Tariffs and Trade: Unpacking the Complexities of International Trade Agreements

Strategic Insights -

India's foreign trade journey has undergone significant transformations in recent years, with the country increasingly leveraging Free Trade Agreements (FTAs) to boost exports. However, the nation's approach to trade deals is often contested, with some arguing that India prioritizes FTAs over the more comprehensive and inclusive World Trade Organization (WTO) framework. The recent US tariff announcements have further complicated the situation, leading to speculation about the implications for global trade. In this article, we will delve into the intricacies of tariffs, FTAs, and the intricacies of international trade agreements.

Key Takeaways:

  • Tariffs are essentially taxes imposed by countries on imports to protect domestic industries, with the World Trade Organization (WTO) governing the rules and limits on tariffs.
  • The US has broken WTO principles by imposing tariffs exceeding bound tariffs on a wide range of goods and imposing country-specific tariffs, leading to a clear violation of the WTO system.
  • India has positioned FTAs as a key tool to boost exports, but the reality is that less than 20% of global trade happens through FTAs, with 80% happening under the WTO's Most-Favoured Nation (MFN) tariffs.
  • By finalizing negotiations with the UK, the US, and the EU, India will have FTAs with more than 75 countries, covering roughly 75% of global trade.
  • Countries like India have higher average tariffs than others due to a larger, negotiated settlement under the General Agreement on Tariffs and Trade and the WTO, which developed countries like the US, EU, and Japan helped broker and now conveniently ignore.
  • The terms of reference for the India-US deal involve each country studying its domestic industries and identifying products and industries it would like to protect, which it considers sensitive sectors.
  • The agreement itself typically becomes effective two to three months after the signing.

Statistics:

  • India's average tariff is around 17 percent, while the US has an average tariff of around 4 percent.
  • Over 90 percent of India's total Customs revenue comes from less than 5 percent of its tariff lines, while the bottom 60 percent of tariff lines contribute less than 3 percent of revenue.
  • India's pharmaceutical exports, APIs, and formulations were stronger than China's in the late 1980s, but India has since focused more on deregulation without simultaneously building real manufacturing capacity.
  • China imported products such as knives, nail cutters, and nuts and bolts from other countries, while India has imported the most basic items.

Sources:

  • World Trade Organization (WTO)
  • General Agreement on Tariffs and Trade (GATT)
  • Indian Express (P) Ltd, Copyright 2025 IE Online Media Services Pvt. Ltd., distributed by Contify.com