Prof. DM Deshpande
Even as India and the US continue their negotiations to conclude their bilateral trade deal, the latter has put India on the spotlight. The office of the US Trade Representative (USTR) began investigations of 60 countries in March this year under section 301 of U.S Trade Act of 1974; they are allegedly not preventing importation of goods from nations that use forced labour.
Last week the US agency named 54 nations that are importing goods from such ‘tainted’ countries. And as these nations export goods to the US, that hurts the domestic commerce and industry. That the US as a result does not get a level playing field. So goes the USTR narrative!
To be clear, the USTR is not alleging that India is using forced labour in its industry. Rather, it is allegedly guilty of importing from nations where the labour is subjected to inhuman treatment. Potentially this could lead to levy of an additional tariff of over 10 per cent.
Under the US laws India and other nations against whom there are allegations have an opportunity to be heard through the public comments window till 6th of next month. And the final hearing with USTR is scheduled on the 7th of July. Till then the tariff plan is just a proposal and a negotiating tool. India needs to stand firm and not let this have an impact on the efforts to reach a bilateral trade agreement.
The US under Trump has made a habit of arm twisting to extract a deal that is one sided or more favourable to it. Already, in the joint statement of February 2026, India has made a huge commitment to buy energy products, aircraft, technology products, precious metals and coking coal worth $500 billion from the U.S in the next five years. That is a huge strategic concession and India should leverage this to the maximum to its advantage.
Under the US Trade Act, USTR has a right to levy penal tariffs on nations that have failed to impose and enforce a ban on nations which use forced labour in their industries. Nations have been classified into two distinct penalty groups. First are those that have implemented restrictions partially but are deemed to have not effectively enforced them; they are Mexico, Canada, the EU and the UK, which attract 10 per cent additional tariff.
The second category are those 54 nations which have failed entirely to impose and enforce forced labour prohibitions. And they include among others India, China, Japan, South Korea, Brazil, Russia and Saudi Arabia.
India does have separate laws that address the issue of forced labour. The Constitution itself gives wide ranging rights and privileges. Specifically, India has abolished a system of bonded labour, a practice that was prevalent for centuries, through a legislative act in 1976. The issue of child labour, too, has been tackled by passing of Child and Adolscents Labour (Prevention and Regulation) Act 1986 and amended in 2016.
India does not have a single statute that prevents forced labour. In any case, the issue flagged by USTR is not production and exports from Indian industries. It is rather Indian imports from nations that do not restrict and/or enforce forced labour. India lacks a specific law that prevents import prohibition. That is why it falls under the second category of nations that attract a higher 12.5 per cent tariff rate.
There are reports of how the 100 days war with Iran has cost the US more than $100 billion. As per reports, a deal has been signed between the US and Iran. However, it is a moot question as to whether it is final and lasting. Trump has already earned the title of Tariff King. By levying unprecedented tariffs the US collected a massive $214 billion.
It is another matter that after the Supreme Court verdict on the issue, the tax department is now directed to refund some $165 billion that were deemed as illegal tariff sums. Yet, Trump’s penchant for levying tariffs continues as he tries to hit multiple trade partner nations with new levies. The expiry of levy of the earlier universal tariff of 10% is July 24th. It certainly cannot be a coincidence that the Sec.301 tariff after the final hearing by the USTR is more likely to be levied at around the same time. Clearly, the US is trying to restructure its tax architecture through Section 301 after the Supreme Court declared the earlier levy as illegal.
On more than one occasion there were indications that the deal between two nations was imminent. But the coercive tactics of the US have delayed the agreement even as India stands firm. It is better to pay a higher tax than succumbing to a binding, long term and unfair deal.
The USTR representative Windy Clatter has said that the recurring tariff pressure should spur India ‘to reconsider its current positions and take bold steps to address the U.S concerns, including lowering tariffs and eliminating non- tariff measures’. In other words, using the threat of fresh levies to extract more concessions and finalize the deal early.
Section 301 and bilateral agreement are two different and separate issues. While India is engaged with the US on both, it must guard against mixing up the two. It has the option of joining hands with the EU, Japan, Canada and others to take up the Section 301 issue with the US.
After all, there is merit in the argument that the said section was meant to investigate unfair trade policies and practices in other nations, for example, IPR in China. And now to use the law in a coercive manner is indicative of attempts by the US to extend unilateralism too far.
Finally, it is also hypocritical as rare earths, pharma products, some metals, coffee etc remain exempt from Section 301. This threat is not a problem of India alone; it is a collective issue with several nations that includes all the major economies. Hence, a rational approach is to make it a common cause issue.
The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh
