New US tariffs: India gets a relative advantage, but for how long?
The United States imposed new tariffs on imports from 60 trading partners, citing inadequate enforcement of bans on goods produced with forced labour; the tariffs took effect on 24 July 2026.
India was placed in a lower tariff band of 10%, alongside 16 other economies, while several competing exporters — including China, Vietnam, Thailand, and the UAE — face a higher 12.5% rate.
The lower rate followed an amendment to India's Foreign Trade Policy on 14 June 2026 prohibiting the import of goods produced using forced labour, which was cited as grounds for the reduced tariff tier.
India was excluded from tariff-rate quota (TRQ) exemptions granted to competing textile and apparel exporters such as Bangladesh, Cambodia, Indonesia, and Malaysia, which allow specified shipments from those countries to enter the US free of the new tariff.
The tariff applies on top of existing most-favoured-nation (MFN) duty rates, covering the majority of India's manufactured exports to the US.
Section 301 of the US Trade Act, 1974
Section 301 (Title III, Sections 301–310, codified at 19 U.S.C. §§2411–2420) grants the Office of the US Trade Representative (USTR) broad authority to investigate foreign trade practices it deems "unfair" and to impose unilateral tariffs or other restrictions without a prior multilateral ruling. It is distinct from WTO-sanctioned trade remedies (anti-dumping, countervailing, safeguard duties), which require an investigation under WTO-consistent procedures and are subject to WTO dispute settlement.
Key Details
- USTR launched this round of Section 301 investigations in March 2026, targeting 60 economies over failure to ban forced-labour-linked imports.
- Section 301 actions have previously been found WTO-inconsistent — a 1999 WTO dispute panel (EC and others vs. US) held that Section 301 measures could violate GATT Article I (Most-Favoured-Nation treatment) and Article XXIII if applied unilaterally outside WTO authorization.
- The current tariffs range from 10% to 12.5% depending on the partner country's assessed compliance, applied on top of existing MFN tariff rates (capped at 10% total for some partners like the EU and Taiwan).
- Because the tariff differentiates rates by country for the same conduct (forced-labour enforcement), it raises the same MFN-consistency questions as earlier Section 301 actions.
The 10% versus 12.5% tiering for India versus China, Vietnam, and others is a direct product of Section 301's country-by-country unilateral assessment mechanism, not a WTO-negotiated schedule — explaining why "relative advantage" here is a US policy choice rather than a binding trade concession.
GATT Article I — Most-Favoured-Nation (MFN) Principle
MFN is a foundational WTO principle requiring that any trade advantage granted by a member to one trading partner be extended "immediately and unconditionally" to all other WTO members for like products. It underpins the non-discrimination architecture of the multilateral trading system established under GATT (1947) and carried into the WTO (1995).
Key Details
- MFN treatment is the general rule; permitted exceptions include preferential trade agreements (FTAs/CEPAs) under GATT Article XXIV and special treatment for developing countries under the Enabling Clause (1979).
- Unilateral tariff differentiation among trading partners outside these recognised exceptions is what previous WTO panels have found inconsistent with Article I.
- India does not have a free trade agreement with the US, so any preferential tariff treatment India receives is not an MFN exception under WTO rules — it results purely from the US's unilateral tier assignment.
India's lower 10% rate is not a negotiated concession under any WTO-recognised exception; it stems from USTR's unilateral country assessment, meaning it can be revised unilaterally in future reviews, unlike a bound tariff concession.
ILO Forced Labour Conventions and India's Foreign Trade Policy Amendment
The Forced Labour Convention (ILO No. 29, 1930) and the Abolition of Forced Labour Convention (ILO No. 105, 1957) are two of the ILO's fundamental conventions prohibiting forced or compulsory labour; India has ratified both. The US tariff action is linked to enforcement of forced-labour import bans, a mechanism the US applies domestically under Section 307 of the Tariff Act of 1930, which bars imports of goods made with forced or convict labour.
Key Details
- India ratified ILO Convention No. 29 in 1954 and Convention No. 105 in 2000, making forced labour prohibition part of its existing international commitments.
- India's Foreign Trade Policy was amended on 14 June 2026 to explicitly prohibit the import of goods produced with forced labour, aligning domestic trade law with the ILO conventions it has ratified.
- The US measure evaluates each of the 60 partner economies on the adequacy of their forced-labour import enforcement mechanisms, not their forced-labour production standards as such.
India's amendment was cited as the basis for its placement in the lower 10% tariff tier, illustrating how alignment of domestic trade policy with ratified ILO conventions can directly affect market access outcomes.
Textile and Apparel Tariff-Rate Quotas (TRQs)
A tariff-rate quota allows a fixed quantity of a good to enter a country at a lower (or zero) tariff, with quantities beyond the quota facing the standard duty. It is a common tool to balance import relief with market access, distinct from an outright tariff exemption.
Key Details
- The US carved out TRQ-based exemptions for specified textile and apparel shipments from Bangladesh, Cambodia, Indonesia, and Malaysia under the new Section 301 action.
- India was not granted a similar TRQ exemption despite qualifying for the lower 10% overall tariff tier.
- Textiles and apparel are among India's largest goods export categories to the US, making this exclusion significant despite the headline tariff advantage.
This is the key qualifier behind "for how long" — India's overall 10% rate is lower than competitors, but the absence of a textile TRQ exemption risks diverting textile and apparel sourcing orders toward Bangladesh, Cambodia, Indonesia, and Malaysia, eroding the relative advantage in India's largest labour-intensive export sector.
- Section 301 tariffs on 60 economies took effect: 24 July 2026.
- India's tariff rate: 10% (lower tier), alongside 16 other economies including Bangladesh, Canada, Mexico, Pakistan, Sri Lanka, and the UK.
- Higher tariff tier (12.5%): China, Vietnam, Thailand, Türkiye, UAE, Brazil, South Africa, among others.
- India's Foreign Trade Policy amendment prohibiting forced-labour imports: 14 June 2026.
- ILO Forced Labour Convention (No. 29, 1930): ratified by India in 1954.
- ILO Abolition of Forced Labour Convention (No. 105, 1957): ratified by India in 2000.
- Textile/apparel TRQ exemptions granted to Bangladesh, Cambodia, Indonesia, and Malaysia; not extended to India.
- 1999 WTO panel ruling: Section 301-type unilateral measures found capable of violating GATT Article I and Article XXIII.