The 18 percent reciprocal tariff imposed by America on India may now become ineffective. Recently, the US Supreme Court has given an important decision, after which the new tariff system has come into effect. Now both the countries are working on a new interim trade agreement (BTA), which can be beneficial for both.

Earlier there was a 25 percent tariff on India, which was talked about reducing it to 18 percent. But the Supreme Court termed the tariff imposed under the IEEPA law as wrong. After this, President Donald Trump announced the implementation of a uniform global tariff of 15 percent. Now this is being considered as the new system.

Meaning of 15 percent + MFN

Now 15 percent tariff will be imposed on top of the already applicable ‘Most Favored Nation’ (MFN) rate. MFN is the rate which applies equally to all countries. If only 15 percent will be imposed on all countries, then there is no question of imposing 18 percent separately on India. This 15 percent tariff is currently applicable temporarily for 150 days. To continue this further, the approval of the US Parliament will be necessary.

Relief to which areas?

According to experts of Deloitte India, this decision will provide relief to gems, jewellery, textiles, some auto parts and engineering goods. However, 50% tariff on steel, aluminum and copper in the name of Section 232 national security will continue to be applicable as before.

direction of trade agreement

In February, both the countries had said that if there is a change in the tariff, the terms of the agreement can also be changed. Now considering the new situation, changes in the agreement are possible. Industry organizations say that a clear picture should emerge soon, because America is a big export market of India.

Other aspects of BTA remain intact

The interim bilateral trade agreement (BTA) included not only reciprocal tariffs but also penalty provisions related to Russia, quota-based concessions on Section 232 products and non-tariff barriers. The Supreme Court’s decision may render reciprocal tariffs ineffective, but other provisions will remain in effect.

What next?

Currently, 15 percent tariff is the new reality, but it is temporary. In the coming time, the talks will decide in which direction India-US trade relations will go.