Bilateral Trade Agreements
A bilateral trade agreement confers favored trading status between two nations. By giving them access to each other’s markets, it increases trade and economic growth. The terms of the agreement standardizes business operations and levels the playing field.
Each agreement covers five areas. First, it eliminates tariffs and other trade taxes. This gives companies within both countries a price advantage. It works best when each country specializes in different industries.
Second, countries agree they won’t dump products at a cheap cost. Their companies do this to gain unfair market share. They drop prices below what it would sell for at home or even its cost to produce. They raise prices once they’ve destroyed competitors.
Third, the governments refrain from using unfair subsidies. Many countries subsidize strategic industries, such as energy and agriculture. This lowers the costs for those producers. It gives them an unfair advantage when exporting to another nation.
Fourth, the agreement standardizes regulations, labor standards, and environmental protections. Fewer regulations act like a subsidy. It gives the country’s exporters a competitive advantage over its foreign competitors.
Fifth, they agree to not steal the other’s innovative products. They adopt each others’ copyright and intellectual property laws.
Bilateral agreements increase trade between the two countries. They open markets to successful industries. As companies benefit, they add jobs.
The country’s consumers also benefit by lower costs. They can get exotic fruits and vegetable that are two expensive without the agreement.
They are easier to negotiate than multilateral trade agreements, since they only involve two countries. This means they can go into effect faster, reaping trade benefits more quickly. If negotiations for a multilateral trade agreement fails, many of the nations will negotiate a series of bilateral agreements instead.
Any trade agreement will cause less successful companies to go out of business. They can’t compete with a more powerful industry in the foreign country. When protective tariffs are removed, they lose their price advantage. As they go out of business, workers lose jobs.
Bilateral agreements can often trigger competing bilateral agreements between other countries. This can whittle away the advantages the FTA confers between the original two nations.
The Transatlantic Trade and Investment Partnership would remove current barriers to trade between the United States and the European Union. It would be the largest agreement so far, beating even NAFTA. Negotiations were put on hold after President Trump took office.. Even though the EU consists of many member countries, it can negotiate as one entity. This makes the TTIP a bilateral trade agreement.
On July 17, 2018, the world’s largest bilateral agreement was signed between the EU and Japan. It reduces or ends tariffs on almost of the $152 billion in goods traded. It will come into force in 2019 after ratification. The deal will hurt U.S. auto and agricultural exporters.
The United States has bilateral trade agreements in force with 12 other countries. Here’s the list, the year it went into effect and its impact.
- Australia (January 1, 2005) – This agreement generated $26.7 billion in 2009, increasing trade 23 percent since its inception. U.S. goods exports increased 33 percent, while imports rose 3.5 percent.
- Bahrain (January 11, 2006) – All tariffs were removed. The U.S. increased exports in agriculture, financial services, telecommunications, and other services.
- Chile (January 1, 2004) – It eliminated tariffs, provided protection for intellectual property, and required effective labor and environmental enforcement, among other things. Unfortunately, trade decreased since 2004. U.S. exports to Chile fell 26 percent (to $8.8 billion), while imports dropped 29 percent (to $5.8 billion).
- Colombia (October 21, 2011) – Tariff reductions expanded exports of U.S. goods by at least $1.1 billion, and increased U.S. GDP by $2.5 billion.
- Israel (1985) – Reduced trade barriers and promoted regulatory transparency.
- Jordan (December 17, 2001) – In addition to reducing trade barriers, the agreement specifically removed barriers to U.S. meat and poultry exports, and allowed increased imports of agricultural imports from Jordan.
- Korea (March 15, 2012) – Nearly 80 percent of tariffs have been removed, ultimately boosting exports by $10 billion. On March 26, 2018, the Trump administration exempted South Korea from a 25 percent steel tariff. The U.S. ally is the third largest foreign supplier of steel. In return, South Korea agreed to amend the 2012 agreement. The United States will keep its 25 percent tariff on pickup trucks for an additional 20 years. Under the original agreement, the tariffs would have expired in 2021. South Korea agreed to double its import quota for U.S. cars.
- Morocco (January 5, 2006) – The goods trade surplus rose up to $1.8 billion in 2011, up from just $79 million in 2005.
- Oman (January 1, 2009) – Discussions are underway to agree on the details of labor standards in Oman.
- Panama (October 21, 2011) – Trade representatives are negotiating labor and tax policies. The agreement will remove a 7 percent average tariff, with some tariffs as high as 81 percent, and others as high as 260 percent. See Panama Canal Impact on U.S. Economy
- Peru (February 1, 2009) – Trade with Peru was $8.8 billion, with exports at $4.8 billion, the year the agreement was signed. The FTA eliminated all tariffs, provided legal protections for investors and intellectual property, and was the first to add protection of labor and the environment.
- Singapore (January 1, 2004) – Trade totaled $37 billion in 2009, a 17 percent increase since the FTA’s inception. Exports rose 31 percent, to $21.6 billion.
What is ‘Bilateral Trade’
A bilateral trade is the exchange of goods between two nations promoting trade and investment. The two countries will reduce or eliminate tariffs, import quotas, export restraints, and other trade barriers to encourage trade and investment. In the United States, the Office of Bilateral Trade Affairs minimizes trade deficits through negotiating free trade agreements with new countries, supporting and improving existing trade agreements, promoting economic development abroad, and other actions.
BREAKING DOWN ‘Bilateral Trade’
The goals of bilateral trade agreements are to expand access between two countries’ markets and increase their economic growth. Standardized business operations in five general areas prevent 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.
The United States formed bilateral, free trade agreements with Israel (1985), Jordan (2001), Australia, Chile, Singapore (2004), Bahrain, Morocco, Oman (2006), Peru (2007), and with Panama, Colombia, South Korea (2012). NAFTA replaced the bilateral agreements with Canada and Mexico in 1994.
Advantages and Disadvantages of Bilateral Trade
Compared to multilateral trade agreements, bilateral trade agreements are easily negotiated, because only two nations are party to the agreement. Bilateral trade agreements initiate and reap trade benefits faster than multilateral agreements. When negotiations for a multilateral trade agreement are unsuccessful, many nations will negotiate bilateral treaties instead. However, new agreements often result in competing agreements between other countries, eliminating the advantages the Free Trade Agreement (FTA) confers between the original two nations.
Bilateral Relation US Bangladesh
The United States is Bangladesh’s largest export market. Our countries have signed a bilateral investment treaty, as well as a bilateral treaty for the avoidance of double taxation. In 2014, U.S. direct investment in Bangladesh was $465 million, an increase of 12.6 percent from 2013. Our governments held the second annual Trade and Investment Cooperation Forum Agreement (TICFA) meeting in Washington on November 23, 2015, which highlighted the potential for greater cooperation with Bangladesh, particularly in areas of developing infrastructure and energy resources.
In 2014, the United States exported approximately $1.1 billion in U.S. goods to Bangladesh and imported approximately $5.3 billion worth of goods from Bangladesh. U.S. exports to Bangladesh include agricultural products (soybeans, cotton, wheat, dairy), aircraft, machinery, engines, and iron and steel products. U.S. imports from Bangladesh include apparel, footwear, and textile products; toys, games and sporting goods; shrimp and prawns; and agricultural products.
Worker rights and worker safety issues led the United States to suspend the country’s Generalized System of Preferences (GSP) trade benefits in June 2013. At the time of the suspension, the United States provided the Bangladesh government with an Action Plan to address worker rights and safety issues as a basis for considering the reinstatement of GSP trade benefits. Since that time Bangladesh has made important progress in meeting some of the plan’s objectives – especially in inspections, safety and security, and the United States continues to work with the Bangladesh government to ensure further progress on workers’ rights.
Trade and Investment:
The United States is the largest export market for Bangladesh. The U.S. is also one of the largest sources of foreign direct investment in Bangladesh. The biggest American investment in the country are the operations of Chevron, which produces 50% of Bangladesh’s natural gas. Bilateral trade in 2014 stood at US$6 billion. The main American exports to Bangladesh are agricultural products (soybeans, cotton, wheat, dairy), aircraft, machinery, engines, and iron and steel products. American imports from Bangladesh include apparel, footwear, and textile products; toys, games and sporting goods; shrimp and prawns; and agricultural products.
In June 2013, following the 2013 Savar building collapse that led to over 1,000 deaths, the United States suspended a preferential trade agreement with Bangladesh that allowed for duty-free access to the US market over poor safety standards. The Bangladesh Foreign Ministry then issued a statement that read: “It cannot be more shocking for the factory workers of Bangladesh that the decision to suspend Generalized System of Preferences (GSP) comes at a time when the government of Bangladesh has taken concrete and visible measures to improve factory safety and protect workers’ rights.
Bangladesh to Bilateral Investment
Bangladesh has signed bilateral investment treaties with 28 countries, including Austria, the Belgium-Luxembourg Economic Union, China, Denmark, France, Germany, India, Indonesia, Iran, Italy, Japan, Democratic People’s Republic of Korea, Republic of Korea, Malaysia, Netherlands, Pakistan, Philippines, Poland, Romania, Singapore, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, United States, Uzbekistan and Vietnam.
The U.S.-Bangladesh Bilateral Investment Treaty, signed on March 12, 1986, entered into force on July 23, 1989. The Foreign Investment Act includes a guarantee of national treatment.
The United States and Bangladesh signed a bilateral treaty for the avoidance of double taxation on September 26, 2004. The United States ratified it on March 31, 2006. The parties exchanged instruments of ratification on August 7, 2006. The treaty became effective for most taxpayers beginning in the 2007 tax year.
Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA), the Asia-Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC). Bangladesh has not signed any bilateral free trade agreements (FTA) but has started initial FTA discussions with Sri Lanka in March 2017.
Bangladesh has taken steps to strengthen bilateral economic relations with India by reducing trade barriers and improving connectivity. Bangladesh gained duty-free access to India via regional, not bilateral trade agreements. The first is the South Asian Association for Regional Cooperation (SAARC) Preferential Trading Arrangement (SAPTA) that was signed in April 1993 and operationalized in December 1995, which gives limited preferential market access to exports of member countries. The second is the South Asian Free Trade Area (SAFTA) agreement that was signed in January 2004 in Islamabad and entered into force from January 2006. Tariff reduction under SAFTA started from July 2006. Since November 2011, under SAFTA Bangladesh can export goods duty-free to India, with the exception of alcohol and tobacco. India also provides duty-free and preferential tariff treatment to Bangladesh under the Duty Free Tariff Preference (DFTP) Scheme for Least Developed Countries (LDCs) effective from August 13, 2008. As a founding member of the World Trade Organization (WTO) and as a Less Developed Country (LDC), Bangladesh has been an active advocate for LDC interests in WTO negotiations.