Bilateral Agreement Banking

U.S. Exim may require the signing of a bilateral agreement (known as the Project Incentive Agreement) with the host government, which gives them recourse to the host government in the event of a default due to political risks: this will be dealt with on a case-by-case basis. McCalman (2002) offers another argument in favour of the appropriateness of the MFN rule. This article is remarkable because it is a rare example of a model that explicitly introduces frictions into multilateral trade negotiations. In this model, a large country negotiates tariffs and transfers with small N countries, and each small country has private information about the benefits it has derived from an agreement. McCalman compares two scenarios, one in which the big country can make different offers for different countries and the other where the MFN rule limits the large country to offer the same offer to all countries. The big country is of course less well below the MFN rule, because the latter limits its choice, but the overall efficiency may be higher under MFN, and it is more likely if N is greater. The reason is that negotiations are ineffective on the basis of private information. If negotiations were smooth, unrestricted negotiations would always lead to efficiency and the MFN rule would always be a bad idea. But in the presence of private information, unrestricted negotiations are ineffective because the larger country is not able to obtain the full surplus of negotiations and, therefore, it is possible that the imposition of MFN will increase the well-being of the N countries rather than the welfare of the larger country.95 With regard to the legal nature of the bilateral agreements signed between ASEAN and China. there are different points of view. Let us take the example of the ACFTA framework agreement; Some see it as a bilateral agreement between the two parties, namely China and ASEAN as a whole,57 while others see it as a multilateral treaty with 11 contracting parties.58 As the former scholar notes, the ambiguous legal personality and the division of ASEAN members into two groups do not detract from the bilateral nature of the agreement. Given that the treaty deals with extensive economic cooperation between ASEAN and China, it is clear that one of the parties is China, while the other parties are the ten ASEAN members who are taken in total59.59 The latter views the ACFTA framework agreement as a multilateral agreement signed by eleven national states and not as a “bilateral agreement” between China and ASEAN.

In its nature, it mainly contains bilateral commitments between China and the various ASEAN countries. This legal reality will have profound implications for the application of contractual obligations and the use of the dispute settlement mechanism in the implementation of the ACFTA framework agreement60 bilateral agreements can take time.