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In the trade sphere, tariffs and subsidies unarguably play the most crucial role. Historically, nations have often wielded tariffs as strategic tools to secure favourable trade terms and unilateral benefits. This practice prompted the establishment of a global forum to regulate trade and foster equitable treatment among nations, ultimately leading to the formation of the World Trade Organisation or WTO.

At the heart of the WTO framework lies the most favoured nation principle, which has served as the cornerstone of agreements such as the General Agreement on Tariffs and Trade, or GATT, which states that every country should be given fair and equal treatment. With the acceptance of this principle, countries have committed themselves to maintaining a trade mechanism in which trade between countries is regulated in a fair manner by way of free-trade agreements (FTA) and multilateral conventions such as the GATT. Lately, however, leading market players such as the United States of America have remodelled their tariff policies, distorting swathes of global trade.

Recently, the US proposed a general 25% tariff on imports from Mexico and Canada, with a 10% tariff on Canadian energy and 10% on China. This strategic manoeuvre on the part of the US will likely redefine its relationships not only with its neighbouring countries but with many of its trade partners worldwide. This may well cause turbulence in international trade. In response to these unilateral tariff adjustments, Canada threatened retaliation by imposing equal tariffs on US imports, including products such as alcohol and fruit. Similarly, China has introduced countermeasures, including a retaliatory tariff on US coal.

Amid these developments and in the wake of US threats to BRICS nations, India faces emerging challenges that could threaten its stability and progress, particularly in the IT and pharmaceutical industries. This arises from the possible disruption of imports. In an attempt to stabilise 含羞草社区 position during this rise of tariff barriers, the government announced a slew of measures to rationalise the structure of the country’s customs duties framework in its February budget.

Outlining her plans for the coming financial year, the finance minister unveiled a range of customs reforms, including amendments to the existing tariff structure. The budget did away with seven tariff classes, substantially rationalising the tariff framework to just eight duty categories. To further simplify the structure, the minister also discontinued multiple local taxes on goods. In addition to these changes, import duties have been reduced on selective items to assuage the concerns expressed by the US president. These include levies on high-end motorcycles, specifically machines with a 1,600cc engine capacity, which fall from 50% to 40%.

While the changes are a welcome step towards rationalisation and the facilitation of international trade, it should be pointed out that various goods which have attracted the lower duty rates have seen a local levy, the Agriculture Infrastructure and Development Cess (AIDC) added. This has meant that the effective customs duty rate on the majority of goods has remained about the same.

Changes of this nature may have ramifications for the domestic market. They may also affect international trade arrangements such as FTAs. On a positive note, the exemption provided to the automobile industry could open the door to a reconciliation between India and the US, even though trade tensions are rising. It may be a good opportunity for India to conclude trade negotiations and reduce the risk of attracting US threats against imports. Looking at the flip side, however, various international challenges may arise because of the imposition of the AIDC. One aspect to note is that India has provided beneficial basic customs duty on a number of items under various bilateral FTAs and that such FTAs may not cover the AIDC.

The threat of such bilateral trade disputes may pose risks to India. This is because other countries may be discouraged from entering into FTAs. It could also lead to conflicts with trading partners. With the future unclear, the country may need to adopt a more proactive approach by reducing trade barriers and ensuring greater clarity and consistency in its tariff and tax structures.

Shankey Agrawal is a partner, Nikky Jhamtani is a managing associate and Pratha Khanna is an associate at BMR Legal.