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What Is a Bilateral Agreement?

A bilateral agreement is a legal arrangement between two parties who agree to mutually acceptable terms.
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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 16 November 2014
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A bilateral agreement is a legal arrangement between two parties who agree to mutually acceptable terms. People most commonly encounter this term in the context of an agreement between two nations or companies. The foundation can be a contract, treaty, or other legal document spelling out the terms and providing information about the expectations from both parties. Consequences for violations can vary, depending on the nature of the terms, and may include fines.

Nations enter bilateral agreements on a regular basis, covering a variety of tactics from extradition to textile trading. Many nations are members of collectives interested in similar diplomatic aims, like the North American Free Trade Agreement, but can have individual bilateral agreements with other countries as well. Nations sharing a border commonly enter such arrangements to protect mutual interests; for example, two nations might agree to share drug interdiction personnel and information to make sure drug runners have trouble getting across the border.

When two companies have a bilateral agreement, they may agree to share resources and personnel. Common examples can be seen between companies offering licensing of their products to other companies as part of a mutually beneficial trade arrangement. For example, an aircraft manufacturer could license rights to produce a specific navigation system from the developer in a bilateral agreement where the developer works on projects for the manufacturer. Such agreements can increase market share and strengthen relations between companies.

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The process of creating a bilateral agreement can be a long one. Representatives from one party need to approach the other to discuss the possibility and start talking about terms. People can exchange a number of rounds of a draft agreement to work out the specifics. Attorneys for both parties carefully review each draft and can request changes on the grounds of disadvantageous terms, language, and other issues. When everyone reaches satisfaction, the parties can hold a formal meeting to sign the agreement and put it in force.

One result of a bilateral agreement could be policy changes for one or both parties. For governments, this may require soliciting input from relevant government agencies to find out how they will enact the agreement and to get feedback on any changes in terms they would like to see. These agencies will be responsible for on-the-ground implementation, and proceeding without their assistance and goodwill could result in embarrassing situations like agencies refusing to enforce the terms of the agreement.

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