India and the United States are negotiating a Bilateral Trade Agreement (BTA) set for
completion by fall 2025. While aimed at enhancing economic ties, the agreement must
comply with World Trade Organization (WTO) laws, particularly the General Agreement
on Tariffs and Trade (GATT).
Understanding Free Trade Agreements (FTAs) Under WTO Law
- The WTO follows the Most Favoured Nation (MFN) principle, meaning all WTO
members must receive equal trade treatment. - However, FTAs provide an exception under Article XXIV.8(b) of GATT, allowing
members to eliminate tariffs and trade barriers on ‘substantially all trade’. - The term ‘substantially all trade’ is undefined but generally refers to 90% or more of
total trade. - If the India-U.S. BTA does not remove tariffs on a broad range of goods/services, it may
violate WTO rules unless it qualifies as: - A full FTA
- An interim agreement (Article XXIV.5 of GATT)
Legal Challenges for the India-U.S. BTA
1. Compliance with the MFN Principle Issue:
- The MFN principle (Article I of GATT) requires India and the U.S. to extend any preferential treatment to all WTO
members. - If India and the U.S. lower tariffs only for each other, it violates WTO rules.
Possible Solutions:
- Convert the BTA into a full FTA (eliminating tariffs on most trade).
- Use WTO exemptions (such as a security exception or regional agreement justification).
2. Structure of the BTA: FTA or Something Else?
- The BTA is not explicitly labeled as an FTA in the India-U.S. Joint Leaders’ Statement.
- If it does not eliminate trade barriers on ‘substantially all trade,’ it cannot be classified as an FTA.
- The risk: A selective tariff reduction would be considered a discriminatory trade practice under WTO law.
3. Interim Agreements Under Article XXIV
- A Possible Solution: Under Article XXIV.5 of GATT, India and the U.S. could structure the BTA as an interim agreement, which:
- Allows phased tariff reductions.
- Provides time to transition into a full-fledged FTA (within 10 years).
Conclusion
- The India-U.S. BTA is a strategic opportunity, but it must be structured carefully to align with WTO rules.
- If the BTA is a step toward a full FTA, it should be framed as an interim agreement under WTO law.
- If it merely reduces tariffs on select products, it risks WTO violations unless properly justified.
- Strategic, legally compliant negotiations are key to ensuring a strong and WTO-compliant trade framework.