India-U.S. Bilateral Trade Agreement Negotiations 2025

On February 13, 2025, India and the United States announced plans to negotiate a Bilateral Trade Agreement (BTA). The discussions aim to create a mutually beneficial trade framework by autumn 2025. This agreement is particularly as both nations are members of the World Trade Organization (WTO). Their trade dealings must comply with WTO regulations, making the BTA a focal point in international trade law.

About Bilateral Trade Agreements

Bilateral Trade Agreements are treaties between two countries to promote trade and eliminate barriers. Unlike Free Trade Agreements (FTAs), BTAs do not necessarily require the elimination of tariffs on all goods. The U.S.-India BTA is currently undefined in scope, focusing on multiple sectors without specifying coverage.

WTO Regulations and the MFN Principle

The WTO operates under the Most Favoured Nation (MFN) principle. This principle prohibits preferential treatment among trading partners. An FTA that favours certain countries violates this rule unless specific conditions are met. Article XXIV.8(b) of GATT allows countries to form FTAs but mandates that they eliminate tariffs on “substantially all trade.” This requirement ensures that FTAs do not undermine the multilateral trading system.

Legal Validity of the Proposed BTA

The proposed BTA must cover portion of trade to be legally valid. If India and the U.S. reduce tariffs on selected products without similar treatment for other countries, it could breach WTO law. Thus, the economic benefits of such an agreement are debated among economists and legal experts.

Interim Agreements and Future FTAs

India and the U.S. might consider an ‘interim agreement’ to facilitate the BTA. Article XXIV of GATT allows for interim agreements that lead to an eventual FTA. Such agreements must include a clear plan for establishing a full FTA within ten years. However, the interim approach should not be misused to delay commitments to the MFN principle.

The Enabling Clause in WTO Law

The enabling clause permits deviations from the MFN principle to enhance market access for developing countries. However, the current BTA discussions suggest that India is lowering tariffs for American products, which may contradict the enabling clause’s spirit. The Joint Statement indicates that the U.S. welcomes India’s tariff reductions, raising questions about the fairness of the arrangement.

Upholding WTO Principles

The U.S. administration’s approach to ‘reciprocal tariffs’ contradicts core WTO principles. This method could violate the obligations that nations like India have committed to at the WTO. As a proponent of a rule-based trading system, India faces the challenge of resisting pressure from the U.S. while ensuring compliance with WTO laws during BTA negotiations.

Questions for UPSC:

1. Critically analyse the implications of the Most Favoured Nation principle in international trade.
2. What is the significance of the General Agreement on Tariffs and Trade in global trade? Discuss.
3. Estimate the potential impact of bilateral trade agreements on developing countries’ economies.
4. Point out the challenges faced by nations in adhering to World Trade Organization regulations.

Answer Hints:

1. Critically analyse the implications of the Most Favoured Nation principle in international trade.

1. The MFN principle ensures non-discrimination among trading partners, promoting fair competition.
2. Violation of MFN can lead to trade disputes and retaliatory measures among countries.
3. It encourages a stable and predictable trading environment, encouraging foreign investments.
4. Countries can form FTAs, but these must comply with MFN rules, complicating trade negotiations.
5. Developing countries benefit from MFN as it allows them access to markets without facing discrimination.

2. What is the significance of the General Agreement on Tariffs and Trade in global trade? Discuss.

1. The GATT established foundational rules for international trade, promoting tariff reduction and trade liberalization.
2. It provides a framework for resolving trade disputes among member countries.
3. The agreement has evolved into the WTO, expanding its scope to cover services and intellectual property.
4. GATT’s principles, like MFN and national treatment, ensure fair trade practices globally.
5. It plays important role in integrating developing countries into the global trading system.

3. Estimate the potential impact of bilateral trade agreements on developing countries’ economies.

1. BTAs can enhance market access for developing countries, boosting exports and economic growth.
2. They may lead to increased foreign direct investment, encouraging industrial development.
3. However, BTAs can also expose developing economies to competition, potentially harming local industries.
4. Trade preferences may encourage dependency on specific markets, risking economic stability.
5. Overall, the impact varies based on the agreement’s terms and the country’s economic structure.

4. Point out the challenges faced by nations in adhering to World Trade Organization regulations.

1. Countries often struggle with aligning domestic laws and practices with WTO commitments.
2. Developing nations face capacity constraints in negotiating and implementing trade agreements.
3. Trade disputes can arise from differing interpretations of WTO rules, leading to lengthy resolution processes.
4. Political pressures and domestic interests may conflict with WTO obligations, complicating compliance.
5. Global economic shifts and trade tensions can challenge the stability of the multilateral trading system.