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Multilateral Trade Agreement

Definition, Pros and Cons and Examples

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groceries-produce.jpg

The Doha multilateral trade agreement would have lowered grocery prices, if successful.

Photo: Cavan Images/Getty Images WTO-Bali.jpg

Members were elated over the multilateral agreement sketched out in Thailand in December 2013.

Existing-FTAs

Existing free trade agreements with TPP members.

Congressional Research Office

Definition: Multilateral trade agreements are between many nations at one time. For this reason, they are very complicated to negotiate, but are very powerful once all parties sign the agreement. 

Advantages

The primary benefit of multilateral agreements is that all nations get treated equally. This levels the playing field, especially for poorer nations that are less competitive by due to their size.

Disadvantages

Their complicated nature makes them difficult and time-consuming to negotiate. They involve so many countries that they receive lots of press, controversy and protests. The details of the negotiations are complicated and very particular to trade and business practices. That means they are often misunderstood by the public. 

Examples

Some regional trade agreements are multilateral. These include:

  • North American Free Trade Agreement or NAFTA (January 1, 1994) - This FTA between the U.S., Canada and Mexico is the largest in the world. From its inception to 2009, it increased trade 300% to $1.6 trillion. 
  • Central American-Dominican Republic Free Trade Agreement or CAFTA (Signed on August 5, 2004)  - It eliminated tariffs on more than 80% of U.S. exports to six countries: Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua and El Salvador. These exports grew to $26.3 billion by 2008.
  • Transpacific Partnership (Negotiations began in 2010) - This will remove tariffs and standardize business practices between the U.S and 11 other trading partners that border the Pacific Ocean. Current trade totals nearly $2 trillion, making it larger than NAFTA  in goods (2012 estimate) and $242 billion in services (2011 estimate).  Once approved, it would be bigger than the North American Free Trade Agreement (NAFTA), currently the world’s largest free trade area. 

There are just a few examples of global trade agreements. The first is the Doha round of trade agreements. This was a multilateral trade agreement between all 149 members of the World Trade Organization (WTO).  Developing countries would allow imports of financial services, particularly banking. In so doing, they would have to modernize their markets. In return, the developed countries would reduce farm subsidies.  This would boost the growth of developing countries, which were good at producing food anyway. However, agribusiness in the U.S. and the European Union  would not accept lower subsidies or increased foreign competition.

However, on December 7, 2013, WTO representatives agreed to the so-called Bali package. All countries agreed to a streamlined customs standards. It must still be approved by the member countries.

Prior to that was the GATT.

 

Article updated June 25, 2014

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