At a time when India and the US are reportedly close to clinching a bilateral trade agreement (BTA), the latter has proposed a fresh set of tariffs that could take effect soon. Mint takes a closer look at the new tariff, its legality and motivation behind it.
What has the US proposed now?
The US has proposed to impose 12.5% tariff on imports from India under Section 301 of the Trade Act of 1974. This follows two investigations launched by the office of the United States Trade Representative (USTR) in March—one on the use of forced labour and another on excess industrial capacity. The tariff, it said, is for “failure to impose and effectively enforce a prohibition on the importation of goods produced with forced labour.” The US government has sought written comments from 54 countries on which it proposes to apply the tariffs. A public hearing will be held on 7 July, after which the tariffs will become effective.
What is the reason behind this move?
After the US Supreme Court struck down the reciprocal tariffs in February, Trump administration rushed in and imposed 10% tariffs under section 122 of the Trade Act. That order, which is imposed without any presidential determination or investigation, is valid only for 150 days (till 24 July) and needs to be extended by Congress. That looks unlikely, as a US court has ruled tariffs as illegal when challenged by a few companies. The Section 301 tariffs, imposed after a USTR investigation, are an attempt by the to keep them in place.
Why do the US need these tariffs?
For multiple reasons. Many countries, such as the , South Korea and Japan, which rushed into a trade deal after US President Donald Trump’s reciprocal tariffs, now find themselves shortchanged after they were struck down. Like Malaysia, they want to exit the deal. The 301 tariffs will make that decision difficult. Also, the US uses these tariffs as leverage as it negotiates trade deals with countries like India.
What is the status of the US-India BTA?
If the US Ambassador to India Sergio Gor is to be believed, the trade deal is 99% finalized, and the last 1% is being negotiated. In fact, a trade team from the US is currently in India for negotiations. The negotiations lost momentum when the US Supreme Court struck down the reciprocal tariffs. There was no immediate incentive for India to conclude it. The talks have continued as the two nations sought to widen and deepen their trade relationship. Experts feel that Section 301 tariff is another attempt to pressurize India into signing the BTA.
What should India do in such a scenario?
Experts have argued that India should not fall for the pressure tactics. It should keep the latest Section 301 tariffs and BTA separate. BTA should be signed on merit. India should agree if the trade deal benefits it or walk away from it. Regarding 301 tariffs, experts say it should be legally contested. The reason: this levy is not on a firm legal footing. Section 301 protects the US industry from unfair trade practices involving restricted market access. Not banning imports from countries using by far exceeds the mandate of Section 301.