Introduction
Globalization has changed how countries, businesses, and individuals share information worldwide. Countries are more interconnected than ever, leading to increased bilateral and multilateral trade agreements.
When countries cooperate economically, it can help domestic businesses in developing countries. Businesses in these countries can learn from their counterparts in more advanced economies. Research shows that when countries cooperate multilaterally or bilaterally, it can positively or negatively affect smaller partners.
Countries cooperate in economic cooperation when they believe they will benefit more than if they did not cooperate.
Bilateral/multilateral economic cooperation agreements that pave the way for the development of Small and medium-sized enterprises (SMEs) continue to attract the interest of entrepreneurs. This is because the entrepreneurs stand a chance to benefit from the largesse of the partner country to support their feeble establishments. One such example is the China-Africa Economic Cooperation. This project has helped to struggle African SMEs turn around their futures and move toward growth and prosperity. Another example in the peninsula region is the China–Pakistan Economic Corridor (CPEC).
In this way, multilateral and bilateral economic cooperation can be a powerful tool for promoting economic development in developing countries.
However, it is essential to note that such cooperation also has its drawbacks, as it can lead to the exploitation of poorer economies by richer ones or further entrenched economic disparities. Thus, any form of multilateral or bilateral economic cooperation must be carefully considered before proceeding with the agreement.
The success of any cooperative relationship depends mainly on each country’s relative advantages compared to their partner’s
What is a Bilateral Agreement?
Bilateral trade agreements allow countries to focus on improving their economic relations instead of having more than two parties involved. This puts more time and resources into building relationships with one other country rather than spreading themselves thin trying to secure international cooperation. Bilateral agreements also benefit both countries more if they share similar economies and structures, allowing both parties to cooperate more efficiently.
What are Multilateral Trade Agreements?
Multilateral agreements have a broader scope and generally involve a more significant number of countries in relation to bilateral agreements, which usually only have two participants. This makes it easier for multilateral trade initiatives, such as World Trade Organization (WTO) agreements, to improve economic globalization.
Difference between Bilateral and Multilateral trade agreements
Bilateral trade agreements involve two countries with similar political, economic, and social structures that can focus on improving their economic relations without having to spread resources too thin. Conversely, multilateral trade agreements are more significant in scope and involve more than two countries. These agreements can spur economic globalization and international cooperation between nations of different sizes with varying abilities to contribute resources. They often favor more developed countries but come with their own set of difficulties to negotiate.
Ultimately, both types of agreements can be beneficial depending on the specific needs of the countries involved.
The key difference between the two are:
Multilateral agreements are generally harder to create and reach a consensus among a more significant number of countries.
Multilateralism also introduces “free-riding,” which means that some countries benefit more than others from the agreement without contributing as much financially or otherwise. This can make it challenging to ensure that everyone receives equitable benefits.
Bilateral agreements are often used to tie together small economies with similar political, economic, and social structures that find it easier to cooperate than working with a more significant number of countries. Bilateral trade arrangements also favor more developed countries that can focus time and resources on singularly building relationships with other nations.
Multilateral trade agreements are better at spurring economic globalization and international cooperation between countries of different sizes with often differing structures and abilities to contribute resources. Multilateralism also tends to cover more ground than bilateral agreements because it can be applied to a broader range of issues not limited by one set of participants.
However, negotiations for multilateral agreements are usually more complex due to their enormous scope. However, they allow for free-riding, which reduces everyone’s benefits proportionally if some countries decide not to cooperate while others do. Moreover, bilateral trade agreements tend to work between two specific countries, while multilateral trade initiatives involve more than two nations.
Bilateral arrangements are easier to create and agree upon because there is no need to compromise with another party. However, because each bilateral agreement is only relevant between two countries, they tend to be more limited and less efficient than multilateral trade initiatives, which can benefit a more significant number of countries at once.
Multilateral agreements such as WTO agreements are better able to promote economic globalization and create an international order that benefits everyone involved without favoritism or discrimination against particular countries
Example of Multilateral: China’s BRI
China is keen to welcome other countries to join its ambitious Belt and Road Initiative (BRI), which it believes can benefit all parties involved. As a result, it has embraced an open-door policy to encourage the participation of countries that are not currently part of the organization. This is particularly so with African nations, many of whom feel like their lack of experience working with Chinese officials leaves them unable to reap full advantage of the opportunity presented by BRI.
Unfortunately, some poorer third-world countries have expressed reservations about China’s trade initiatives, believing they only favor wealthier countries and seek to exploit those in lower GDP positions. These sentiments have been compounded by the legacy of colonization in many African countries, leading some states to harbor distrust toward China due to cultural differences and an unwillingness to cooperate. Moreover, there can also be reluctance from other states towards countries that are members of unpopular organizations, such as North Korea or Iran, due to past difficulties in working together and a sense that their interests are not being treated equally within them.
However, Beijing’s promise and provision of large amounts of funding without closely monitoring where it goes can make it easier for corrupt officials or organizations to take advantage. At the same time, bilateral agreements may also cause additional complications due to the extra time and cost required for negotiation over each agreement. In addition, if two countries have difficulty finding common ground despite having much in common, this could further impede their ability to join forces with China and increase their power on the international scale.
Example of Bilateral agreement: CPEC
The China–Pakistan Economic Corridor (CPEC) had long been in the works, with intentions to increase trade between the two countries. In 2016, plans for the CPEC finally took form, and Chinese cargo began traveling overland to Gwadar Port. The fourfold economic cooperation aims of the CPEC are infrastructural development, agricultural cooperation, technological support, and trade cooperation, with a budget of $62 billion dedicated to infrastructure development in Pakistan. This will facilitate trading arrangements between China and Pakistan while also providing energy production and transfer opportunities to nearby regions under the Belt and Road initiative.
Apart from the economic stimulus packages offered by China, such as concessionary loans, private consortia, and assistance funding from the Asian Development Bank, there is also an unspoken involvement of Chinese politics in Arab lands due to CPEC cooperation. Academics have questioned what benefits China will reap from the project despite having invested significantly in it. After a few years of implementation, it is clear that Pakistan is benefitting from reduced dependence on neighboring states for core needs due to CPEC investments. Nevertheless, the full potential of this grand project can only be realized when both countries better understand each other’s needs and interests to ensure that everyone involved gets their fair share out of it.
Conclusion
Multilateralism is often the best way to ensure that everybody gets equal benefits and that all parties benefit equally from working together. However, it can also result in slower progress and complex negotiations between members. On the other hand, bilateral agreements are helpful when dealing with real-time issues, such as balancing out unequal trades or resolving disputes quickly.
However, they can make it easier for corrupt organizations or officials to take advantage of funds. China has proved itself to be a successful negotiator in both fields, which makes it easier for parties to trust them and work with them, but this also means that countries will need to maintain positive relationships with many other partners in order to get what they want instead of working exclusively with one another.
