| Introduction: Contextual Introduction Body: Highlight the challenges India faces in negotiating a trade agreement with the U.S. while ensuring compliance with WTO laws. Conclusion: Way forward |
The proposed India-U.S. Bilateral Trade Agreement (BTA), announced during Prime Minister Narendra Modi’s visit to the U.S. on February 13, 2025, marks a significant step in bilateral trade relations. However, given that both countries are members of the World Trade Organization (WTO), the agreement must align with WTO norms, particularly the Most Favoured Nation (MFN) principle and Article XXIV of the General Agreement on Tariffs and Trade (GATT).
Challenges in Negotiating the BTA
- MFN Principle and Trade Preferences – WTO law mandates that trade benefits granted to one country must be extended to all WTO members unless covered under an FTA or an exception. If India and the U.S. selectively reduce tariffs without forming an FTA, it would violate MFN rules.
- Legal Validity of a Limited-Scope BTA – For the BTA to comply with WTO laws, it must either:
- Cover “substantially all trade” as per Article XXIV of GATT, or
- Be notified as an “interim agreement” with a clear roadmap towards an FTA.
- Avoiding Political Expediency – If the BTA is used as a political tool to delay trade liberalization rather than as a genuine step towards an FTA, it could face legal scrutiny at the WTO.
- Implications of the ‘Enabling Clause’ – The enabling clause permits preferential treatment for developing countries, but the BTA does not qualify, as India is reducing tariffs on U.S. products, not vice versa.
- S. Pressure on Trade Terms – The U.S. has historically pushed for greater market access in India while restricting Indian exports through measures like high tariffs and visa barriers, making negotiations asymmetric.
Balancing Strategic Interests
- Leveraging WTO Mechanisms – India should ensure that the agreement follows WTO dispute resolution protocols and aligns with multilateral trade commitments.
- Seeking Reciprocal Benefits – Instead of unilaterally reducing tariffs, India must negotiate favorable terms, particularly in IT services, pharmaceuticals, and agricultural exports.
- Strengthening Trade Diversification – Expanding trade partnerships beyond the U.S. can prevent over-dependence and enhance India’s bargaining power.
- Defending Rule-Based Trade Order – India, as a proponent of multilateralism, must resist attempts to erode WTO principles, such as the U.S. push for “reciprocal tariffs.”
Conclusion
India must ensure that its trade negotiations with the U.S. do not compromise WTO commitments or national economic interests. A legally sound and strategically balanced approach—focused on long-term trade benefits, reciprocity, and WTO compliance—will be crucial in shaping an equitable and sustainable India-U.S. trade agreement.
