United States Reciprocal Trade Act

February 10, 2019
10 days

Why in news?


The United States Reciprocal Trade Act was recently introduced in the U.S. Congress.

What is called as reciprocity in trade negotiations?

  • Under reciprocity in trade negotiations, WTO signatories need to offer adequate trade concessions in order to receive similar concessions from their trading partners.
  • Eg: Lowering of import duties and other trade barriers in return for similar concessions from another country.
  • Reciprocity is a traditional principle of GATT/WTO, but is practicable only between developed nations due to their roughly matching economies.
  • For trade between developed and developing nations, the concept of relative reciprocity is applied whereby the developed nations accept less than full reciprocity from their developing trading partners.
  • Under this developed contracting parties do not expect reciprocity for commitments to reduce or remove tariffs when they trade with less developed contracting parties.
  • However, this revised meaning of reciprocity permitted a differential treatment of developing and least-developed countries at the discretion of the developed world.
  • This discretion is revealed in the provisions of the US Reciprocal Trade Act.

What does the bill contain?

  • The aim of the legislation is to give “the President the tools necessary to pressure other nations to lower their tariffs and stop taking advantage of America”.
  • The US President can unilaterally increase the existing US tariffs for those products where the US’s trading partners have imposed higher tariffs or higher non-tariff barriers.
  • In practical terms, it provides U.S. an opportunity to cherry-pick products of certain trading partners for differential or retaliatory tariff treatment.
  • A spreadsheet which is annexed to the Bill shows certain products where the US has lower tariffs than certain other countries.
  • According to the bill, foreign tariffs higher than US tariffs on any of the items in the US tariff schedule amounts to robbery.
  • Eg: Three products from India — cut granite, motorcycles and whiskey — have found a place on this spreadsheet.

What are the concerns?

  • The Bill reflects the changing attitude or a growing lack of respect amongst legislators and policymakers in key economies towards international trade rules.
  • - Reciprocity did not require Interpreting reciprocityparity of treatment on a product-to-product basis.
  • Generally, if a higher duty is levied on certain goods by a trading partner, it will subsequently be matched by providing trade concessions on other goods/services that they trade.
  • But this bill seems to look at only specific items within the tariff schedule, while negating similar concessions offered by its trading partner on other products.
  • Violating MFN principle - The Bill is an obvious violation of the Most-Favoured-Nation (MFN) concept.
  • Under the WTO agreements, countries cannot normally discriminate between their trading partners.
  • If they grant someone a special favour (such as a lower customs duty rate for one of their products) they have to do the same for all other WTO members. (MFN principle)
  • Thus, if the President raises tariffs on a product of a particular country as is provided in the Bill, the US would be discriminating against that country with respect to others.
  • Such a treatment will strike at the roots of the non-discriminatory MFN-based WTO system.
  • Uneven treatment - The Bill fails to distinguish between WTO consistent and WTO inconsistent non-tariff barriers.
  • If enacted, this Bill could even consider WTO consistent non-tariff measures such as anti-dumping by nations as high tariffs and will take it as an input to levy retaliatory tariffs on them.
  • Thus, the bill completely undermines the rights granted under the WTO agreement and provides a grossly distorted idea of reciprocity.
  • Breaching commitments - The US President can breach the sovereign commitments given by the US in bilaterally negotiated trade deals.
  • Thus, the overall concern with the Bill is that its intent and object are admittedly a complete disregard of the WTO rulebook.

What might be the consequence?

  • The twin goals of expansion of trade and an inclusive international economic order could not have occurred if trade arrangements were only driven by self-interest.
  • If passed, it will make other WTO members to adopt similar procedures on retaliation, bringing halt to a rules-based international economic order.


Source: Business Line







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