India-US FTA announcement: An overview

In this 'Leading Questions' section, Manish Mishra discusses some key takeaways from the India-US Free Trade Agreement.

Question: How significant is the reduction of US tariffs to 18% for Indian exporters? Does this move normalise trade relations or merely reset a contentious phase? What implications arise under WTO and bilateral trade law?

Answer: The reduction of tariffs by the US is a major breakthrough in the impasse created due to the imposition of disproportionate tariffs by the US on Indian exports last year. This would significantly address the disruptions in the supply chain and partially restore the US market access for Indian exporters. This also seems to be emanating as a balancing act by the US due to various trade agreements being explored by India with other nations/ continents.

One waits with cautious optimism for further rationalisation of tariffs by the US as the details of the deal are culled out by both nations, keeping their economic interests at the forefront.

Question: How do you perceive the energy-related provisions in trade agreements that have been put out in the public domain? What is the enforceability of such clauses?

Answer: In a bilateral trade agreement, while a preferential treatment to exports/ imports from participating nations has been seen as a regular pre-requisite, having these kinds of conditions of not importing a particular commodity from a third-party (in this case, Russia) is unprecedented. Historically, such conditions emanate more from diplomatic understanding, which can be quite fluid.

The legal enforceability of such a condition can only be examined once the fine print of the deal is made available. Given that the Indian government has denied such a condition being imposed in the deal, it would be interesting to see whether the same is made a part of the deal documentation.

Question: This deal has been signed in the backdrop of an extraordinary global trade scenario. How do you see it shaping up in the long term, especially in the present volatile geopolitical scenario?

Answer: The long-term implications of such a deal are difficult to predict as the longevity of such deals may be questionable, given that the stance of the governments may change depending upon the evolving geopolitical and economic situations, a change in the regime and shift in the world order. However, in the short run, India does stand to gain with a reduction in tariffs as it makes exports to the US viable and sustainable.

While a final view may only be taken after a review of the fine print in the deal, it is quite clear that India will not compromise on its autonomy and sovereignty.

Question: Which sectors are likely to be the winners and losers under this deal? How could the deal shape trade policy adjustments?   

Answer: While the specific details of the deals are still not available, it is anticipated that Indian exports will benefit from a reduction in the tariffs. This is going to benefit sectors such as textiles, gems and jewelleries, seafood, agro-processing and chemicals as their landed cost of exports in the US would get cheaper.

The Indian domestic industry may face challenges due to cheaper and duty-free imports from the US. However, the specific impact can only be assessed after the details are made available. One thing is certain: the Indian domestic industry will have to brace for stiff competition from large-scale, cheaper import alternatives not only from the US but also the EU upon the finalisation of these trade deals.

Question: How does this bilateral arrangement align with India’s commitments under the WTO and other trade frameworks? Does tying tariff relief to geopolitical considerations signal a new model of strategic trade alignment?

Answer: The relevance of the WTO in the present geopolitical situation is significantly reduced as most of the strong economies are looking to assert their authority and protect their economic interest. This is leading to more bilateral and regional trade treaties being executed, with countries opting to directly engage in negotiating trade and tariff measures without resorting to a world governing body, for achieving outcomes that are more suited to their national and economic interests.

Manish Mishra is a Partner and Head of Practice - Indirect Tax at JSA Advocates & Solicitors.