BRICS Finance Ministers, bank heads flag ‘unilateral imposition’ of tariffs

Why in the News

The Finance Ministers and Central Bank Governors (FMCBG) of the BRICS countries have issued a joint statement recording “serious concerns with the unilateral imposition” of tariffs and non-tariff measures, on the ground that they distort trade and are inconsistent with World Trade Organization (WTO) rules. The statement holds that these pressures weigh most heavily on Emerging Markets and Developing Economies (EMDEs), meaning economies outside the advanced group that depend on external capital and on open export markets. It names no country, and the United States is the only country currently levying extraordinary tariffs on its trade partners. The statement also calls for practical solutions on cross-border payments in local currencies, while recording that national priorities come first and that there is no “one-size-fits-all approach”. The bloc’s diagnosis is therefore collective and its remedy is left to each member to adopt at its own pace.

What is the FMCBG track within BRICS?

1. Who it brings together: The FMCBG is the channel through which BRICS members’ finance ministries and central banks meet, separately from the leaders’ summit and from the foreign ministers’ track.
2. When it met this year: The first FMCBG meeting under India’s chairmanship of BRICS was held on 12 August in Jaipur. The second was held on 9 and 10 September in Mumbai.
3. What it produces: Its output is a joint statement agreed by every member, issued ahead of the leaders’ summit.

What did the statement say on tariffs and the trading system?

1. Two grounds are given, not one: The measures are objected to because they distort trade, and separately because they are inconsistent with WTO rules. The second is a legal claim rather than an economic one.
2. Non-tariff measures carry equal weight: The objection covers non-tariff measures alongside tariffs, meaning licensing requirements, standards and quotas that restrict imports without a duty being levied.
3. The remedy sought is the existing system: The ministers reiterated their support for an “open, transparent, inclusive, non-discriminatory, and rules-based” multilateral trading system with the WTO at its core.
4. The unnamed target limits what the statement can do: A finding that a measure breaks WTO rules carries no consequence until a member brings a dispute against a named respondent.

What was agreed on cross-border payments and local currencies?

1. The task force behind it: The statement acknowledges the work of the BRICS Payment Task Force (BPTF) in exploring “pragmatic solutions” for efficient cross-border payment mechanisms.
2. The specific work acknowledged: The task force has studied the cross-border interoperability of payment and messaging channels, meaning whether one member’s payment system can instruct and settle against another’s.
3. What local currency settlement covers: The discussions extend to promoting trade settlements and investments using BRICS local currencies, not only retail payments.
4. The standard the ministers set for it: The task force was encouraged to continue work toward cross-border payments that are “fast, low-cost, more accessible, efficient, transparent, and safe”.

What else did the ministers take up?

1. A new task force under India’s chairship: India used its chairship to establish a BRICS Task Force on Growth and Development, as a dedicated platform for the growth and development challenges shared by BRICS and other emerging market and developing economies.
2. How it is organised: The task force is structured into two workstreams. One covers the Resilience, Innovation and Cooperation pillars, and the other the Sustainability pillar.
3. What it is meant to do: The ministers recognised it as a space to discuss growth models suited to members’ own national contexts and development priorities, aligned with the workstreams of finance ministries and central banks.
4. Reform of the lending institutions: The statement also covered the reform of multilateral lending institutions, naming the World Bank and the International Monetary Fund (IMF).

Challenges to BRICS local currency settlement

1. Trade imbalances leave one side holding a currency it cannot spend: Settlement in national currencies works where trade between two members is roughly balanced, and a surplus partner otherwise accumulates a currency with no use. Eg. The special rupee vostro accounts opened for Russian oil payments built up rupee balances Russian sellers had limited use for.
   The Fix: Pair each local currency arrangement with an agreed list of goods and assets the surplus balance may be invested in, so the balance has a stated exit.
2. Convertibility limits sit outside the payment system: A currency that is not fully convertible on the capital account cannot be held freely by a foreign exporter, whatever messaging channel carries the instruction. Eg. The rupee remains subject to capital account restrictions, so a non resident holder needs a specific permitted route for each use of its balance.
   The Fix: Convert the bilateral vostro approvals into a standing settlement facility with defined investment windows, rather than clearing arrangements bank by bank.
3. Interoperability is a legal problem before it is a technical one: Linking two fast payment systems requires each regulator to accept the other’s customer identification and sanctions screening, which no task force can decide for them. Eg. Each link of the Unified Payments Interface (UPI) with a foreign system has needed its own bilateral arrangement, as with Singapore’s PayNow.
   The Fix: Agree one BRICS standard for customer identification and transaction messaging, so each bilateral link implements a common rulebook instead of negotiating a new one.
4. Secondary sanctions reach the members’ own banks: A bank settling a transaction for a sanctioned counterparty risks its own dollar clearing access, which is a larger loss than the trade being settled. Eg. Indian banks and refiners curtailed dealings with sanctioned Russian entities even where a rupee route was available.
   The Fix: Route sanctioned trade through designated institutions carrying no dollar clearing exposure, so the risk sits with an entity that has nothing to lose in dollars.
5. A payment rail does not remove exchange rate risk: Interoperable payments cut transaction cost and leave the currency risk with the trading parties, which is the problem a single unit of account would address. Eg. The task force’s own mandate covers settlement and messaging, and stops short of any common unit of account.
   The Fix: Publish reference rates for the major BRICS currency pairs through a shared platform, so a smaller exporter can price and hedge without routing through the dollar.

Conclusion

The bloc has agreed a common description of the problem and has not agreed a common instrument to answer it. On tariffs it asks for the WTO to work as designed, which depends on members it has declined to name. On payments it has commissioned study rather than commitment, and the qualifier protecting national priorities leaves each member to decide how far to go. The leaders meet at the Bharat Mandapam over Saturday and Sunday, and the test of this statement is whether their declaration converts the task force’s study of interoperability into a dated commitment or carries it forward again.

Back2Basics: the WTO’s Most Favoured Nation rule

1. What Most Favoured Nation means: Article I of the General Agreement on Tariffs and Trade (GATT) requires a member to extend any trade advantage it gives one member to every other member, so it cannot charge different tariffs to different WTO members on the same product.
2. Bound rates are the second constraint: Article II binds each member’s tariffs to a ceiling recorded in its schedule of concessions, so a duty raised above that ceiling breaches the commitment whether or not it discriminates.
3. The permitted exceptions: Article XXIV allows a free trade area or a customs union to give its own parties better terms than Most Favoured Nation, and the Enabling Clause allows preferences in favour of developing countries.
4. Why the rule is hard to enforce now: A breach is established through the WTO’s dispute settlement system, whose Appellate Body has been unable to hear appeals since 2019 because appointments to it have been blocked.

Matching Previous Year Question

“[2018, GS2, 15 marks] What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India?”