From UPSC perspective, the following things are important :
Prelims level : Nothing Much
Mains level : US trade practices are against WTO rules.
Economic relations between India and the United States are on a knife-edge after the U.S. took a series of unilateral actions against India’s exports, that began in 2018, followed by India’s recently announced retaliatory move of increasing tariffs on 28 products imported from its largest trade partner. As a result of these developments, India has become the Trump administration’s most significant target after China.
The Office of the United States Trade Representative (USTR) and the United States International Trade Commission (USITC) — have “investigated” India’s trade policies, the conclusions of which have been used by the administration to demand changes in policies that would benefit American businesses.
Propriety and procedures
- It is important to mention here that all of India’s trade-related policies (which include intellectual property rights that were investigated and questioned in the two USITC reports were done under the cover of the U.S.’s domestic laws.
- This is tantamount to unilateralism, the response to which should be an unequivocal “no” in this age of multilateralism.
- Propriety and global trade rules demanded that the concerns of American businesses about India’s policies had to be addressed within the WTO through consultations among the members.
- The fact that the U.S. is not approaching the WTO to challenge India’s trade and investment policies that American businesses find detrimental to their interests implies the following:
- India’s largest trade partner is acting in defiance of agreed rules to target India’s WTO-consistent policies.
- Take, for instance, India’s high tariffs which have left Mr. Trump greatly perturbed.
- These tariffs were agreed to in the Uruguay Round negotiations in consultation with all members of the organisation.
- Moreover, in the period since, India has lowered tariffs on many agricultural and industrial products.
- Contrast this with the U.S.’s position wherein it continues to defend its high levels of agricultural subsidies which are used for lowering commodity prices to levels at which no other country can have access to its domestic market.
- Thus, the U.S. does not need tariffs to protect its agriculture; it uses subsidies, instead.
- The WTO also informs us that the U.S. also uses very high tariffs on tobacco (350%), peanut (164%) and some dairy products (118%).
- The India-U.S. discord over trade stems from a deep-seated desire of U.S. businesses to have a bigger footprint in the Indian economy, and to achieve this goal, the administration is stepping beyond legitimate means.
- This discord defies Mr. Pompeo’s simplistic formulation that “great friends are bound to have disagreements”.
- In fact, the basis of the discord lies in the way the U.S. has been targeting India’s policies, disregarding the rule of law.
- Early resolution of this discord seems difficult as the U.S. has decided to undermine the WTO’s dispute settlement mechanism and walk down the path of unilateralism instead.
- Under these circumstances, the Government of India would have focus on two fronts: to remain engaged with its largest trade partner and to also engage actively with the global community to make the U.S. understand the imperatives of a rules-based trading system.