As July 9 deadline nears, India-US mini-trade deal may include limited tariff cuts on American cars

Indian Prime Minister Narendra Modi with US President Donald Trump

As automobiles emerge as a major sticking point, India may have offered Tariff Rate Quotas (TRQs) to provide limited concessions to American cars, as the mini-trade deal awaits final approvals, a person in the know of the development said.

“Tariff cuts on US cars may be on a quota basis for a limited number. It could include electric vehicles (EVs) as well,” the person said.

New Delhi is hoping to do this in return for a reduction or reversal of the 25-percent sectoral tariffs levied by the US on certain automobile parts, which the American government has been reluctant to concede, so far.

This led to India on July 3 proposing retaliatory duties under World Trade Organization (WTO) norms in response to American tariffs on automobile parts.

The UK model?

The nature of the tariff cuts on US automobiles is likely to be similar to what India offered the United Kingdom in a deal agreed in May.

India has offered to slash tariffs on auto to 10 percent, under a quota, which is expected to benefit British high-end cars. Indian officials had clarified that the concessions have been extended based on engine capacity for Internal Combustion Engines (ICE). For EVs, the concession is linked to price bands.

The concessions will be gradually operationalised over 10-15 years with no low-cost or futuristic cars being allowed through the Free Trade Agreement (FTA) with the UK, according to the officials.

US President Donald Trump’s Reciprocal tariffs may kick in From August 1 on many countries, with letters informing of steeper duties are expected to be circulated by July 9.

India, therefore, is still keen on securing a deal before July 9 but a final nod is awaited, a second person said on condition of anonymity. “The deal is more or less done but the US President is yet to sign it,” the person said.

The proposed reciprocal tariff applicable to India is 26 percent, in the absence of a deal.

Labour-intensive exports

While India has been pushing for tariff concessions on labour-intensive exports such as textiles and leather as part of the mini-trade deal with the US, there are questions around whether only the tariffs imposed by Trump will be reduced.

Reduction in Most Favoured Nation (MFN) rates look difficult due to America's legislative compulsions, the person cited above said.

The US imposes MFN tariffs ranging from 8 percent to 20 percent on half of Indian labour-intensive exports such as textiles. There is also a 10 percent baseline levy slapped by Trump in April.

Therefore, any concessions may just be a reversal or reduction of the tariffs imposed by Trump since he took office, which is the 10-percent baseline levy or the reciprocal duties expected from August, the first person added.

Red Lines

India is resisting sweeping concessions on sensitive sectors such as dairy and agriculture, especially on US’ genetically modified crops like soybean and maize, the first person said.

“We won’t budge on dairy and agriculture, deal or no deal,” this person added.

Indian officials are also spooked after the unilateral way the deal with Vietnam was announced, slapping the Southeast Asian nation with a 20-percent reciprocal tariff and another 40-percent on trans-shipment.

“The way the Vietnam deal was handled by the Trump administration have raised concerns among Indian authorities,” the second person said.

The mini deal, or a scaled-down version of the first tranche of the Bilateral Trade Agreement (BTA), is focussing on securing exemptions from the 26 percent reciprocal tariffs along with concessions on limited goods.

The deadline for the BTA is autumn and more contentious issues might be kept for the more comprehensive deal, the first person added.