Context:
On February 13, 2025, during Indian Prime Minister Narendra Modi’s visit to the United States, the two nations agreed to start negotiations for a Bilateral Trade Agreement (BTA) by fall of 2025.
While the details regarding the scope and provisions of the BTA remain vague, it contemplates the BTA to have a multisector perspective rather than to be one primarily oriented toward the liberalization of trade, a feature of the FTA.
The agreement would be bilaterally permissible under WTO trade laws, and with respect to India and the U.S., both being members of WTO, especially the General Agreement on Tariffs and Trade (GATT), whatever concerns compliance with WTO trade laws.
Key Legal Considerations Under WTO Law
Most Favoured Nation (MFN) Principle & Free Trade Agreements (FTAs)
- In other words, preferential trade agreements are banned unless they have been legalized under the WTO.
- Under Article 24.8(b) of GATT, agreements such as these have to eliminate tariffs and barriers on
substantially all the tradeamong them. - The proposed India U.S.-BTA will break the WTO law if it reduces tariffs to selected products unless it can somehow qualify as a Free Trade Agreement.
Interim Agreements Under GATT
- Article 24.5 would permit interim agreements leading to FTAs to be concluded within a reasonable time frame (which would be 10 years at most).
- If India and the U.S. wish to refer to the BTA as an interim agreement, then there must be a strong timetable for moving to real FTA status.
- An agreement relying on this provision that is incompatible with MFN could undoubtedly be testable in court.
The Enabling Clause: Preferential treatment for developing countries
- This clause allows developed countries to provide preferential treatment to developing countries, but it does not say the contrary.
- Since the BTA requires India to cut tariffs on imports from the United States, it could fall under this exception.
Challenges & Compliance with WTO Law
- It is necessary for India to make sure that under the BTA only selective tariff reductions are made with the understanding that Indo US tariff structures are transitioning to an FTA.
- Policies of the U.S. under previous administrations such as Trump’s idea of “reciprocal tariffs” were counter to the principles of MFN and Special & Differential Treatment (S&DT) of WTO.
- As a proponent of a rules based trading system, India must resist any pressures to deviate from the principles for the sake of concluding the BTA.
The India U.S. BTA will have to be drawn up strictly with a view to WTO conformity as an FTA or at least as a genuine interim agreement. Any selective reductions involved without adherence to the standards set out by the WTO may trigger the legal challenges raised against these reductions.
