Indian textile exporters may lose competitiveness despite lower US tariff as rival countries get quota exemptions: Report
Indian textile and apparel exporters may lose competitive ground in the United States even though India sits in a lower tariff bracket than several rivals, according to an Emkay Research report. The reason, the brokerage says, is that competing suppliers have secured tariff-rate quota exemptions under the new US Section 301 measures which India did not obtain. The episode shows how the fine print of a tariff regime, rather than the headline rate, can decide market access.
What happened
Emkay Research reported that India has been subjected to a 10 per cent Section 301 tariff, lower than the 12.5 per cent applied to countries such as China, Vietnam, Brazil and Thailand. However, tariff-rate quota (TRQ) exemptions under the same Section 301 tariffs were awarded to Bangladesh, Cambodia, Indonesia and Malaysia, and not to Indian textile and apparel exports; the exemptions cover specified volumes of textile and apparel imports made using US-origin cotton and fibre. The brokerage estimated India's effective tariff rate in the US at around 12 per cent, against roughly 25 per cent for Bangladesh, 22 per cent for China and 14 per cent each for Vietnam and Indonesia. It said nearly 55 per cent of India's exports to the US will attract the additional 10 per cent tariff, while the remaining 45 per cent are either exempt, including generic pharmaceuticals and smartphones, or fall under separate Section 232 tariffs on sectors such as steel, aluminium and auto parts.
Why it matters
The report's central point is that a lower headline duty does not translate into a competitive advantage if rivals obtain quota carve-outs, and the design of those carve-outs around US-origin cotton and fibre ties preferential access to sourcing from the tariff-imposing country. Emkay nonetheless places India among the relative beneficiaries of the new regime and expects only a limited near-term impact on the overall export trajectory, while cautioning that further Section 301 investigations into excess manufacturing capacity could bring additional tariffs on India. On that reasoning the brokerage argues that the ongoing India-US bilateral trade negotiations are crucial to securing a lower tariff rate and preferential access, which places a commercial disadvantage squarely in the domain of diplomacy.
Prelims: Tariff-rate quota (TRQ) as distinct from a flat tariff · Section 301 versus Section 232 measures in US trade law · IEEPA tariffs struck down by US courts · Effective tariff rate as against headline tariff rate · Rules-of-origin style conditions: exemptions tied to US-origin cotton and fibre.
Mains (GS-II): "A favourable headline tariff rate does not by itself secure market access." Examine this proposition in the light of the tariff-rate quota exemptions extended to India's competitors in the United States market, and discuss the implications for India's bilateral trade negotiations.
Background
The Section 301 measures follow an earlier round of US tariffs imposed under IEEPA, which the report says were ruled unlawful earlier this year. Emkay noted that India's exports to the US improved markedly after that ruling, averaging $8.4 billion a month in the four months since, against $6.5 billion a month in the prior six months. Separate Section 232 tariffs already apply to sectors including steel, aluminium and auto parts.