Given that these nations are all members of the World Trade Organization (WTO), the actions taken by the US may pose challenges to the principles upheld by the WTO.
The following questions & answers will give an idea of what’s coming for the world in Trump’s wake.
What is WTO’s role in global trade?
The WTO, which is based in Geneva and comprises 166 members, serves as a multilateral organization that establishes rules for international trade and resolves disputes among countries. Its primary goal is to facilitate a smooth, predictable, and free flow of goods.
Both India and the US have been members since 1995, entering into various agreements that regulate trade in goods, services, and intellectual property. These agreements outline the rules and guidelines governing international trade.
What are the key tariff rules that WTO deploys to keep world trade smooth?
A fundamental principle of the WTO is tariff binding, which guarantees predictability and stability in global trade. Bound tariffs represent the maximum tariff rates that a WTO member agrees to under its Schedule of Concessions. These commitments are legally binding, meaning a country cannot impose tariffs above this level without negotiating anew.Applied tariffs are the actual rates a country charges on imports. While these can be lower than the bound rate, they cannot exceed it without breaching WTO regulations.
What happens when a member country breaks these rules?
Should a member country impose tariffs exceeding its bound commitments, it would be in violation of Article II of GATT (General Agreement on Tariffs and Trade) 1994, which mandates that members must not impose duties or charges that go beyond those listed in their schedules and must not introduce any additional duties or charges not specified in their schedules.
Affected nations can lodge a complaint with the WTO Dispute Settlement Body (DSB) concerning excessive tariffs. The initial step to resolve the dispute under DSB protocols is bilateral consultations. If these consultations are unsuccessful, the complaining country may obtain permission from the WTO to impose retaliatory tariffs or other trade countermeasures.
Can the bound tariff rates be raised by any member, and if yes, in what kind of situations?
Yes, but this can only be achieved through negotiations with affected countries under GATT Article XXVIII (Modification of Schedules), where compensatory concessions must be offered or by invoking emergency provisions such as safeguards or national security exceptions in particular instances.
Under the previous Trump administration, the US introduced additional tariffs of 25 per cent on steel and 10 percent on aluminum products, citing ‘national security’ under section 232 of its Trade Act, which referenced threats to domestic steel production capacity. However, the WTO has ruled against this action in several cases.
India also imposed retaliatory duties on 28 American products.
According to the Global Trade Research Initiative (GTRI), the WTO dispute panel stated that national security exceptions cannot be applied arbitrarily and must be connected to genuine security concerns during times of war or emergencies.
The GTRI reports that the US has refused to adhere to the WTO ruling, asserting its sovereign right to establish its national security policies. Additionally, the US has obstructed the WTO Appellate Body, hindering resolution of appeals.
Why do developing countries (like India) levy high import duties, while developed nations (like the US) keep tariffs low?
Developing nations such as India impose high import duties primarily to safeguard domestic industries, generate revenue, and foster economic growth. These countries often depend on tariffs to protect their emerging sectors from foreign competition, encourage self-reliance, and address trade imbalances.
Conversely, developed countries like the US maintain lower tariffs because their industries are already competitive in the global market, and they gain from open markets that allow their businesses to reach foreign consumers with minimal trade barriers.
Historically, when the WTO was established in 1995, developed nations consented to allow developing countries to retain higher tariffs in exchange for agreements on Trade-Related Aspects of Intellectual Property Rights (TRIPS), liberalisation of services trade, and agricultural rules that predominantly benefited wealthier countries.
Under WTO rules, what are special and differential tariff treatments?
The WTO agreements include special provisions that grant developing countries particular rights and allow other members to treat them more favourably.
For instance, developing nations like India are permitted more time to decrease their tariffs and export subsidies compared to wealthier nations.
Can India move WTO against Trump’s 25 per cent tariffs on steel and aluminum and his reciprocal tariffs threat?
According to RV Anuradha, Partner at Clarus Law Associates, who was quoted by PTI in a report, India can.
Anuradha, however, indicated that considering the ongoing negotiations between the Indian and US governments for a trade deal, it is practically “unlikely” that India would choose to engage in an extended dispute at the WTO.
“However, I would advise against expecting a bilateral deal to work wonders and suggest we remain firm on what will be genuinely advantageous for us. At a minimum, pending the conclusion of bilateral trade discussions, there should be a suspension of the increased steel and aluminum tariffs and the reciprocal tariffs. If this does not materialise, we must seriously contemplate retaliatory tariffs, while also keeping the WTO dispute option open,” she told PTI.
In such a scenario, what is the plan of action that India could go for?
According to Anuradha, India should collaborate with other WTO members to ensure the organisation’s ongoing relevance, which is increasingly challenged due to the absence of an enforceable dispute resolution mechanism.
“There is simply no substitute for an effective rules-based multilateral order where we can leverage the collective interests of developing countries. Bilateral agreements will only amplify power dynamics,” she suggested to the news agency.
Article based on PTI’s explainer
