India Faces 10% Tariff on Exports to the US Amid Forced Labour Policy

India will begin paying a 10% tariff on most of its exports to the United States from Friday, following the implementation of a new levy by the US administration. This tariff replaces a previous temporary duty of the same rate that ended on 24 July 2023. The 10% rate is more favourable than the 12.5% rate that the United States Trade Representative (USTR) had proposed based on a draft from June, thereby helping India avoid a competitive disadvantage compared to countries like China and Vietnam.

The tariff is enacted under Section 301 of the US Trade Act of 1974, which allows for additional duties on goods from countries that violate trade agreements. The recent tariff applies on top of the Most-Favoured-Nation (MFN) duty and follows the successful conclusion of one of two investigations being conducted by the USTR against India.

In addition to India, 16 other economies are also subject to the 10% tariff, which includes notable competitors such as Pakistan, Sri Lanka, and Bangladesh, particularly significant due to India's large textile and garment export sector.

This lower tariff rate is applicable to countries that have implemented a prohibition on the import of goods produced through forced or compulsory labour, committed to prohibitions through reciprocal trade agreements, or have enacted a partial regime with the same effect. The USTR acknowledged India's efforts to introduce a new foreign trade policy banning the import of such goods, which helped it secure the lower duty rate.

US Trade Representative Jamieson Greer stated, “Today’s action will begin to correct what is both a human rights abuse and a distortive trade practice to improve the welfare of workers everywhere.” The measure is part of a broader initiative that impacts around 60 economies accounting for more than 99% of US imports.

Countries such as Argentina, Cambodia, Canada, Ecuador, El Salvador, Guatemala, Honduras, Indonesia, Jordan, Malaysia, Mexico, Trinidad and Tobago, and the United Kingdom were also introduced to the 10% tariff bracket.

However, the US has accused both China and Vietnam of circumventing the Uyghur Forced Labor Prevention Act. The USTR’s earlier report found that India did not effectively enforce a prohibition against forced labour imports, which initially placed the country in the higher 12.5% tariff category.

Following representations from India and the enactment of the new prohibition on forced labour imports, the USTR's determination shifted India to the lower tariff group. Ajay Srivastava, the founder of the Global Trade Research Initiative, labelled the outcome as a notable accomplishment given that the US is India’s largest export destination.

“In view of the measures taken to restrict imports made with forced labour, India managed to reduce the tariff from 12.5% to 10%. This is considered a policy improvement, leading to a more favourable tariff category,” he said.

India is also subject to an ongoing excess-capacity investigation, which includes 16 economies. The results of this inquiry could further influence India's competitive standing against key rivals like China and Vietnam.

As it stands, US tariffs on Indian exports can be categorised into three main groups. Products under Section 232 of the Trade Expansion Act, which include steel, aluminium, and auto components, face tariffs of either 25% or 50% in addition to the MFN rate. Exempt products only pay the MFN duty, while approximately 70% of India’s exports—including textiles, garments, chemicals, and machinery—will now be subject to a 10% tariff as a consequence of the new forced labour policy.

The Union Commerce Ministry did not provide comments when contacted regarding the new tariff arrangements.