India US trade agreement and WTO rules compliance

Source: The post India US trade agreement and WTO rules compliance has been created, based on the article “An India-U.S. trade agreement and the test of WTO laws” published in “The Hindu” on 11th March 2025. India US trade agreement and WTO rules compliance

UPSC Syllabus Topic: GS Paper2-International Relations-Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

Context: The article discusses the proposed India-U.S. Bilateral Trade Agreement (BTA) and its legal implications under WTO rules. It explains how trade agreements must follow WTO laws, the MFN principle, and possible exceptions like interim agreements or FTAs while ensuring legal compliance.

For detailed information on Significance of diplomatic resolution of India US trade dispute read this article here

What is the India-U.S. Bilateral Trade Agreement (BTA)?

1. India and the U.S. agreed to negotiate a multi-sector BTA by fall 2025.
2. The February 13, 2025, Joint Leaders Statement mentioned the BTA but did not provide details.
3. It is not labeled as a Free Trade Agreement (FTA), but its content matters more than terminology.
4. Both countries are WTO members, so the agreement must follow WTO trade laws.
5. The Most Favoured Nation (MFN) principle restricts preferential treatment unless done under specific WTO conditions.
6. The agreement could impact tariff rates, market access, and trade volumes between India and the U.S.

How do Free Trade Agreements (FTAs) work under WTO law?

1. FTAs allow countries to reduce tariffs for each other, but they must eliminate duties on “substantially all the trade” between them (GATT Article XXIV.8(b)). This ensures that FTAs remain exceptions to the MFN rule.
2. If India and the U.S. lower tariffs on select products without a full FTA, it may violate WTO law. The agreement must also be reported to the WTO.

Can India and the U.S. sign an interim agreement?

1. An interim agreement is allowed under Article XXIV.5 of GATT to help countries create an FTA over time.
2. It must include a plan to establish an FTA within 10 years. India and the U.S. can use this approach only if they genuinely plan to sign an FTA.
3. Misusing it to bypass WTO rules would be legally incorrect.

Does the ‘enabling clause’ allow this agreement?

1. The enabling clause lets WTO members give better market access to developing countries.
2. Since India is lowering tariffs on U.S. products, this agreement does not fit under the enabling clause.
3. The U.S. benefits more, which is against the purpose of this WTO exception.

Why is WTO law important for India?

1. The U.S. has previously pushed for “reciprocal tariffs,” which go against WTO principles like MFN and Special and Differential Treatment (S&DT) for developing countries.
2. India, as a supporter of a rules-based trading system, must ensure that the BTA follows WTO laws.
3. This agreement will test India’s ability to resist unfair U.S. pressure while protecting its trade interests.

Question for practice:

Examine how the proposed India-U.S. Bilateral Trade Agreement (BTA) aligns with WTO rules and its possible legal implications.