The three-day visit of a delegation led by the United States Trade Representative (USTR) Ambassador Jamieson Greer is an important step forward to finalise an interim Indo-US trade deal. In his meetings with India’s Commerce and Industry Minister, Piyush Goyal, they reviewed the progress of the ongoing trade negotiations and explored avenues to deepen the bilateral economic relationship.
India is not looking at any deadline — such as July 24, for instance — for this deal to be concluded as it wants safeguards against future unilateral US tariff actions and better market access than the competition. The US, for its part, wants a fair, reciprocal trade deal that is mutually beneficial. So, too, does India. What makes a favourable outcome likely is the optimism on both sides, including at the highest political levels, to make it work in the earliest time frame.
The putative bilateral trade deal may appear close at hand but a July 24 deadline may be unrealistic as the tariff architecture is as yet unclear. Indications are that the US seeks to peg tariff levels at 18% that were agreed to in a framework deal on February 2. In return, India undertook to reduce tariffs on US industrial and agricultural products with firm red lines on not allowing genetically modified maize and soya bean and dairy items.
President Donald Trump’s levies were later invalidated by the US Supreme Court. He then imposed a 150-day uniform tariff of 10% which expires on July 24. To retain leverage in negotiations, the USTR launched investigations under Section 301 of Trade Act of 1974 and slapped an additional 12.5% duty on India and others on the grounds that their exports contain inputs produced by forced labour. There is also a second investigation on excess capacities.
To be sure, India contests the legal basis of these investigations although it remains engaged with the US on Section 301 proceedings. There is a hearing on the new tariff proposal on July 7. New Delhi can secure lower tariffs of 10% if it agrees to redress the failure to impose forced labour importation prohibition. India no doubt lacks a “dedicated market-access regime that militates against supply chain human rights violations”, according to FE’s three-part series of articles.
But it is on strong grounds in arguing that our entities have not relied on cotton imports from Xinjiang where there are allegations of forced labour. However, Chinese supplies are critical for synthetic and blended textiles, especially of speciality yarns and performance fabrics. The USTR’s regime will raise compliance costs for our textile and garment exporters as it would shave 8-10% off operating margins in an industry where margins typically range between 5-8%.
The upshot is that more clarity is needed on the tariff structure of the interim trade agreement that militates against any deadline like July 24. Despite India holding firm on opening up agriculture, farmer groups are concerned that the US is pressing for securing greater access for its subsidised farm produce. Equally challenging are what Indian officials describe as “unconventional US demands” which include an “intention” of buying $500 billion of American energy, information and communications technology, and other products. As Section 301 tariffs, too, could face legal challenges, it might be in India’s interest to not rush inking the trade deal as the fate of US tariffs depends on the outcome of mid-term elections in the US Congress in November.