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Editorial Simplified: A Thumbs Down to Unilateralism | GS – II

Relevance :  GS Paper  II

Why has this issue cropped up?

The U.S. is acting in defiance of agreed rules to target India’s WTO-consistent policies.

Introduction

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.

Some background

  • In the past, U.S. agencies — in particular, 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.
  • The latest demands stem from two extensive USITC investigations which were conducted between 2013 and 2015 on India’s trade, investment, and industrial policies.

Propriety and procedures

The investigations conducted by the U.S. agencies raise several issues of propriety, procedures and substance. These three dimensions need to be understood well for this is the only way in which the Government of India can prepare appropriate responses to the persistent questioning by the U.S. administration of its trade and investment policies.

  • PROPRIETY:
    • The first is the issue of propriety. It is important to mention here that all of India’s trade-related policies 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, where differences on policy issues between sovereign countries must be resolved in the appropriate multilateral forums. The possibilities of a stronger power using unilateral means should be eliminated.
    • It is in this spirit that the General Agreement on Tariffs and Trade (GATT) was established which was later replaced by WTO. The main purpose of the GATT/WTO is to provide a forum for the resolution of disputes by following multilaterally agreed rules. The only country disagreeing with this position is the U.S.
  • PROCEDURE
    • The procedure of conducting the investigations was deeply flawed for it provided a platform for vested interests in the U.S. to make common cause against India’s policies.
    • What is more, in these investigations, U.S. government agencies have been not only acting as the judge and the jury but also actively engaged in getting the findings of the investigations implemented.
  • SUBSTANCE
    • The substance of the investigations touched trade-related issues that are covered by the WTO agreements.
    • Since the establishment of the WTO, India’s policies have mostly been consistent with its commitments; where they have not been, other WTO members, including the U.S., have approached the dispute settlement body of the organisation to make India fall in line.
    • 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 that the 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.

What is at the core

  • 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.
  • 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.

What lies ahead

  • 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.

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