Context:

The recent meeting between Prime Minister Narendra Modi and US President Donald Trump covered key issues, with a strong focus on setting ambitious trade targets. The meeting took place amid global trade uncertainties and shifting trade norms.

Mission 500:

• Towards a $500 billion trade target:
  • India and the US have agreed on a Bilateral Trade Agreement (BTA) under the broader framework of COMPACT (Catalysing Opportunities for Military Partnership, Accelerated Commerce, and Technology).
  • The ambitious goal is to achieve $500 billion bilateral trade by 2030.
• How to achieve this mega partnership for prosperity? PM Modi emphasized deeper economic ties to achieve this trade expansion.

Sectoral Trade Potential and its Significance:

• Strong intra-industry trade potential exists in key sectors:
  • US strengths: Plastics, base metals, precision instruments.
  • India's strengths: Vegetable products, processed foods, stone, and plaster.
• This sectoral trade may help in reducing the bilateral trade deficit.

Understanding the Bilateral Trade Agreement (BTA):

• About: The BTA will aim to adapt an integrated approach for deepening trade across the goods and services sector.
• BTA vs FTA:
  • A BTA is less complex than a Free Trade Agreement (FTA), focusing on tariff reductions, non-tariff barriers (NTBs), and trade facilitation.
  • Unlike an FTA, a BTA is a flexible sector-focused agreement that does not cover "substantially all trade" and incorporates simplified Rules of Origin (RoO).
  • The agreement aligns with World Trade Organization (WTO) rules while allowing preferential trading arrangements.
• Key objectives:
  • Reduce tariffs and NTBs.
  • Enhance market access.
  • Strengthen supply chains. 

Global Trade Shifts and the MFN Principle:

• Trump's policies are shifting global trade away from the Most-Favoured Nation (MFN) principle.
  • Through the idea of MFN, WTO members extend any trade advantage granted to one trading partner to all other partners.
  • It was in 1947 that MFN was incorporated as a guiding principle for global trade in the General Agreement on Tariffs and Trade (GATT).
  • This framework was strengthened and absorbed when the transition from the GATT to the WTO was made.
  • So far, the non-discriminatory MFN trading principle has remained a cornerstone of global trade.
  • The WTO’s Integrated Database (IDB) in January 2025 shows that more than 80% of world merchandise trade is conducted under MFN terms.
• The US move towards bilateral and preferential trade arrangements challenges the WTO’s non-discriminatory trade framework.
• China has approached the WTO against additional US tariffs, citing violations of MFN obligations under GATT.

Key Takeaways for India:

• Quick adaptation: India must proactively respond to evolving trade dynamics. The PMO should lead trade negotiations with greater agility.
• Leveraging COMPACT: India should use COMPACT to overcome NTBs and enhance market access, while learning from US trade instruments like Tariff-Rate Quotas (TRQs).
• Strengthening the MFN framework: India should work with Global South nations to uphold MFN principles, ensuring a stable and inclusive trade architecture.

Conclusion:

The India-US BTA marks a significant step in deepening economic ties. However, India must strategically navigate shifting global trade rules while ensuring its long-term interests in a rules-based trade system.