Traditional Multilateral Trade Framework

  • Interwar Context: Protectionist tariffs of the 1930s led to the creation of GATT (1947) to reduce trade barriers.
  • WTO (1995): Replaced GATT, extending rules to services (GATS) and intellectual property (TRIPS). It operates on one‑country‑one‑vote and consensus.

Core WTO Principles

  • Most‑Favoured‑Nation (MFN): Any advantage given to one WTO member must be extended to all.
  • National Treatment: Imported goods/services must be treated no less favourably than domestic ones.
  • Special & Differential Treatment (S&DT): Recognises developmental asymmetries, granting longer implementation periods and capacity‑building support to developing countries.
  • Dispute Settlement: A binding, rules‑based mechanism (Appellate Body) – currently non‑functional since Dec 2019.

Agreements on Reciprocal Trade (ARTs)

  • Definition: Bilateral trade pacts led by the US, negotiated under the threat of punitive tariffs, and outside GATT Article XXIV and WTO oversight.
  • Key Features:
  • No WTO notification; no MFN compliance.
  • Unilateral tariff concessions for the US, while partner nations must lower tariffs on US goods.
  • Inclusion of "poison‑pill" clauses limiting partners' economic ties with China.
  • Restrictions on digital taxes and mandatory free cross‑border data flows.
  • Countries Involved: Bangladesh, Malaysia, Cambodia, El Salvador, and an interim framework with India.

How ARTs Threaten Multilateralism

  • Erosion of WTO Shield: Bypassing the MFN principle fragments global trade.
  • Loss of Dispute Settlement: No impartial third‑party mechanism; disputes are settled unilaterally.
  • Coercive Market Opening: Threat of tariffs up to 50 % forces partners to open markets for US agricultural and manufactured goods.
  • Digital Sovereignty Risks: Prohibits digital services taxes and data localisation, curtailing revenue and privacy safeguards.

India’s Trade Strategy in a Multipolar World

  • Shift from Caution to Proactivity: Moving from exiting RCEP (2019) to concluding FTAs with EU, UK, UAE.
  • Coverage Goal: FTAs to cover 71 % of export basket by 2026 (up from 22 % in 2019).
  • Utilisation Gap: Only ~25 % of existing FTAs are used due to complex rules of origin.
  • Export Target: USD 2 trillion by 2030 (FY 2023‑30), with merchandise‑services exports already at USD 825.25 bn in 2024‑25.
  • "China Plus One": Leveraging geopolitical rifts to embed India in global value chains (rare earths, semiconductors, high‑tech electronics).

Safeguarding Multilateralism

  • Re‑affirm WTO Commitment: Push for restoration of the Appellate Body and WTO‑plus notification of all FTAs.
  • Calibrated Bilateral Engagement: Preserve policy space for tariffs, digital taxes, and data localisation.
  • Strengthen Domestic Resilience: Boost MSME competitiveness, PLI schemes, and supply‑chain robustness.
  • Promote South‑South Cooperation: Deepen ties within BRICS, African Union, ASEAN; develop equitable corridors like the India‑Middle‑East‑Europe Economic Corridor (IMEC).

Conclusion

India must resist treating ARTs as a new "gold standard" and instead champion a reformed, inclusive, rules‑based multilateral system that balances strategic engagement with domestic capacity building.

Drishti Mains Question: *"In a multipolar world, trade agreements have evolved from mere economic pacts into crucial instruments of strategic statecraft." Discuss.