A unilateral trade agreement is a treaty that only involves one country without the participation of other nations. In this type of arrangement, a state comes up with policies that affect how it interacts with other nations but does not in any way require other countries to reciprocate in their plans. On the other hand, a multilateral trade agreement is a treaty that involves more than one state (Mankiw, 181). Furthermore, the conditions affect the economic activities of the countries involved based on the roles that are described in the trade agreement.
Two instances of multilateral trade are the North American Free Trade Agreement (NAFTA)
and the General Agreement on Tariffs and Trade (GATT). GATT is a chain of ongoing negotiations that are aimed at reducing tariffs and other trade barriers among member countries. To its credit, GATT has been able to reduce the tariffs among member countries from 40% to 5% thus facilitating better trade relations (Mankiw, 181). The agreements reached through GATT are enforced by the World Trade Organization (WTO). Furthermore, the WTO provides an avenue for settling disputes among member countries.
NAFTA can be classified as a multilateral trade agreement that involves Canada, United
States of America and Mexico. NAFTA’s primary goal is to reduce tariffs and trade barriers amongst member countries (Mankiw, 181). Therefore, each member state is required to meet its obligations that work towards the treaty’s goals. NAFTA has presented both positive and negative implications to member countries. During its implementation, member states have experienced economic growth which can be attributed to the treaty. However, the free movement of labor has led to the loss of jobs in the United States of America to Mexico due to the provision of cheap labor.
Mankiw, N. G. Principles of Microeconomics. Cengage, 2017.
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