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Bilateralism refers to the political, economic, or cultural relations between two sovereign states. It is in contrast to unilateralism or multilateralism, which refers to the conduct of diplomacy by a single state or multiple states, respectively. When states recognize one another as sovereign states and agree to develop diplomatic relations, they exchange diplomatic agents such as ambassadors to facilitate dialogues and cooperations that will be exchanged. It is an agreement that is affecting or undertaken by two parties; a mutual agreement.
Economic agreements, such as free trade agreements (FTA) or Foreign direct investment (FDI), signed by two states, are a common example of bilateralism. Since most economic agreements are signed according to the specific characteristics of the contracting countries to give preferential treatment to each other, not a generalized principle but a situational differentiation is needed. Thus through bilateralism, states can obtain more tailored agreements and obligations that only apply to particular contracting states. However, the states will face a trade-off because it is more wasteful in transaction costs than the multilateral strategy. In a bilateral strategy, a new contract has to be negotiated for each participant. So it tends to be preferred when transaction costs are low and the member surplus, which corresponds to “producer surplus” in economic terms, is high. Moreover, this will be effective if an influential state wants control over small states from a liberalism perspective, because building a series of bilateral arrangements with small states can increase a state's influence.
Examples of bilateralism
1. Australia and Canada have a bilateral relationship; both have similar governments and share similar values as well as the same titular Head of State (The Queen of England). In 1895 the Government of Canada sent John Larke to Sydney to establish a trade commission and in 1935 Canada sent Charles Burchell (Australia's first Canadian High Commissioner) to formalise ties between the two countries. Both nations have been wartime allies, and their trade and economic relations are strong.
2. India and Nepal have had a bilateral relationship since ancient times even before the birth of Buddha in 544 BC. In modern times, this traditional relationship has been confirmed by written treaties. The India-Nepal treaty of friendship was signed in July 1950. That provided economically and politically important effects for both countries. In 2011, the two countries signed a new Bilateral Investment Promotion and Protection Agreement. These bilateral treaties have played a significant role in the evolution of international investment law. Citizens of both countries can move across the border freely without passport or visa, live and work in either country and own property and business in either country. Gurkhas form a part of the Indian Army. Millions of Nepalis have been living in India for long periods of time.
3. The United States has a bilateral relationship with several East Asian countries, particularly South Korea, Japan, and China. Unlike its relationship with European nations which takes multilateral alliances centered in NATO, the U.S. prefers a direct relationship with each of the East Asian countries. Rather than establishing a security alliance or hosting a summit, the U.S. tends to make a direct connection with each nation. From both historical and political perspectives, every country in the East Asian region can be an opponent or a target to any other. Therefore it is comparatively difficult to construct multilateral alliances, which depend upon mutual reliance. A main U.S. reason for choosing a bilateral treaty was to avoid conflict, as might have been the case with multilateral treaties (ex. risk of multilateral treaty defects). A good example would be the "hub and spokes" reference, where the U.S. is the "hub" and the East Asian countries are the "spokes"; they each have a connection with the U.S. but not with each other.
4. The U.S. has a history of bilateral agreements with Panama, beginning with the Hay-Bunau-Varilla Treaty (1903) which established the United States' right to build a canal and own it and adjacent property across the otherwise-sovereign nation of Panama. This was replaced by The Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal and the Panama Canal Treaty (both signed 1977). A Bilateral Investment Treaty Amendment was signed by the two countries in 2000, and several more limited agreements have been signed between various law-enforcement and financial agencies of the two countries.
There has been a long debate on the merits of bilateralism versus multilateralism. The first rejection of bilateralism came after the First World War when many politicians concluded that the complex pre-war system of bilateral treaties had made war inevitable. This led to the creation of the multilateral League of Nations (which was disbanded in failure after 26 years).
A similar reaction against bilateral trade agreements occurred after the Great Depression, when it was argued that such agreements helped produce a cycle of rising tariffs that deepened the economic downturn. Thus, after the Second World War, the West turned to multilateral agreements such as the General Agreement on Tariffs and Trade (GATT).
Despite the high profile of modern multilateral systems such as the United Nations and World Trade Organization, most diplomacy is still done at the bilateral level. Bilateralism has a flexibility and ease lacking in most compromise-dependent multilateral systems. In addition, disparities in power, resources, money, armament, or technology are more easily exploitable by the stronger side in bilateral diplomacy, which powerful states might consider as a positive aspect of it, compared to the more consensus-driven multilateral form of diplomacy, where the one state-one vote rule applies.
- Bilateral trade
- Bilateral treaty
- List of bilateral free trade agreements
- Thompson, Alexander. "Multilateralism, Bilateralism and Regime Design" (PDF). Department of Political Science Ohio State University. Retrieved 23 September 2013.
- "Canada country brief - September 2010". Department of Foreign Affairs and Trade. Retrieved 3 June 2011.
-  Oxford Journal
-  BBS Reports, December 2013
-  JHU Journal
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