1. Evolution of International Trade Architecture: From GATT to WTO
The modern international trading system was shaped by the General Agreement on Tariffs and Trade (GATT), which sought to prevent the protectionist spiral witnessed during the interwar years. The core principle underpinning this regime was the Most-Favoured-Nation (MFN) rule, which mandates non-discrimination among trading partners.
The creation of the World Trade Organization (WTO) in 1995 institutionalised this multilateral framework. The WTO expanded trade disciplines beyond goods to include services (GATS) and intellectual property (TRIPS), and created a structured dispute settlement mechanism, giving enforceability to global trade rules.
Importantly, the WTO operates on a one-country-one-vote principle, allowing developing countries to form coalitions and exercise bargaining power. Despite criticisms of structural asymmetries, the multilateral system provides legal predictability and rule-based dispute resolution.
The governance logic of multilateralism lies in predictability, non-discrimination, and institutional oversight. If weakened, global trade risks reverting to power-based bargaining, marginalising smaller economies and undermining development stability.
2. Preferential Trade Agreements (PTAs): WTO-Recognised Exceptions
While the WTO is built on non-discrimination, it allows exceptions under Article XXIV of GATT, enabling members to form:
- Free Trade Areas (FTAs)
- Customs Unions (CUs)
However, these arrangements must satisfy strict conditions:
- Must cover “substantially all trade”
- Customs Unions must adopt a common external tariff
- Must not raise trade barriers against non-members
These conditions ensure that FTAs act as “building blocks” rather than obstacles to multilateralism.
Since the 1980s, there has been a rapid proliferation of FTAs. Many modern FTAs are “WTO-plus,” covering labour standards, environmental norms, and investment protection. While these deepen integration, they may impose additional regulatory burdens on developing countries.
Crucially, WTO members must notify FTAs to the WTO, allowing scrutiny and transparency.
Examples:
- Bilateral FTAs (India–U.K., India–EU negotiations)
- Mega-regional agreements like RCEP (10–15 member countries)
The developmental rationale behind WTO-consistent FTAs is structured liberalisation within a rule-based system. Without such oversight, preferential trade may become exclusionary and distort global trade governance.
3. Agreements on Reciprocal Trade (ARTs): A New Typology
The U.S. under President Donald Trump has introduced a new category termed Agreements on Reciprocal Trade (ARTs). These agreements have been signed with countries such as Malaysia, Cambodia, Argentina, Bangladesh, and announced with India.
Unlike FTAs, ARTs are not signed under Article XXIV of GATT, and therefore lack formal institutional linkage with the WTO. They are not notified to the WTO, limiting transparency and multilateral scrutiny.
A key feature of ARTs is asymmetry:
- The U.S. continues imposing tariffs inconsistent with WTO obligations.
- Partner countries are pressured to reduce or eliminate tariffs on U.S. goods.
- Provisions may align partner countries’ trade policies with U.S. economic or national security measures.
Example:
- Article 4.1 of the U.S.–Bangladesh ART requires Bangladesh to adopt complementary restrictive actions if the U.S. imposes trade measures citing economic or national security concerns.
- Article 3.4 of the U.S.–El Salvador ART restricts customs duties on electronic transactions, affecting data sovereignty.
These features indicate that ARTs combine WTO-plus provisions with unilateral advantages for the U.S.
The governance implication is a shift from rule-based multilateralism to power-driven bilateralism. If normalised, such arrangements could erode institutional trade discipline and weaken smaller economies’ policy autonomy.
4. Comparing ARTs with India’s FTAs (EU/U.K.)
India’s negotiations with the EU and the U.K. fall within the traditional FTA framework and are expected to be WTO-notified agreements. Such FTAs operate within multilateral legal parameters, even if they include WTO-plus obligations.
In contrast, ARTs:
- Lack WTO notification
- Do not conform to Article XXIV conditions
- May contain unilateral or security-linked clauses
- Reduce policy flexibility of partner countries
Therefore, an India–U.S. ART, if structured similarly to other ARTs, would be qualitatively different from India’s EU or U.K. FTAs.
Key Distinctions:
Legal Basis:
- FTA: Article XXIV, GATT
- ART: Independent of WTO framework
Oversight:
- FTA: Subject to WTO scrutiny
- ART: No multilateral scrutiny
Normative Foundation:
- FTA: Trade liberalisation and integration
- ART: Reciprocity framed within “America First” policy
For India, the distinction matters because WTO-consistent FTAs preserve legal safeguards and dispute resolution mechanisms. Agreements outside this structure may constrain regulatory sovereignty and reduce negotiating leverage.
5. Implications for Multilateralism and Developing Countries
The proliferation of ARTs represents a potential departure from multilateral norms toward unilateral trade assertion. If major powers bypass WTO disciplines, the institutional credibility of the WTO weakens.
Consequences:
- Erosion of MFN-based non-discrimination
- Reduced transparency in global trade governance
- Greater vulnerability of smaller economies to coercive bargaining
- Fragmentation of the global trade regime
For developing countries, WTO structures offer coalition-building opportunities and legal recourse. ART-like frameworks may shift bargaining from law to power asymmetries.
The development logic is clear: multilateralism moderates power disparities. If sidelined, global trade governance may become hierarchical, reducing predictability and policy space for emerging economies.
6. Way Forward for India
India must carefully evaluate the legal structure and long-term implications of any trade agreement with the U.S.
- Ensure WTO consistency and compatibility
- Protect tariff policy autonomy
- Safeguard data sovereignty
- Avoid clauses linking domestic policy to external national security decisions
- Maintain transparency and institutional accountability
At a systemic level, India should:
- Continue supporting WTO reform
- Advocate restoration of dispute settlement mechanisms
- Strengthen coalition-building among developing countries
A balanced trade strategy requires leveraging bilateral opportunities without undermining multilateral commitments.
Conclusion
The distinction between FTAs and ARTs is not merely semantic but structural and legal. While FTAs operate as regulated exceptions within the WTO framework, ARTs represent a shift toward power-centric bilateralism.
For India, safeguarding multilateralism while engaging pragmatically with major economies will be crucial to preserving trade sovereignty, developmental flexibility, and long-term economic stability in an increasingly fragmented global order.