Font size:
Print
India-U.S. Bilateral Trade Agreement: WTO Compliance and Strategic Considerations
Context:
India and the U.S. plan to negotiate a Bilateral Trade Agreement (BTA) by 2025, ensuring WTO compliance. Unlike a Free Trade Agreement (FTA), the BTA’s scope remains uncertain, requiring legal and economic analysis to prevent trade disputes.
WTO Principles and Free Trade Agreements (FTAs)
- The WTO operates on the Most Favoured Nation (MFN) principle, which prohibits discrimination between trading partners.
- FTAs are an exception to the MFN principle but must meet strict conditions under Article XXIV.8(b) of GATT.
- An FTA must cover “substantially all the trade” between participating countries.
- Any India-U.S. trade agreement must comply with these legal provisions to remain WTO-compliant.
Challenges in Meeting WTO Compliance for India-U.S. Trade Agreement
- Selective Tariff Reductions and WTO Violation
-
- If India and the U.S. reduce tariffs selectively on certain products without a comprehensive FTA, it would violate WTO law.
- Such agreements must be notified to the WTO for scrutiny.
- The economic impact for India is uncertain, but legal compliance remains a crucial concern.
- The ‘Enabling Clause’ and Its Limitations
- The WTO’s Enabling Clause allows trade deviations from the MFN principle to benefit developing countries.
- The India-U.S. BTA does not qualify under this clause, as it involves tariff reductions for both parties.
- India’s recent tariff reductions favouring U.S. exports contradict the spirit of the enabling clause.
Steps to Achieve WTO Compliance in India-U.S. Trade Agreement
- The ‘Interim Agreement’ Approach
-
- Article XXIV.5 of GATT allows countries to enter into an interim agreement as a step toward forming an FTA.
- Such an agreement must include a clear schedule for establishing a full FTA, typically within 10 years.
- If the BTA is an interim step toward an FTA, it must be genuine and not a way to bypass WTO rules.
- Reciprocal Tariffs and WTO Violation
-
- The concept of “reciprocal tariffs”, as advocated by former U.S. President Donald Trump, violates WTO principles.
- Special and Differential Treatment (S&DT) allows developing countries to offer less than full reciprocity in tariff commitments.
- The U.S. cannot unilaterally increase tariffs to match India’s rates without violating its bound tariff commitments.
India’s Strategic Considerations in this Deal
- India, as a proponent of a rules-based trading system, must ensure that the BTA respects WTO laws.
- The agreement presents a test for India’s trade policy, requiring a balance between economic interests and legal obligations.
- India should resist U.S. pressure to agree to an arrangement that compromises WTO principles.
- A well-negotiated deal can help India strengthen its global trade position while maintaining compliance with WTO norms.
