Context: Reciprocal tariffs imposed by the US are seen as illegal under World Trade Organisation (WTO), especially as they violate the principle of Most-Favoured-Nation (MFN).
Relevance of the topic:
Prelims: Key facts about Most Favoured Nation status of WTO.
Mains: Critical Assessment of India’s strategic silence amid rising opposition to US reciprocal tariffs.
What is MFN and the Principle of Reciprocity?
- Most Favoured Nation (MFN) status is one of the cornerstones of the WTO trade law.
- MFN works on the principle of reciprocity i.e., quid pro quo principle where both nations enjoy MFN status of each other.
- Each member of WTO treats all the other members equally as the most-favoured trading partners.
- If a country improves the benefits that it gives to one trading partner, it has to give the same best treatment to all the other WTO members.
Illegality of US Reciprocal Tariffs
As per MFN principle, WTO member countries must treat all members equally in trade matters. The Reciprocal tariffs imposed by the US selectively targets certain countries, thus breaching this principle.
The world’s response on this issue has been divided into three categories:
- Open Criticism and Legal Action: Countries like Singapore, Brazil, China, Japan, and Canada have publicly condemned the US for violating WTO rules, filed disputes at the WTO (China and Canada) and imposed retaliatory tariffs (E.g., China and Canada).
- Diplomatic Restraint: States like Fiji and Italy have expressed dissatisfaction, albeit in less direct terms, characterising the US tariffs as ‘unfair’ or ‘mistaken’.
- Strategic Silence: Some countries like India have chosen to maintain silence regarding the US’s illegal actions. India, a historical proponent of Global South solidarity and trade multilateralism, has abstained from a collective WTO members' statement opposing the US tariff regime.
India’s Diplomatic Posture
India has maintained strategic silence for two reasons:
- Bilateral Trade Negotiations with the US: India is negotiating a Bilateral Trade Agreement (BTA) with the US and may fear that criticising the US could derail or complicate negotiations.
- Dysfunctional WTO Dispute Settlement Mechanism: Filing a case in WTO is futile due to the paralysis of the WTO Appellate Body since 2019.
Criticism of India’s Strategic Silence
- Speaking against a violation of WTO rules does not mean retaliating against the US, rather, it signals commitment to legal norms.
- Filing a complaint in WTO, even if symbolic, challenges power with principle. Vocal opposition to illegal tariffs, even in the absence of effective WTO enforcement, can serve as a signal of India’s principled foreign policy and reinforce its credibility among the Global South.
The current juncture presents an opportunity for India to reassert its commitment to a fair, rule-based international economic order. As multilateralism faces increasing strain from unilateralist tendencies, India must balance its national interest with normative leadership.