One of the significant outcomes of Prime Minister Narendra Modi’s official state visit to the U.S. 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 been redundant since 2019, and disputes filed into the ‘void’ will not be considered for adoption. In view of the continuing impasse in the appointment of ‘judges’ to hear appeals at the Appellate Body, a meaningful resolution of 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 have potentially been ‘appealed into the void’. In this context, what has been achieved by both sides is without a parallel.
The disputes
One of the early cases among the settled disputes involved a challenge of the domestic content requirements under India’s National Solar Mission. While disagreements persisted regarding India’s compliance with the WTO treaty obligations, a number of off-shoot proceedings arose out of this dispute with the U.S. seeking authorisation from the WTO’s Dispute Settlement Body for trade retaliation, which India contested. India too challenged certain sub-federal programmes implemented in the U.S. in the renewable energy sector and won the case. However, over time, some of the sub-federal schemes expired or were modified substantially, and the prospects of enforcing the WTO panel ruling became slim. Amending domestic laws to effect compliance with international treaty obligations is a matter of great political sensitivity, especially in the U.S. That said, while India’s victory in the original WTO proceedings was significant, the U.S. also retrieved certain gains in the subsequent compliance proceedings. This dispute was poised to reach the Appellate Body and could have remained moribund for years.
India can also breathe a sigh of relief from settling the challenges involving some of its foreign trade policy schemes, including the special economic zone (SEZ) and export-oriented unit schemes. In particular, certain corporate tax deductions provided under the SEZ scheme faced an uncertain future. While India’s appeal to the defunct Appellate Body would have kept the dispute dormant, India had voluntarily removed some controversial schemes, including the Merchandise Exports from India Scheme. India also initiated a comprehensive process to reform its SEZ law. However, perfect WTO compliance in the short run in the export subsidy proceedings would not have been easy for India.
Against that backdrop, settling disputes in all six cases shows a pragmatic approach on the part of two strong trading partners. They have accepted each other’s domestic challenges in dispute compliance and realised the importance of burying differences.
However, at the heart of the trade deal was an understanding reached in two ongoing disputes, where the WTO panel process is alive, but kept on a temporary hold. The first involved a challenge by India against the controversial Section 232 tariffs imposed under the U.S. Trade Expansion Act, 1962. The U.S. had imposed an additional duty of 25% on steel and 10% on aluminium, triggering a series of WTO challenges and unilateral trade responses. India considered these as safeguard measures and imposed retaliatory measures. The U.S. considered India’s retaliatory duties excessive, while India believed that it could retain these duties as long as the Section 232 tariffs remained. While the disputes are proposed to be terminated, both India and the U.S. would not forego their measures but would modify them to meet each other’s concerns and interests. The U.S. will receive and consider requests for exclusions from Section 232 measures with approval rates of 70% for steel products and 80% for aluminium products from India. While the importers in the U.S. have to file exclusions applications, the committed approval rates provide a tangible market access opportunity for India’s steel and aluminium exporters, who have experienced serious challenges in competing in the U.S. market.
In return for committing to the stated proportions of approval rates for steel and aluminium, the U.S. has received an assurance from India that it would remove the additional duties, which were retaliatory in nature, on certain U.S. agricultural imports which had suffered certain collateral damage on account of the Section 232 measures. India will now revert to the currently applied ‘most favoured nation’ (MFN) rate for eight products. In other words, India is only removing the retaliatory duties on these eight products and not offering any preferential concessions on them. The MFN-applied rates would continue to apply to these products.
A new chapter
Finding mutually agreed solutions to long-standing disputes is not unfamiliar in the WTO. However, reaching a deal on six separate disputes covering a range of sectors and products is unprecedented. A greater use of diplomacy and bilateral negotiations can be more practically useful when adjudicatory outcomes are not immediately available or politically infeasible. In other words, the decision to end these disputes seeks to script a new chapter in India-U.S. trade relations and sets a template for other WTO members to emulate. As Commerce and Industries’ Minister Piyush Goyal noted, the disputes deal was struck at a time when India-U.S. trade relations are ‘scaling new heights’ and could ‘deepen greater economic engagements’.
