Talks on India-U.S. trade pact enter 6th day; India pushes for duty cuts for labour-intensive sectors

The Hindu

2 days ago

Hectic negotiations between India and the U.S. enter the sixth day on Tuesday (July 1, 2025) in Washington, with the talks reaching a crucial stage and New Delhi demanding greater market access for its labour-intensive goods, an official said.
The Indian team, headed by Special Secretary in the Department of Commerce Rajesh Agrawal, is in Washington for negotiations on an interim trade agreement with the U.S.
The stay of the Indian officials has been extended. Initially, the delegation was scheduled to stay for two days, with the talks having commenced on June 26.
These talks are also important as the suspension date of Mr. Trump's reciprocal tariffs is approaching. It will end on July 9. The two sides are looking at finalising the talks before that, the official said.
India has hardened its position on giving duty concessions to American farm products. It is seeking duty concessions for its labour-intensive goods such as textiles, engineering, leather, gems and jewellery.
"If the proposed trade talks fail, the 26% tariffs will come into force again," the official added.
On April 2, the U.S. imposed an additional 26% reciprocal tariff on Indian goods but suspended it for 90 days. However, the 10% baseline tariff imposed by America remains in place. India is seeking full exemption from the additional 26% tariff.
The U.S. is demanding duty concessions in both the agriculture and dairy sectors. But these segments are difficult and challenging areas for India to give duty concessions to the U.S. as Indian farmers are into sustenance farming and have small land holdings.
Therefore, these sectors are politically very sensitive.
India has not opened up the dairy sector for any of its trading partners in free trade pacts the country has signed so far.
The U.S. wants duty concessions on certain industrial goods, automobiles, especially electric vehicles, wines, petrochemical products, dairy, and agricultural items like apples, tree nuts, and genetically modified crops.
India is seeking duty concessions for labour-intensive sectors like textiles, gems and jewellery, leather goods, garments, plastics, chemicals, shrimp, oil seeds, grapes, and bananas in the proposed trade pact.
The two countries are also looking to conclude talks for the first tranche of the proposed bilateral trade agreement (BTA) by fall (September-October) this year. The pact is aimed at more than doubling bilateral trade to $500 billion by 2030 from the current $191 billion.
Before the first tranche, they are trying for an interim trade pact.
The U.S. team was here from June 5 to June 11 for the talks. The negotiations will continue both virtually and physically in the days to come.
India's merchandise exports to the U.S. rose by 21.78% to $17.25 billion in April-May this fiscal, while imports rose by 25.8% to $8.87 billion.
Commenting on India's demand, think tank Global Trade Research Initiative (GTRI) said that as talks for the pact reaching a critical stage, India is pushing hard for full tariff elimination on high-employment exports such as garments, footwear, carpets, and leather goods.
Without this relief, the deal will be politically unsellable at home, GTRI Founder Ajay Srivastava said, adding Washington appears unwilling to scrap high MFN (most favoured nation) tariffs or country-specific duties.
Under current proposals, Indian goods could face a 10% surcharge on top of MFN rates, eroding competitiveness and effectively reversing market access gains, he said.
Merchandise exports to the U.S. rose to $86.5 billion in FY25, up 11.6% from $77.5 billion in FY24.
Industrial goods account for the bulk of this trade, with labour-intensive exports forming a significant share.
"However, without fast-track trade authority, Washington is unable to cut its MFN [Most Favoured Nation] tariffs across the board. Worse still, U.S. appears to be in no mood to exempt country specific tariffs and just bring it down to 10%," Mr. Srivastava said.
This risk, he said, is particularly acute for high labour-intensity sectors, which contributed over $14.3 billion to India's exports to the U.S. in FY25.
These include garments ($5.33 billion), textiles and carpets ($2.38 billion), made-ups and worn clothing ($2.95 billion), leather ($795 million), footwear ($461 million), ceramics and stoneware ($1.55 billion), and wood and paper articles ($823 million).
These sectors are dominated by small and medium enterprises and are major employment generators in Indian states such as Uttar Pradesh, Tamil Nadu, Gujarat, and West Bengal. Yet, they face some of the steepest U.S. tariffs — often ranging between 8 and 20%, especially for garments and footwear.
He added that India's demand is clear that the U.S. must remove all tariffs — both MFN and country-specific — on high and medium labour-intensive goods.
He added that these sectors employ millions, particularly in rural and semi-urban regions, and are crucial to India's goals of job creation, MSME growth, and women's economic participation.
"Without meaningful tariff relief for these products, Indian negotiators warn, the FTA will be viewed as lopsided and politically untenable," Mr. Srivastava said.