India-US trade deal and international law

New Delhi must take care that tariff rates in the proposed bilateral agreement do not run afoul of WTO obligations

- Prabhash Ranjan

The larger normative question that developing countries face is whether to play ball with the US or champion the rules of trade multilateralism.

(AFP)

The recent announcement of an India-US trade deal was followed by a joint statement on February 6, confirming a “framework” for an “interim agreement” aimed at reciprocal trade. This joint statement, which highlights both nations’ commitment to sign a broader bilateral trade agreement (BTA), contains some key elements that offer a sneak peek into what the interim and final trade agreements might encompass.

First and foremost, the US will reduce the reciprocal tariff rates on Indian goods to 18% and might lower them further during the BTA negotiations. The new tariff rates, while not returning to the previous era of low MEN rates of about 3%, will provide a breather to India’s labour-intensive exports, particularly in textiles, leather, and gems and jewellery. This change benefits these sectors by offering a more favourable rate than competitors in the US market. Nonetheless, it’s worth noting that even at 18%, the American tariffs continue to be in breach of the US's two principal international law obligations under the World Trade Organization (WTO) — the MFN requirement to impose nondiscriminatory tariffs and the obligation under Article II of the General Agreement on Tariffs and Trade (GATT), which is not to impose tariffs in excess of one’s schedule of commitments.