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Info Service on WTO and Trade Issues (Aug25/15) Geneva, 26 August (D. Ravi Kanth): United States President Donald Trump is seen to have accelerated the erosion of the multilateral trading system through arbitrary, unilateral, and one-sided actions—such as imposing a predatory 50% tariff on Indian exports to the US market starting in the early hours of 27 August, allegedly in response to India’s purchases of Russian oil, said people familiar with the developments. The so-called secondary sanctions imposed on India over its substantial imports of Russian oil in recent years appear to lack credibility and integrity, according to several commentators and observers. Moreover, the additional 25% tariff on India for its imports of Russian oil—due to come into force in the early hours of Wednesday—is seen as biased, given that other major buyers of Russian oil, such as China and Türkiye, are reportedly being exempted, said people familiar with the situation. For India, the US is the largest export destination, with bilateral trade in goods exceeding $130 billion last year. This stands in contrast to Russia, which remains under sanctions imposed by the Biden administration. President Trump and his senior officials have repeatedly claimed that the additional 25% tariff on India is aimed at supporting efforts to end the Russia-Ukraine war. However, this rationale has been viewed by many as exposing the unpredictable and erratic nature of the administration’s trade policy—drawing comparisons to the behaviour of “mafia bosses.” As Alan Beattie of the Financial Times wrote in his Trade Secrets column on 21 August, “[i]t’s now commonplace to say Trump’s shakedowns of trading partners [like India, which seemingly placed all eggs in the American basket] and corporations for tax revenue (even entirely leaving aside the issue of his personal wealth) resemble a mafia boss or a crony-capitalist dictator,” and his raids are “capricious.” With the imposition of a 50% tariff, Indian exporters of textiles and clothing, gems and jewellery, leather products, smartphones (including Apple phones), generic drugs and pharmaceuticals, and marine products face severe disruptions. Most of these sectors are labour-intensive, said people familiar with the developments. According to a report by the Global Trade Research Initiative (GTRI), India’s exports to the US could shrink by as much as 70% in labour-intensive industries, potentially threatening thousands of jobs. While the pharmaceuticals and electronics sectors may remain largely unaffected, sectors such as textiles, jewellery, shrimp, and handicrafts are expected to suffer major losses. Earlier, on 1 August, the Trump administration had already imposed a 25% tariff under the controversial “Fair and Reciprocal” tariff scheme—a move that undermined core World Trade Organization (WTO) principles, including most-favoured-nation treatment (Article I of GATT) and the sanctity of bound tariffs (Article II of GATT). The administration has justified these tariffs by claiming the US has received a raw deal from the WTO and that China’s rise in the global trading system led to the deindustrialization of America—assertions that are rarely supported by factual evidence, said people familiar with the matter. The Trump administration has now issued formal notice of its plan to impose a second round of 25% tariffs on Indian goods. Under the new trade directive issued by US Customs and Border Protection, most Indian products entering the US will face additional import duties, with limited exemptions: •
Goods already shipped and en route to the US before 12:01
a.m. (EDT) on 27 August will not be subject to the additional tariff. The administration has justified the new tariffs on the grounds that Russia’s actions continue to threaten US national security and foreign policy objectives, said people familiar with the developments. Calls are growing for India to retaliate against the US move, which effectively prohibits a significant portion of its exports. Unlike China, India has so far refrained from imposing retaliatory measures or initiating a dispute at the WTO. Noted Economic Times columnist Swaminathan Aiyar said on 26 August that there is no reason for India not to retaliate. “It is time we show we are not going to buckle down. Once it is clear that we are not going to buckle down, I think at that point Mr. Trump will then say okay, let me settle for what I can get instead of what I want,” he argued. Given the severity of the 50% tariff, there is effectively nothing left for India to lose by imposing retaliatory tariffs on American goods, said people familiar with the matter. However, the current Indian administration appears to lack a forward-looking trade policy response to what are seen as illegal actions by the US, said a former official from the Indian Ministry of Commerce, who requested anonymity. Trump’s new threat on digital taxes Meanwhile, President Trump has signalled a new front in his trade campaign—targeting domestic digital taxes imposed by countries on major US tech firms, including Google, Amazon, Facebook (now Meta), and Apple. In a post on his social media platform Truth Social on 26 August, Trump stated: “As the President of the United States, I will stand up to Countries that attack our incredible American Tech Companies.” He added: “Digital Taxes, Digital Services Legislation, and Digital Markets Regulations are all designed to harm, or discriminate against, American Technology.” Without presenting evidence, Trump claimed that these digital services taxes “outrageously give a complete pass to China’s largest Tech Companies.” “This must end, and end NOW! With this TRUTH, I put all Countries with Digital Taxes, Legislation, Rules, or Regulations, on notice that unless these discriminatory actions are removed, I, as President of the United States, will impose substantial additional Tariffs on that Country’s Exports to the USA, and institute Export restrictions on our Highly Protected Technology and Chips. America, and American Technology Companies, are neither the ‘piggy bank’ nor the ‘doormat’ of the World any longer,” he declared. He concluded with a warning: “Show respect to America and our amazing Tech Companies or, consider the consequences! Thank you for your attention to this matter. DONALD J. TRUMP, PRESIDENT OF THE UNITED STATES OF AMERICA.” In a sharp response, the European Union, on 26 August, stated: “It is the sovereign right of the EU and its member states to regulate economic activities on our territory which are consistent with our democratic values.” An EU Commission spokesperson, Paula Pinho, added: “This is also why this was not part of our [trade] agreement with the US.” Earlier, in a White House memo issued on 21 February, the Trump administration had turned its attention to digital services taxes (DSTs) under its proposed reciprocal tariff plan, as well as efforts to secure a permanent moratorium on customs duties on electronic transmissions. The memo was titled “Defending American companies and innovators from overseas extortion and unfair fines and penalties.” The administration’s intention to make permanent the current moratorium on customs duties on electronic transmissions has now been made public—despite the decision by trade ministers at the 13th WTO Ministerial Conference (MC13) in Abu Dhabi in March 2024 to terminate the moratorium by 31 March 2026. Effectively, the Trump administration appears to have decided to disregard prior WTO ministerial decisions on the e-commerce moratorium, said people familiar with the memo. The administration has asserted that its “digital economy,” driven by cutting-edge American technology firms, is under attack from foreign governments that have “increasingly exerted extraterritorial authority over American companies, particularly in the technology sector, hindering these companies’ success and appropriating revenues that should contribute to our Nation’s well-being, not theirs.” The accusatory tone used in the memo by the world’s largest economy has since become a standard tool for extracting market access—from digital services to critical raw materials—even from vulnerable nations like Ukraine, said people familiar with the development. Memo on DSTs The memo states: “Beginning in 2019, several trading partners enacted digital services taxes (DSTs) that could cost American companies billions of dollars and that foreign government officials openly admit are designed to plunder American companies”—a claim widely regarded as unsubstantiated and lacking material evidence. It further claims: “Foreign countries have additionally adopted regulations governing digital services that are more burdensome and restrictive on United States companies than their own domestic companies.” Several European Union countries—including France—as well as New Zealand and Canada, among others, introduced digital services taxes, arguing they are a necessary alternative given the WTO’s moratorium on customs duties on electronic transmissions. These DSTs were often justified as a fairer mechanism to tax large digital firms, particularly in response to calls by countries like India and South Africa at the WTO’s MC12 in Geneva in June 2022, and later at MC13 in 2024, where WTO members agreed the moratorium would expire by 31 March 2026. The MC13 decision (WT/MC(24)/38) reads: “We agree to maintain the current practice of not imposing customs duties on electronic transmissions until the 14th Session of the Ministerial Conference or 31 March 2026, whichever is earlier. The moratorium and the Work Programme will expire on that date.” With MC14 scheduled for 26 March 2026 in Yaoundé, Cameroon, it remains to be seen whether the moratorium will be terminated as agreed or made permanent, said people familiar with the matter. The termination of the moratorium could negatively impact the revenues of Google, Amazon, Meta, Apple, Microsoft, Alibaba, and Tencent, among others, said people familiar with the development.
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