India-US Trade Deal: Why India Wants Preferential Access Before It Operationalises the First Tranche
The Union Commerce and Industry Ministry said the first tranche of the India-US Bilateral Trade Agreement (BTA) is ready and going through final legal drafting. India will put it into operation only after it gets a competitive advantage over peer countries in the US market.
The Commerce Secretary explained that a trade deal must give preferential market access, meaning lower tariffs than competitors pay, not just general access. This will come through the new US tariff framework.
India's main competitors in the US market include Vietnam, Indonesia and Bangladesh, which are also negotiating their own deals with the US.
India also wants clarity on the US Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, which allows the US President to impose tariffs of up to 100% on goods from the largest buyers of Russian oil and gas. India hopes the trade deal will bring more tariff and trade stability.
The US Ambassador to India said the broad framework and major items have been addressed, but the deal is complex and the US tariff regime changed after a Supreme Court ruling earlier in 2026.
Free Trade Agreements: Concept and WTO Framework
A Free Trade Agreement (FTA) is a deal between two or more countries to remove or sharply cut tariffs on most of the goods they trade with each other. Each country still keeps its own tariffs for countries outside the deal. This gap between the low tariff for partners and the normal tariff for everyone else is what gives partners preferential access. Under World Trade Organization (WTO) rules, such deals are allowed as an exception to the Most-Favoured-Nation (MFN) rule of equal treatment.
India's condition is about the margin of preference. If Vietnam or Bangladesh get equal or lower US tariffs on clothing, footwear or electronics, the Indian deal would give little real advantage. That is why India wants to see the full US tariff framework before operationalising the first tranche.
Rules of Origin (RoO)
Rules of origin are the tests a country uses to decide where a product "comes from". They matter because a trade deal gives low tariffs only to goods that truly come from the partner country. Without them, a third country could send its goods through the partner with only small changes and enjoy the low tariff. This is called transshipment or "route-through" trade.
Preferential access is useful only if competitors cannot route their goods through cheaper channels. Rules of origin decide which goods count as Indian, so they are a key part of any India-US deal that aims to give Indian exporters an edge.
Economic Sanctions: Primary vs Secondary Sanctions
Economic sanctions are penalties a country puts on another country to force it to change its behaviour, using trade and money instead of weapons. Primary sanctions stop a country's own citizens and companies from dealing with the target. Secondary sanctions go further: they punish third countries or foreign companies that deal with the target.
Even if India gets low tariffs under the trade deal, the 2026 sanctions law could let the US add heavy tariffs if India keeps buying Russian oil. This is why India wants clarity on the law when the deal is signed, to secure real tariff stability.
- India-US BTA first tranche: finalised, in legal drafting; to be operationalised once India gets a competitive edge over peers
- India's key US-market competitors: Vietnam, Indonesia, Bangladesh
- Sanctioning Russia and Iran Act, 2026: tariffs up to 100% on the largest buyers of Russian oil and gas; presidential waiver power
- MFN principle: GATT Article I; FTA exception: GATT Article XXIV
- US-Vietnam framework (2025): 20% tariff; 40% on transshipped goods
- India's CAROTAR (Customs Administration of Rules of Origin under Trade Agreements) Rules: 2020