Multilateral Trade Agreements: Pros, Cons and Examples

The World's Largest Trade Agreements

Groceries trade
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Definition: Multilateral trade agreements are commerce treaties between three or more nations. The agreements reduce tariffs and make it easier for businesses to import and export. Since they are among many countries, they are difficult to negotiate. That same broad scope makes them robustl once all parties sign. 

Advantages

Multilateral agreements make all signatories treat each other the same. That means no country can give better trade deals to one country than it does to another.

That levels the playing field. It's especially critical for emerging market countries. Many of them are smaller in size, making them less competitive. See more on the benefits of the Most Favored Nation Status.

The second benefit is that it increases trade for every participant. Their companies enjoy low tariffs. That makes their exports cheaper.

The third benefit is it standardizes commerce regulations for all the trade partners. Companies save legal costs since they follow the same rules for each country.

The fourth benefit is that countries don't have to negotiate trade deals one country at a time. Bilateral trade agreements tend to favor the country with the best economy. That puts the weaker nation at a disadvantage. The stronger nation has a more detailed approval process. It would prefer to get one agreement ratified instead of dozens.

Disadvantages

Multilateral agreements are complex.

That makes them difficult and time-consuming to negotiate.

Second, the details of the negotiations are particular to trade and business practices. That means the public often misunderstands them. As a result, they receive lots of press, controversy, and protests. 

The third disadvantage is common to any trade agreement.

Some companies and regions of the country suffer when trade borders disappear. Smaller businesses can't compete with giant multi-nationals. They often lay off workers to cut costs. Others move their factories to countries with a lower standard of living. If a region depended on that industry, it would experience high unemployment rates. That makes multilateral agreements unpopular.

Examples

Some regional trade agreements are multilateral. The largest is the North American Free Trade Agreement (January 1, 1994). NAFTA is between the United States, Canada, and Mexico. It increased trade 300 percent between it beginning and 2009.  Find out What Happens If Trump Dumps NAFTA?

The Central American-Dominican Republic Free Trade Agreement (Signed on August 5, 2004). CAFTA eliminated tariffs on more than 80 percent of U.S. exports to six countries. These include Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua and El Salvador. By 2013, it increased trade 71 percent to $60 billion.

The Trans-Pacific Partnership (Negotiations concluded on October 4, 2015).

The TPP would be bigger than NAFTA if Congress approved it. It is between the United States and eleven other countries bordering the Pacific Ocean.  It would remove tariffs and standardize business practices.  Current trade is $2 trillion in goods (2012 estimate) and $242 billion in services (2011 estimate).  Donald Trump promised to withdraw from the agreement. He would replace it with bilateral agreements.

All global trade agreements are multilateral. The most successful one is the General Agreement on Trade and Tariffs (GATT). One hundred fifty-three countries signed it in 1947. Its goal was to reduce tariffs and other trade barriers.

In September 1986, the Uruguay Round began in Punta del Este, Uruguay. It centered on extending trade agreements to several new areas. These included services and intellectual property. It also improved trade in agriculture and textiles.  On 15 April 1994, the 123 participating governments signed the agreement in Marrakesh, Morocco. That created the World Trade Organization (WTO). It assumed management of future global multilateral negotiations.

The WTO's first project was the Doha round of trade agreements in 2001. That was a multilateral trade agreement between all 149 WTO members. 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. That would boost the growth of developing countries that were good at producing food. But farm lobbies in the United States and the European Union stopped it. They refused to agree to lower subsidies or increased foreign competition. The WTO abandoned theDoha round in June 2006.

On December 7, 2013, WTO representatives agreed to the so-called Bali package. All countries agreed to streamline customs standards and reduce red-tape to expedite trade flows. Food security is an issue. India wants to subsidize food so it could stockpile it to distribute in case of famine. Other countries worry that India may dump the cheap food in the global market to gain market share. 

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