HashtagManthan
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What are a few advantages and disadvantages for multilateral and bilateral trade agreements? Thank you
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Multilateral and Bilateral Help Please (1 Viewer)
- Thread starter HashtagManthan
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With bilateral agreements, they are very quick to set up and it is more stable to maintain (from a game theory perspective, it is a lot easier to maintain cooperation between two parties than three or more parties in a prisoners dilemma type situation).
However bilateral agreements may lead to:
trade diversion - where trade is diverted away from economies who may be more efficient in production than parties in the agreement, in favour of its members
'spaghetti-bowl problem' - each economy may be involved in multiple complex and overlapping agreements which may conflict with each other, thus there may be unintended consequences (e.g. undermining rules of origin)
A key advantage of multilateral agreements is that there is less (or no) trade diversion, so gains of trade is maximised. However, there are significant administrative and other substantive costs of maintaining the agreement (which may take a while to set up), and it is harder to maintain cooperation in a multilateral agreement (you can research tit-for-tat and grim trigger strategies if you want more detail)
However bilateral agreements may lead to:
trade diversion - where trade is diverted away from economies who may be more efficient in production than parties in the agreement, in favour of its members
'spaghetti-bowl problem' - each economy may be involved in multiple complex and overlapping agreements which may conflict with each other, thus there may be unintended consequences (e.g. undermining rules of origin)
A key advantage of multilateral agreements is that there is less (or no) trade diversion, so gains of trade is maximised. However, there are significant administrative and other substantive costs of maintaining the agreement (which may take a while to set up), and it is harder to maintain cooperation in a multilateral agreement (you can research tit-for-tat and grim trigger strategies if you want more detail)
darthsidious
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Bilateral ADV/ DISADV:
Bilateral agreements, whilst possessing the same advantages as multilateral agreements in terms of serving as 'stepping stones' for free trade, are theoretically faster to negotiate and implement, and can be better customised. However, they can lead to retaliatory deals as they are often exclusionary. Also, the larger party within a bilateral agreement often has the advantage in terms of bargaining power.
Multilateral ADV/ DISADV:
Some of the major advantages of a multilateral agreement over a bilateral agreement include universal rates of protection and enforceability (see WTO, formerly GATT). Trading blocs established as a part/ as a result of Multilateral agreements, however, are discriminatory (to non-member states). The appeals process that is a part of multilateral agreements delays enforcement
Bilateral agreements, whilst possessing the same advantages as multilateral agreements in terms of serving as 'stepping stones' for free trade, are theoretically faster to negotiate and implement, and can be better customised. However, they can lead to retaliatory deals as they are often exclusionary. Also, the larger party within a bilateral agreement often has the advantage in terms of bargaining power.
Multilateral ADV/ DISADV:
Some of the major advantages of a multilateral agreement over a bilateral agreement include universal rates of protection and enforceability (see WTO, formerly GATT). Trading blocs established as a part/ as a result of Multilateral agreements, however, are discriminatory (to non-member states). The appeals process that is a part of multilateral agreements delays enforcement