Here’s breaking down the Section 301 tariffs

The fresh 10% tariffs levied by the US improve India’s competitive advantage to some extent, but pockets of worry remain, especially for textile and garment exporters.

Ahead of the expiry of the 10% tariffs on July 24 that it had levied under Section 122 of the US Trade Act, the US announced fresh tariffs as part of its Section 301 investigations on nearly 60 countries for forced labour.

India is part of the 17 countries that now face a 10% tariff for forced labour while 43 economies face a higher duty of 12.5%. While this places India at a lower tariff than competing countries like China, Vietnam, Thailand that are in the higher tariff bracket, India has not received the textile and apparel tariff-rate quota (TRQ) exemption under the Section 301 forced-labour tariff.

A report by the Global Trade Research Initiative (GTRI) noted that about 70% of India's exports — including engineering goods, textiles and garments, chemicals, machinery, plastics, leather products, gems and jewellery, furniture and most other manufactured goods — are subject to the 10% Section 301 tariff in addition to the applicable MFN duty.

Exporters are also worried about the reputational risks this poses given the charges of forced labour and are worried that it has no expiry date. Indian exports to the US including steel, aluminium, copper, auto components and certain derivative products, already face 25% or 50% tariffs under Section 232.

The Confederation of Indian Textile Industry in a statement on Friday said that new tariffs puts Indian textile and apparel exporters at a competitive disadvantage and raises reputational risks.

“What could raise a serious challenge for Indian textile and apparel exporters is the fact that although many key competitors of ours have also been subject to the same tariff rate, a window has been opened for textile and apparel exports from these countries to enter the US free of the Section 301 tariffs. This differential treatment risks diverting sourcing orders for textile and apparel items away from India,” said CITI Chairman Ashwin Chandran.

The US tariff imposed on India on the issue of forced labour could also affect exports of intermediate textile items from India to other nations, he further said. The US is the single-largest market for India’s textile and apparel items and exports of textile and apparel products from India to the US are about $11 billion.

Rajesh Rokde, Chairman – All India Gem and Jewellery Domestic Council also said the tariff will create challenges for our gem and jewellery exporters, making Indian products less price competitive in one of our largest markets. “While the rate is lower than that imposed on some other countries, this measure still places significant pressure on margins and could dent the growth trajectory of our industry,” he said.

Exporters are hoping the government will discuss these issues with the US in its talks over the trade deal.  

The Federation of Indian Export Organisations (FIEO) said that while the additional 10% tariffs will increase the landed cost of Indian products, the overall impact should be viewed in the proper competitive perspective rather than through the headline tariff alone.

SC Ralhan, President, FIEO, said India has not been singled out under the new US measure. "The fact that India has been placed in the lower 10% tariff category, while several competing exporting nations including China, Vietnam, Thailand, Türkiye, UAE, Brazil, South Africa and others face a higher tariff of 12.5%, reflects the recognition by the US of the policy measures taken by the Government of India to strengthen its framework relating to forced labour," he said.

FIEO advised exporters not to draw broad conclusions based solely on the additional 10% tariff but to undertake a product-wise assessment of the applicable US tariff, available exclusions and the tariff treatment of competing supplier countries. Exporters should also strengthen supply-chain compliance, enhance productivity and continue investing in quality, innovation and value addition to leverage emerging opportunities.