Australia and New Zealand where allowed to become a single economy related to the

substance; the Australian New Zealand Closer Economic Relation Agreement (ANZCERTA).

This had a large affect on the export amounts from New Zealand to Australia, from 14

percent in 1983 to 20.5 percent in 2004. The trade between both countries has increased

since 1990 annually by an average of 9 ­ 10 percent. Therefore both countries have really

benefited from this FTA.

The bilateral trade liberalisation effects the displacement of higher cost goods and services

and also disadvantages of diverting goods and services from countries which this seems to

be more advantageous than multilateral trade liberalisation. As seen on the actual problem in

WTO negotiations related to multilateral agreements, many development nations are

discriminated and protective tariffs are quite necessary for their economic success. But

through liberalisation the tariffs should decrease in the near future. After the negotiations in

April 2006 the federal government and the European committee presented a disputatious

proposal that the developing countries should decrease their tariffs more than the advanced

nations, which would lead to a disadvantage for them. These nations need tariffs as they are

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