MC EXCLUSIVE Tariffs lower than MFN rates of US look difficult for India in the mini trade deal

The US administration needs Congressional approval to lower tariffs below the MFN rates, however, it has the jurisdiction to remove additional reciprocal tariffs it plans to impose on trading partners, including India.

The ambition to seal a mini trade deal with the United States by July 9 could make it difficult for India to secure tariffs lower than the Most Favoured Nation (MFN) rates owing to America's legislative compulsions, sources aware of the developments told Moneycontrol.

The US administration needs Congressional approval to lower tariffs below the MFN rates, however, it has the jurisdiction to remove additional reciprocal tariffs it plans to impose on trading partners, including India. MFN rates mandate that WTO members treat each other's products equally in terms of tariffs and other trade regulations.

“India may not get any MFN tariff cuts in the mini deal, and the US may reduce tariffs below MFN rates for certain Indian goods only in the final BTA, since that has a longer timeline, but the proposed July 9 scaled down version will focus on sectoral and reciprocal tariff exemptions," said one of the sources familiar with the development.

The mini deal, or a scaled-down version of the first tranche of the Bilateral Trade Agreement (BTA) between India and US, may only focus on securing exemptions from the 26 percent reciprocal tariffs expected to kick in after July 8, along with sectoral levies, sources said.

In the mini deal itself, New Delhi is seeking exemption from 25 percent sectoral tariffs levied on certain auto parts and automobiles by President Trump's administration, along with the 50 percent levy on steel and aluminium.

India has been pushing for tariff concessions on labour-intensive exports such as textiles and leather as part of a trade deal with the US, a second source said. However, such concessions may only be including in the first tranche of the BTA, expected to be finalised later by September or October this year. The US currently imposes tariffs ranging from 15 percent to 35 percent on Indian labour-intensive exports such as textiles.

“For the BTA, our concern is doubling of trade, which cannot happen without lowering of tariffs. So, we are looking at the opportunities for both nations to improve market access. The product mix may be different for India and US because India is looking for better market access for labour intensive products, while the US is looking for tariff cuts in different items," the source added.

On February 13, during Prime Minister Modi's US visit, both New Delhi and Washington agreed on a new goal - Mission 500 - aiming to more than double the bilateral trade to $500 billion by 2030. To further this aim, the two sides announced plans to negotiate the first tranche of a mutually beneficial, multi-sector BTA by the fall of 2025.

The first source cited above added, “…US needs permission from Congress for any MFN cut, so while the US is asking for a lot, be it agriculture or dairy, India may have to settle with non-MFN relief at least for the mini deal, even though we are seeking for it.”

Even as the United Kingdom and the US agreed on a trade agreement on May 8, 2025, the deal for now mostly reversed certain reciprocal and sectoral levies for Britain, since the reductions offered by America on MFN rates require approval from Congress.

While Trump's baseline 10 percent tariff on imports from all countries still applies to most British goods entering the US, the deal reduced or removed levies on some UK exports, including cars, steel and aluminium.

“How the US reduce tariffs is something they need to figure, Trade Promotion Authority (TPA) is one of the mechanisms, there are other mechanisms, like in the UK-US deal it talks about Congressional mechanisms. That is in US's domain to talk about. From India’s perspective we look at preferential advantage and sustained advantage,” a third source said.

The TPA, or the US Fast Track Trade Authority allows the US President to negotiate trade agreements and present them to Congress for approvals, escaping amendments or delays.

Since 2021, the US' TPA has not been renewed, sparking concerns that any trade agreement negotiated by the American President is therefore exposed to Congressional scrutiny, amendments, delays, or even rejections.

On whether there are concerns around the absence of a functional TPA in the US and the impact on the timeline for a trade deal with India, the second source explained that the US President does not have the power to reduce MFN tariffs, it can only be reduced through the TPA authority, which the Congress provides.

“Either Congress does it or the Congress authorises the President to do so. TPA is their internal policy tool with respect to other countries, on which they have to take a call. That is not something that can be bilaterally negotiated. This call US will take based on their understanding of global trade and what is best for their national interest," the source added.