US tariff threat puts exporters on the edge
The US House of Representatives passed the Sanctioning Russia and Iran Act, which the Senate had already approved by a wide margin, sending it to the President for signature.
The legislation authorises tariffs of up to 100% on countries that continue large-scale purchases of Russian crude oil and gas, naming India and China among the countries potentially exposed.
Indian exporters in labour-intensive sectors are assessing their exposure, since any new tariff would stack on top of tariff measures already imposed on Indian goods earlier in 2026 over India's Russian oil purchases.
Industry bodies have flagged that sectors already absorbing higher duties — such as gems and jewellery — have limited room to absorb further tariff increases without losing price competitiveness in the US market.
The Most-Favoured-Nation (MFN) Principle and the Legality of Unilateral Tariffs
The MFN principle under Article I of the General Agreement on Tariffs and Trade (GATT) requires WTO members to extend the same tariff treatment to "like products" from all other WTO members — a country cannot charge one member a higher duty than another for the same product without a WTO-recognised exception. Raising bound tariffs unilaterally, outside the WTO's negotiated tariff schedules, is inconsistent with this framework unless done through the formal renegotiation process under GATT Article XXVIII.
Key Details
- Recognised exceptions to MFN include free trade areas and customs unions (GATT Article XXIV), and preferential schemes for developing countries under the 1979 Enabling Clause, such as the Generalized System of Preferences (GSP).
- Tariffs imposed citing "national security" or emergency economic powers (as with US tariff actions tied to Russian energy purchases) are not among the WTO-recognised MFN exceptions, which is why such measures are frequently challenged as GATT-inconsistent before the WTO's dispute settlement mechanism.
- Because these tariffs single out countries by their trading relationship with a third country (Russia) rather than by the nature of the traded product itself, they raise questions of both MFN-consistency and the legal boundary between trade policy and foreign policy.
The tariff authority under the new US legislation operates outside the WTO's negotiated tariff bindings and MFN framework, illustrating how unilateral national legislation can override multilateral trade discipline when a member chooses to act outside the WTO's dispute settlement channel.
RoDTEP — India's Export Duty Remission Scheme
The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme refunds embedded central, state, and local taxes and duties (such as fuel and electricity charges) that are not otherwise rebated but get built into the cost of exported goods, keeping Indian exports price-competitive. It replaced the earlier Merchandise Exports from India Scheme (MEIS) in 2021 after MEIS was found to be an actionable, WTO-inconsistent export subsidy in a dispute brought by the US.
Key Details
- RoDTEP currently covers over 8,500 tariff lines, including textiles, gems and jewellery, marine products, and electronics, with rates varying by sector (textiles and garments receive relatively higher remission rates of roughly 2.5–4.3% of free-on-board value).
- Unlike MEIS, RoDTEP is designed as a WTO-compliant tax-remission mechanism (refunding actual embedded taxes) rather than an incentive scheme, since GATT/WTO rules permit remission of indirect taxes on exports but not export subsidies tied to performance.
- The scheme, due to expire on 30 September 2026, is under consideration for a further extension as exporters face mounting external tariff pressure.
As US tariff exposure rises for Indian exporters, RoDTEP is one of the few WTO-compliant levers the government can use to offset cost pressure without inviting a fresh subsidy dispute, unlike direct cash incentives which risk being challenged as prohibited subsidies.
India's Loss of US GSP Status (2019) as Precedent
The Generalized System of Preferences (GSP) is a unilateral duty-concession scheme developed countries extend to developing countries under the Enabling Clause exception to MFN. The United States terminated India's designation as a GSP beneficiary effective 5 June 2019, citing India's failure to assure "equitable and reasonable market access" in sectors including medical devices and dairy.
Key Details
- India was the largest beneficiary of the US GSP programme in 2017, with about $5.7 billion in exports receiving duty-free entry.
- GSP withdrawal is a distinct, older instance of the US using trade-preference and tariff tools for policy leverage over India, predating the current Russia-linked tariff dispute.
- Sectors that lost GSP benefits in 2019 — including certain engineering goods, chemicals, and textile-adjacent products — overlap partly with sectors now facing fresh tariff exposure under the new sanctions-linked measures.
The GSP withdrawal established a pattern of the US using tariff and preference policy as leverage on bilateral issues with India; the current bill continues that pattern but escalates the stakes from preferential-duty removal to the imposition of steep additional tariffs of up to 100%.
- The Sanctioning Russia and Iran Act authorises secondary tariffs of up to 100% on countries importing Russian oil and gas at scale, including India and China.
- RoDTEP covers more than 8,500 tariff lines and is currently set to expire 30 September 2026, pending a proposed extension.
- The US terminated India's GSP beneficiary status effective 5 June 2019, affecting roughly $5.7 billion worth of Indian exports that had received duty-free access in 2017.
- MEIS, RoDTEP's predecessor, was withdrawn in 2021 after being found WTO-inconsistent in a dispute brought by the US at the WTO.
- GATT Article I (MFN) and Article XXIV (customs unions/FTAs) together define the narrow set of WTO-recognised exceptions to non-discriminatory tariff treatment.