Multilateral Trade Agreements: Pros, Cons and Examples

The World's Largest Trade Agreements

Groceries trade
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Definition: Multilateral trade agreements are among many nations at one time. That makes them extremely complicated to negotiate, but very powerful once all parties sign. 

Advantages

The primary benefit of multilateral agreements is that all nations get treated equally. That levels the playing field, especially for poorer countries that are less competitive due to their size. See more on the benefits of this Most Favored Nation Status.

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 the public often misunderstands them. 

Examples

Some regional trade agreements are multilateral. The largest is the North American Free Trade Agreement or NAFTA (January 1, 1994) - This FTA between the United States, Canada and Mexico is the largest in the world. From its inception to 2009, it increased trade 300% to $1.6 trillion. 

The Central American-Dominican Republic Free Trade Agreement or CAFTA (Signed on August 5, 2004) eliminated tariffs on more than 80% 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% to $60 billion.

The Trans-Pacific Partnership (Negotiations successfully concluded October 4, 2015) will be bigger than NAFTA once it's approved. It will remove tariffs and standardize business practices between the United States and 11 other trading partners that border the Pacific Ocean. Current trade totals nearly $2 trillion in goods (2012 estimate) and $242 billion in services (2011 estimate).

 

All global trade agreements are multilateral. The most successful is the GATT, the General Agreement on Trade and Tariffs. It was signed in 1947 between 153 countries. Its goal was to reduce tariffs and other trade barriers. It took eight rounds of negotiations that lasted until 1995 to achieve its goal with the final Uruguay round. That created the WTO, which took over management of future global multilateral negotiations. For more, see GATT

Next was the Doha round of trade agreements. That 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. That would boost the growth of developing countries, which were already good at producing food. However, agribusiness in the U.S. and the European Union would not accept lower subsidies or increased foreign competition.

On December 7, 2013, WTO representatives agreed to the so-called Bali package. All countries agreed to streamline customs standards andT reduce red-tape to facilitates order to expedite trade flows. Member countries are working toward ironing out differences for the next deadline of July 2015. 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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