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Bilateral Trade Agreements

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U.S. President Barack Obama (R) and German Chancellor Angela Merkel arrive to pose with other leaders for a group photo during the G20 summit on September 6, 2013 in St. Petersburg, Russia. Leaders of the G20 nations made progress on tightening up on multinational company tax avoidance, but remain divided over the Syrian conflict as they enter the final day of the Russian summit.

Photo by Anton Denisov/Host Photo Agency via Getty Images
Panama Canal

Panama Canal

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Definition

Bilateral Trade Agreements are between two nations at a time, giving them favored trading status with each other. The goal is to give them expanded access to each other's markets, and increase each country's economic growth.

How do they do this? There's five general areas where they standardize business operations, in an attempt to level the playing field. That keeps one country from stealing the other's innovative products, dumping products at a cheap cost, or using unfair subsidies. These agreements also standardize regulations, labor standards and environmental protections. Last, but certainly not least, they eliminate tariffs and other trade taxes. This gives companies within both countries a price advantage.

Advantages

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.

Disadvantages

They can often trigger competing bilateral agreements between other countries. This can whittle away the the advantages the FTA confers between the original two nations. 

Examples

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. It is under negotiation, and both parties intend to reach an agreement by the end of 2014. Even though the EU consists of many member countries, it can negotiate as one entity. This makes the TTIP a bilateral trade agreement. 

The U.S. has bilateral trade agreements in force with 12 other countries. Here's the list, year it went into effect, and results.

  1. Australia (January 1, 2005) -  This agreement generated $26.7 billion in 2009, increasing trade 23% since its inception. U.S. goods exports increased 33%, while imports rose 3.5%.
  2. Bahrain (January 11, 2006) - All tariffs were removed. The U.S. increased exports in agriculture, financial services, telecommunications and other services.
  3. 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% (to $8.8 billion), while imports dropped 29% (to $5.8 billion).
  4. Colombia (October 21, 2011) - Tariff reductions will expand exports of U.S. goods by at least $1.1 billion, and increase U.S. GDP by $2.5 billion.
  5. Israel (1985) - Reduced trade barriers and promoted regulatory transparency.
  6. Jordan (January 1, 2010) - 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. 
  7. Korea (March 15, 2012) - Nearly 80% of tariffs have been removed, ultimately boosting exports by $10 billion.
  8. Morocco (January 5, 2006) - The goods trade surplus rose up to $1.8 billion in 2011, up from just $79 million in 2005.
  9. Oman (January 1, 2009) - Discussions are underway to agree on the details of labor standards in Oman.
  10. Panama (October 21, 2011) - Trade representatives are negotiating labor and tax policies. The agreement will remove a 7% average tariff, with some tariffs as high as 81%, and others as high as 260%. See Panama Canal Impact on U.S. Economy
  11. 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.
  12. Singapore (January 1, 2004) - Trade totaled $37 billion in 2009, a 17% increase since the FTAs inception. Exports rose 31%, to $21.6 billion.  Article updated June 24, 2014.
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