US President Joe Biden and Prime Minister Narendra Modi are seen during a meeting in Washington. , Photo Credit: Reuters
heyOne of the important outcomes of Prime Minister Narendra Modi’s official visit to the US was the decision of the two countries to end six long-standing trade disputes at the World Trade Organization (WTO). The WTO Appellate Body has become redundant since 2019, and disputes filed in ‘void’ will not be considered for adoption. Given the impasse in the appointment of ‘judges’ to hear appeals in the Appellate Body, a meaningful resolution to these disputes was almost out of sight. Three cases settled as part of the deal are before the defunct appellate body, while the rest could potentially be ‘appealed to zero’. In this context, what the two sides have achieved is incomparable.
Controversy
One of the earliest cases settled disputes involved a challenge to domestic material requirements under India’s National Solar Mission. While disagreements persisted regarding India’s compliance with WTO treaty obligations, several off-shoot proceedings arose from the dispute, with the US seeking authorization from the WTO’s dispute settlement body for trade retaliation, which India opposed. . India also challenged some sub-federal programs implemented in the renewable energy sector in the US and won the case. However, over time, some sub-federal schemes have been eliminated or substantially amended, and the prospects for the WTO panel’s decision to be implemented have waned. Amending domestic laws to affect compliance with international treaty obligations is a matter of great political sensitivity, especially in the US. While India’s victory in the original WTO proceedings was significant, the US also gained some leverage in subsequent compliance proceedings. . The dispute was ready to reach the appellate body and could have remained moribund for years.
India can also heave a sigh of relief by resolving challenges to some of its foreign trade policy schemes, including the Special Economic Zones (SEZ) and export-oriented unit schemes. Notably, some of the corporate tax deductions provided under the SEZ scheme faced an uncertain future. While India’s appeal to the inactive Appellate Body would have kept the dispute inactive, India voluntarily dropped some controversial schemes, including the Merchandise Exports from India scheme. India also began a comprehensive process to reform its SEZ legislation. However, correct WTO compliance in export subsidy proceedings in the short term will not be easy for India.
Against that backdrop, the settlement of disputes in all six cases reflects the pragmatic approach of the two strong trading partners. They have acknowledged each other’s domestic challenges in dispute resolution and have realized the importance of resolving differences.
However, at the core of the trade deal was an agreement on two ongoing disputes, where the WTO panel process is alive but temporarily put on hold. The first involved a challenge by India against the controversial Section 232 tariffs imposed under the US Trade Expansion Act, 1962. The US had imposed additional tariffs of 25% on steel and 10% on aluminium, triggering a series of WTO challenges and unilateral trade. reactions. India considered these as security measures and retaliated. The US regarded India’s retaliatory duties as excessive, while India believed that it could retain these duties as long as the Section 232 tariffs remained in place. While there is a proposal to end the disputes, both India and the US will not abandon their measures but will amend them to meet each other’s concerns and interests. The United States will receive and consider requests for exclusion from Section 232 measures with approval rates of 70% for steel products and 80% for aluminum products from India. While importers in the US are required to file an exclusion application, the committed approval rates provide a solid market access opportunity for India’s steel and aluminum exporters, who have experienced severe challenges competing in the US market.
In return for a commitment to the announced proportion of approval rates for steel and aluminum, the US has received assurances from India that it will remove additional tariffs on certain US agricultural imports, which were retaliatory in nature, causing some collateral damage. Account of measures under section 232. India will now revert to the currently applicable ‘Most Favored Nation’ (MFN) rate for eight products. In other words, India is removing retaliatory duties only on these eight products and not giving any preferential treatment to them. MFN-applicable rates will continue to apply to these products.
a new chapter
Finding amicable solutions to long-standing disputes in the WTO is not a new thing. However, reaching an agreement on six separate disputes covering multiple sectors and products is unprecedented. Greater use of diplomacy and bilateral negotiations may be more useful practically when judicial results are not immediately available or are politically infeasible. In other words, the decision to end these disputes seeks to write a new chapter in India-US trade relations and set a model for other WTO members to emulate. As Commerce and Industry Minister Piyush Goyal said, the dispute settlement comes at a time when India-US trade ties are ‘scaling new heights’ and can ‘deepen greater economic engagement’.