US Assures India a Tariff Edge Over Rival Exporters: Why a Lower Tariff Than Competitors Matters
The United States has assured India that Indian goods will get a comparative tariff advantage: the US import tax on Indian goods will be lower than the tax on similar goods from India's competitor countries.
Until now, Indian officials had said India would go ahead with the trade deal with the US only if such an advantage was promised. So this assurance removes a major hurdle in the India-US Bilateral Trade Agreement (BTA) talks.
The competitors that matter most are countries that sell similar labour-heavy goods to the US, such as Vietnam, Bangladesh, Indonesia and other Southeast Asian countries. Under the February 2026 interim framework, the US rate for India was set at 18%, slightly below the rates then set for Bangladesh and Pakistan (19%) and Vietnam (20%).
Those February rates were set under a US emergency law (IEEPA) that the US Supreme Court struck down on 20 February 2026. So the old numbers no longer apply, and India wants its edge protected in the new US tariff system.
The exact tariff rates have not been announced. India is also waiting for the outcome of US Section 301 investigations, which could add new tariffs.
Generalised System of Preferences (GSP)
The Generalised System of Preferences, or GSP, is a scheme under which a rich (developed) country lets goods from poorer (developing) countries enter at a lower or zero import tax. The rich country does not ask for anything in return. That is why it is called "non-reciprocal" (one-way). GSP is the oldest and best-known way of giving a developing country a tariff advantage over others, and India was once the biggest user of the US GSP scheme.
Since losing US GSP benefits in 2019, India has had no special tariff edge in the US market. The new US assurance of a lower tariff than India's competitors would give Indian exporters a similar advantage, but this time through a negotiated, two-way trade deal, not a one-way scheme that the US could cancel on its own.
The Most-Favoured-Nation (MFN) Principle
The Most-Favoured-Nation principle is the basic WTO rule that says a country must not discriminate between its trading partners. If it gives a lower tariff to one WTO member, it must give the same tariff to all members. So a promise to charge India less than its competitors is, by definition, unequal treatment. It is allowed under WTO rules only through certain exceptions, such as a free trade agreement.
A tariff edge for India over its rivals means the US would treat India better than other WTO members. For this to fit WTO rules, it must come through a trade agreement that covers "substantially all the trade" under GATT Article XXIV. This is one reason India wants the advantage written into the BTA itself.
Section 301 of the US Trade Act, 1974
Section 301 is a US law that lets the US Trade Representative (USTR) investigate a foreign country's trade practices and put tariffs on its goods if the US finds those practices "unfair" to US businesses. The US can act on its own, without going to the WTO. After the US Supreme Court struck down the emergency (IEEPA) tariffs in February 2026, Section 301 became one of the main legal tools the US uses to set country-wise tariffs.
Many of India's competitors are also under the same excess-capacity investigation. So whether India keeps its tariff edge depends partly on how the US finishes these Section 301 cases. That is why India is waiting for their outcome before the final tariff numbers in the BTA are fixed.
- US has assured India a comparative tariff advantage over competitor countries; exact rates not yet announced
- February 2026 interim framework rates: India 18%, Bangladesh and Pakistan 19%, Vietnam 20% (set under IEEPA, which was struck down on 20 February 2026)
- GSP idea adopted at UNCTAD II, New Delhi, 1968; Enabling Clause: 28 November 1979
- India's US GSP benefits ended: 5 June 2019; US GSP itself lapsed on 31 December 2020
- MFN: GATT Article I; FTA exception: GATT Article XXIV
- Section 301 excess-capacity probes: started 11 March 2026, 16 economies including India
- Section 301 forced-labour tariff on India: 10% from 24 July 2026