Bilateralism is an integration scheme under which two countries establish trade or diplomatic agreements . In this way, they seek to increase the mutual exchange of goods and services, as well as the flow of investments .
That is, bilateralism is a system by which two nations sign treaties to promote trade between them. Thus, tariffs and other barriers are reduced.
Likewise, the restrictions for companies in one country to invest in the other are reduced, and vice versa.
Even bilateral agreements could include the free mobility of human capital . That is, what corresponds to providing facilities for the migration of professionals from one territory to another.
Unlike bilateralism, multilateralism implies that it is several countries or blocks of nations that are negotiating with each other.
In addition, bilateralism can be distinguished from unilateralism. Under the latter, one country grants benefits to another, for example, a reduction in tariffs, without having agreed to something in return.
Advantages of bilateralism
Bilateralism can have many advantages such as the following:
- You can expand the potential market for companies in both countries.
- It increases the commercial flow, being able to generate new businesses among the companies of the nations that are being integrated.
- If tariffs are reduced or eliminated, individuals will be able to access goods or services from the other country at a lower cost.
- Investment possibilities are generated. Thus, the companies of a nation could see the opportunity to open, for example, a new branch in the other territory.
Disadvantages of bilateralism
However, bilateralism also has its disadvantages:
- It is exclusive in the sense that only two countries are the beneficiaries. On the other hand, in multilateralism the agreements encompass many participants.
- Not all sectors of the economy necessarily benefit from the negotiations. Imagine that countries A and B sign an agreement. Textiles are produced in both nations, but in A at a lower cost. Then, the manufacturers of B will be affected, and could even go bankrupt, by competing with the goods from A that are sold at a lower price.
- It may be that one of the negotiating countries takes advantage of its greater economic power to reach an agreement more favorable to its interests. In contrast, the less developed nation could be harmed by a situation like the one we saw in the previous section.
An example of bilateralism may be the Free Trade Agreement (FTA) signed between the US. and Peru. Its entry into force was in 2009.
If a similar agreement had been negotiated between three parties, such as Colombia, Peru and the US, we would face a case of multilateralism.
Also, since 1991, through the Andean Tariff Preferences Act (ATPA), Peru had US tariff advantages. for the entry of certain merchandise. This would be an example of unilateralism.