Context:
- The United States under President Donald Trump has introduced “Agreements on Reciprocal Trade (ART)” with countries such as Malaysia, Cambodia, Argentina, and Bangladesh.
- These agreements represent a departure from traditional Free Trade Agreements (FTAs) and raise concerns about erosion of WTO-based multilateral trade norms.
Key Highlights:
Nature of Agreements on Reciprocal Trade (ART)
- ARTs are bilateral trade agreements designed to prioritize U.S. economic interests under the “America First” trade policy.
- Unlike FTAs, ARTs are not concluded under GATT Article XXIV and therefore do not fall within WTO-sanctioned frameworks.
Departure from Multilateral Trade Principles
- The World Trade Organization (WTO) and General Agreement on Tariffs and Trade (GATT) established a rules-based multilateral trading system.
- This system is guided by the Most-Favoured-Nation (MFN) principle, which requires equal trade treatment among WTO members.
Concerns Over One-Sided Provisions
- ARTs may include provisions that require partner countries to adopt restrictive policies aligned with U.S. interests.
- Some provisions could limit data sovereignty, for instance through restrictions on customs duties for electronic transactions.
Transparency and Accountability Issues
- Unlike FTAs and Customs Unions, ARTs are not notified to the WTO, preventing scrutiny by other member countries.
• This reduces transparency and multilateral oversight in international trade relations.
Implications for Developing Countries
- Developing nations may face asymmetric bargaining power, potentially accepting one-sided trade concessions.
- Such agreements could weaken the collective negotiating power of developing countries within the WTO system.
Relevant Prelims Points:
- General Agreement on Tariffs and Trade (GATT) – 1947
- Multilateral agreement aimed at reducing tariffs and promoting free trade.
- Later replaced by the World Trade Organization (WTO) in 1995.
- World Trade Organization (WTO)
- International organization governing global trade rules and dispute resolution.
- Most-Favoured-Nation (MFN) Principle
- Any trade advantage granted to one WTO member must be extended to all other members.
- GATT Article XXIV
- Allows exceptions to MFN for Preferential Trade Agreements, such as:
- Free Trade Agreements (FTAs)
- Customs Unions (CUs).
- Free Trade Agreement (FTA)
- Agreement between countries to reduce or eliminate tariffs and trade barriers.
- Customs Union (CU)
- Countries eliminate internal tariffs and adopt a common external tariff policy.
Relevant Mains Points:
Erosion of Multilateral Trade Governance
- The rise of unilateral or bilateral arrangements like ARTs reflects growing dissatisfaction with multilateral institutions such as the WTO.
- Such arrangements could fragment the global trading system.
Power Asymmetry in Bilateral Trade Deals
- Stronger economies may impose terms favouring their strategic and economic interests.
- Developing countries risk reduced policy autonomy and regulatory space.
Impact on Global Trade Stability
- Weakening of WTO norms may result in trade protectionism, disputes, and geopolitical economic competition.
- Global supply chains could become less predictable and more politicized.
Implications for India
- India must balance bilateral trade negotiations with commitment to multilateral trade frameworks.
- Maintaining strategic autonomy in trade policy while safeguarding domestic industries is crucial.
Way Forward
- Strengthen the WTO dispute resolution and rule-making mechanisms.
- Promote fair and transparent trade agreements that protect the interests of developing nations.
- Encourage inclusive trade negotiations that uphold multilateralism.
UPSC Relevance:
- GS Paper 2 – International Relations: Global trade governance and multilateral institutions.
- GS Paper 3 – Economy: Trade policy, FTAs, and global economic institutions.