Syllabus:
GS-2: Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.
GS-3: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth.
Context:
The United States has dismissed India’s WTO notice proposing retaliation against its 25% tariffs on steel and aluminium.
More on the News
The U.S. asserted that India has incorrectly classified the tariffs on steel and aluminium as safeguard measures, clarifying that these duties were implemented under U.S. domestic law, specifically Section 232.
Section 232 of the Trade Expansion Act of 1962 empowers the President to restrict imports of products that threaten to impair national security.
- This provision has been used to impose tariffs on steel and aluminium, among other goods, based on national security concerns.
The US also claimed that India has not complied with the obligations under the Agreement on Safeguards by not acknowledging its offer to discuss these tariffs – a procedural error.
Economic Implication of Hiked Tariff
- In FY2025, India exported $4.56 billion worth of iron, steel, and aluminium products to the US, including $587.5 million in iron and steel, $3.1 billion in articles of iron or steel, and $860 million in aluminium and related goods.
- These exports now face sharply higher US tariffs, threatening the profitability of Indian producers and exporters.
- Indian exported stated that they have already lost $5 billion in exports due to earlier tariffs, and further hikes could deepen losses.
India’s Potential Courses of Action
Formal WTO Dispute: Initiating a formal dispute under the WTO framework, challenging the U.S. tariffs not under the Safeguards Agreement but under other broader GATT rules. It can challenge Section 232 tariffs as disguised protectionist measures.
Retaliatory Tariffs: Implementing proportional retaliatory tariffs on U.S. products, such as almonds and walnuts, to counteract the economic impact.
- Other countries such as the EU, Canada, and China have already done this in response to the US Section 232 tariffs
Free Trade Agreement (FTA) Negotiations: Leveraging ongoing FTA discussions with the U.S. to seek a resolution that addresses the tariff issues.+
World Trade Organisation (WTO)
- It was formed under the Marrakesh Agreement signed on 15th April 1994 by 123 countries after the Uruguay Round negotiations (1986-94) of the General Agreement on Tariffs and Trade (GATT), leading to the birth of WTO in 1995.
- The WTO is the only global international organization dealing with the rules of trade between nations.
- At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.
- The goal is to ensure that trade flows as smoothly, predictably and freely as possible.