The adjective bilateral is usually used to describe a relationship, event, or institution involving just two parties. It can be contrasted with multilateralism, which usually refers to a situation involving three or more actors. In this sense, bilateralism grows out of a belief that inter-state relations are best organized on a one-on-one or dyadic basis. For example, even if B and C are perceived to be friends, A will find the prospect of sustaining A-B and A-C ties more efficacious than forming an A-B-C (nominally multilateral) arrangement. In this sense, bilateralism is by definition, an exclusive relationship.

According to William Diebold, in its narrowest sense, bilateral is neutral to the qualitative dimension of the particular relationship. John Ruggie argues there are several examples in history of bilateral relationships that have involved more than two parties: for example, the Nazi trading system devised by Hjalmar Schacht. The Schactian system coordinated economic relations between Nazi Germany and several states in the Balkans, Latin America, and East Central Europe. However, according to Ruggie, “it had no inherent limit; it could have been geographically universalized to cover the entire globe, with an enormous spider web of bilateralist agreements radiating out from Germany.” He argues it is the qualitative character of the relationships involved that tells the most about the meaning of terms such as bilateralism and multilateralism.

There are two substantive characteristics that made the Schactian system bilateral — despite its numbers — and which Ruggie argues are attributes of bilateralism generally. First, irrespective of the total number of actors involved in a relationship, bilateralism segments relations into multiples of dyads and compartmentalizes them. The Schactian system was in essence based on a series of “reciprocal” agreements negotiated between Germany and an individual foreign trading partner. The system was inherently discriminatory. All the arrangements were held only on a case-by-case and product-by-product basis. A trade deal negotiated with a partner was not extended to all the others, as it would be, for example, under a most-favoured-nation (MFN) multilateral system such as the General Agreement on Trade and Tariffs (GATT)/World Trade Organization (WTO).