Bilateral Trade

What is a 'Bilateral Trade'

A bilateral trade is the exchange of goods between two countries that facilitates trade and investment by reducing or eliminating tariffs, import quotas, export restraints and other trade barriers. In the United States, the Office of Bilateral Trade Affairs helps minimize trade deficits through negotiating free trade agreements with new countries, supporting and improving existing trade agreements, promoting economic development abroad and more. The United States has bilateral free trade agreements with Australia, Bahrain, Canada, Chile, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru and Singapore, accounting for a large share of total U.S. exports.

BREAKING DOWN 'Bilateral Trade'

The goal of bilateral trade agreements is expanding access between two countries’ markets and increasing the countries’ economic growth. Business operations are standardized in five general areas as a method of preventing one country from stealing another’s innovative products, dumping goods at a small cost or using unfair subsidies. Bilateral trade agreements standardize regulations, labor standards and environmental protections.

Advantages and Disadvantages of Bilateral Trade

Bilateral trade agreements are more easily negotiated than multilateral trade agreements because they involve only two countries. Bilateral agreements take effect faster and reap trade benefits more quickly than multilateral agreements. When negotiations for a multilateral trade agreement do not work out, many of the nations negotiate bilateral agreements instead. However, bilateral trade agreements often trigger competing agreements between other countries. This can take away the advantages the Free Trade Agreement (FTA) confers between the original two nations.

Examples of Bilateral Trade

In October 2014, the United States and Brazil reached an agreement settling a longstanding cotton dispute in the World Trade Organization (WTO). Brazil terminated the cotton case, giving up its rights to countermeasures against U.S. trade or further proceedings in the dispute. Brazil also agreed to not bring new WTO actions against U.S. cotton support programs while the current U.S. Farm Bill is in force, or against agricultural export credit guarantees under the GSM-102 program. Because of the agreement, American businesses no longer face countermeasures such as increased tariffs totaling hundreds of millions of dollars annually.

In March 2016, the U.S. government and the government of Peru reached an agreement removing barriers for U.S. beef exports to Peru that had been in effect since 2003. The agreement opened one of the fastest-growing markets in Latin America. In 2015, the United States exported $25.4 million in beef and beef products to Peru. Removal of Peru’s burdensome certification requirements, called the export verification program, was done as a means of assuring American ranchers expanded market access.

The agreement reflects the U.S. negligible risk classification for bovine spongiform encephalopathy (BSE) by the World Organization for Animal Health (OIE). The United States and Peru agreed to changes in certification statements making beef and beef products from federally inspected U.S. establishments eligible for export to Peru, rather than just beef and beef products from establishments participating in the USDA Agricultural Marketing Service (AMS) Export Verification (EV) programs under previous certification requirements.