Agreements on Reciprocal Trade | 26 Feb 2026

Source: TH

Why in News? 

The US administration has aggressively pursued "Agreements on Reciprocal Trade" (ARTs) with developing nations such as Bangladesh, Malaysia, Cambodia, and El Salvador, alongside an interim framework with India. 

• Negotiated under the threat of sweeping punitive tariffs, these ARTs mark a fundamental departure from the rules-based multilateralism of the World Trade Organization (WTO). 
• For developing countries, this shift from "fair-play" global rules to "power-based" bilateral negotiations carries profound economic, strategic, and legal implications.

What is the Traditional Multilateral Trade Framework?

• The Interwar Context: Following the destructive protectionist policies (like high tariffs) of the 1930s that exacerbated the Great Depression, the international community recognized the need for a cooperative economic system.
• GATT (1947): The General Agreement on Tariffs and Trade (GATT) was established after World War II. 
  • It acted as a provisional legal agreement to minimize barriers to international trade by eliminating or reducing quotas, tariffs, and subsidies.
• The WTO (1995): The GATT was ultimately replaced by the World Trade Organization (WTO) following the Uruguay Round of negotiations (1986-94).
  • While GATT was essentially a set of rules, the WTO provided a permanent, robust institutional framework that expanded global trade rules beyond goods to include services (GATS) and intellectual property (TRIPS).
• Core Principles of the Multilateral Framework:
  • Most-Favoured-Nation (MFN) Rule: This is the bedrock of the WTO. It dictates that a country cannot normally discriminate between its trading partners. 
    
    • If a nation grants someone a special favor (such as a lower customs duty rate for one of their products), it must extend it to all other WTO members.
  • National Treatment: Imported and locally-produced goods should be treated equally once the foreign goods have entered the market. 
    • The same principle applies to foreign and domestic services, as well as to foreign and local trademarks, copyrights, and patents.
  •  One-Country, One-Vote:Unlike the International Monetary Fund (IMF) or World Bank where voting power is weighted by financial contribution, the WTO operates by consensus. Every member country, regardless of its economic size, has an equal say.
• Allowed Exceptions: While the WTO is based on non-discrimination, GATT Article XXIV permits preferential deals like Free Trade Areas and Customs Unions (CUs) on a non-MFN basis.
  • A Free Trade Area must cover substantially all trade among members, while a Customs Union (CU) must also adopt a common external trade policy toward non-members. These conditions ensure regional trade blocs strengthen, rather than undermine, multilateral trade.
• WTO-Plus Obligations: Many modern free trade agreements (FTAs) (like the Regional Comprehensive Economic Partnership (RCEP) agreement) go beyond standard WTO mandates to include rules on labor, the environment, and foreign investment.
• Mandatory Scrutiny: Crucially, standard FTAs must be legally notified to the WTO. This allows countries that might be adversely affected by the agreement to question and scrutinize its terms.

Significance for Developing Countries

• Collective Bargaining: The consensus-based approach gives developing nations the agency to form coalitions (like the  African Union) to bargain effectively against developed economic powers.
• Protection against Coercion: A rules-based system protects smaller economies from unilateral, strong-arm tactics of larger economies thereby ensuring disputes are settled legally rather than through economic might.
  • The Doha Declaration on TRIPS and Public Health (2011) which allowed countries like India to bypass patents (Compulsory Licensing) during health emergencies to ensure affordable medicines.
• Special and Differential Treatment (S&DT): The framework officially recognizes that developed and developing countries are on different playing fields. 
  • S&DT provisions allow developing countries longer time periods to implement agreements and commitments, along with measures to increase their trading opportunities.
  • However, Since December 2019, the WTO Appellate Body has been non-functional because the US has blocked the appointment of new judges. This has led to a shift from a "Rules-based system" back to a "Power-based system."

What are the Agreements on Reciprocal Trade (ARTs)?

• Independent Category: Unlike traditional FTAs, the ARTs signed by the US are not established under GATT Article XXIV.
• Lack of WTO Linkage: These agreements operate outside the WTO’s institutional framework, bypassing standard legal oversight and preventing scrutiny by the WTO or other member countries.
• Driven by "America First": ARTs are deeply rooted in unilateral US interests, allowing the US to maintain inconsistent tariff rates while strong-arming trade partners into eliminating or drastically reducing their own tariffs on US goods.
  • The US ARTs are imperial in nature and are an attempt to deracinate trade multilateralism.

How do ARTs Threaten Multilateralism and Collective Bargaining?

• Erosion of the WTO Shield: The WTO was designed with a "one-country-one-vote" principle to prevent larger economies from bullying smaller ones. 
  • Because ARTs bypass the WTO framework entirely, developing countries lose the protection of collective bargaining.
• Loss of Dispute Settlement: Standard FTAs have institutional links to the WTO, allowing smaller countries to challenge unfair practices.
  • ARTs lack an impartial, third-party dispute resolution mechanism, leaving developing nations vulnerable to unilateral US interpretations of the agreement.
• Fragmenting Global Trade: By abandoning the Most-Favoured-Nation (MFN) principle, ARTs fragment the global trading system into isolated, transactional hubs centered around US interests, making global supply chains less predictable for smaller economies.
• Coercive Market Opening: Developing countries are often brought to the negotiating table under the threat of severe tariffs (sometimes up to 50% under US emergency economic powers). 
  • This forces them to grant sweeping market access for US agricultural and manufactured goods, which can overwhelm local farmers and Micro, Small, and Medium Enterprises (MSMEs).
• "Poison Pill" Clauses: Recent ARTs feature unprecedented geopolitical conditionalities. 
  • For example, agreements with Malaysia and Cambodia include clauses designed to deter their economic integration with China, limiting their ability to attract clean energy investments or sign trade deals with "non-market economies."
• Prohibiting Digital Taxes: Most ARTs include strict "WTO-plus" provisions that ban countries from imposing customs duties on electronic transmissions or digital services.
  • For developing economies (like India) attempting to build digital infrastructure, the inability to levy digital taxes (such as equalisation levies on massive foreign tech giants) results in a massive loss of potential sovereign revenue.
• Unrestricted Data Flows: These agreements often mandate free cross-border data flows, stripping developing countries of their right to enforce data localization laws, which are vital for protecting citizen privacy and fostering domestic tech innovation.

What Measures can Safeguard Multilateralism Amid the Rise of ARTs?

• Reaffirm Commitment to WTO-Centric Multilateralism: India should work with the Global South to strengthen the WTO dispute settlement system, advocate restoration of the Appellate Body, and promote transparency by ensuring all trade agreements comply with WTO notification norms.
• Adopt a Calibrated Engagement Strategy: Engage in bilateral agreements selectively, ensuring policy space for tariffs, digital taxation, and data governance.
  • Avoid commitments that undermine strategic autonomy, especially in emerging sectors like AI, semiconductors, and clean energy.
• Protect Digital Sovereignty and Fiscal Space: With data often described as the “new oil,” India’s vast digital user base generates high-value data that fuels innovation, economic growth, and strategic leverage. 
  • Therefore, India must preserve the right to impose digital taxes and enforce data localisation to protect privacy, ensure fair revenue from global tech firms, and promote domestic innovation, while advocating a balanced global framework on cross-border data flows that supports trade without compromising sovereign control.
• Strengthen Domestic Economic Resilience: Enhance MSME competitiveness, agricultural safeguards, and industrial policy (PLI schemes) to withstand coercive market opening.
  • Invest in supply chain resilience to leverage China Plus One opportunities without overdependence.
• Promote Inclusive and Development-Oriented Trade Norms: Push for reform of global trade rules to reflect developmental asymmetries and climate responsibilities.
  • Integrate labour, environment, and sustainability standards without allowing them to become disguised protectionism.
• Advance South–South Cooperation: Deepen trade ties within BRICS, African Union, and ASEAN partnerships to reduce vulnerability to unilateral pressures.
  • Encourage regional value chains like India-Middle East-Europe Economic Corridor (IMEC) that are equitable and development-friendly.
    

Conclusion

Rather than accepting ARTs as a new “gold standard,” India and other developing nations must champion a reformed, inclusive, and rules-based multilateral trading system. A balanced approach—combining strategic engagement, domestic capacity building, and coalition-led diplomacy—will ensure that global trade remains fair, predictable, and development-oriented.