What Happened
- The White House released a fact sheet outlining key terms of a framework for an Interim Agreement between the US and India, describing it as a "historic" trade deal.
- India committed to eliminate or reduce tariffs on all US industrial goods and a wide range of US food and agricultural products, including dried distillers' grains, red sorghum, tree nuts, fresh and processed fruit, soybean oil, wine and spirits.
- The US will apply a reciprocal tariff rate of 18% on originating Indian goods, covering textiles, leather and footwear, plastics, organic chemicals, home decor, artisanal products, and certain machinery.
- Upon successful conclusion of the Interim Agreement, the US will remove reciprocal tariffs on a range of Indian goods including generic pharmaceuticals, gems and diamonds, and aircraft parts.
- The White House subsequently revised the fact sheet within 24 hours, removing several specific commitments originally attributed to India, including language about eliminating digital services taxes and specific agricultural products like pulses.
Static Topic Bridges
Trade Agreement Typology — Interim Agreement vs Comprehensive FTA vs BTA
International trade agreements exist on a spectrum of depth and coverage. An Interim Agreement is a preliminary, limited-scope pact that addresses select trade issues while negotiations continue on a broader agreement. It differs from a comprehensive Free Trade Agreement (FTA), which covers substantially all trade in goods and often services.
- Interim agreements under WTO rules: GATT Article XXIV(5)(c) permits interim agreements leading to an FTA or customs union, provided they include "a plan and schedule" for forming the FTA within a reasonable period of time.
- India's precedents: India-ASEAN Trade in Goods Agreement (2010) was preceded by a Framework Agreement (2003); India-Thailand Framework Agreement signed 2003, comprehensive FTA still pending.
- A Bilateral Trade Agreement (BTA) — the ultimate goal of the India-US framework — would be a comprehensive agreement covering goods, services, investment, digital trade, labour standards, and government procurement.
- Key distinction: Interim agreements typically focus on quick wins (tariff reductions on non-sensitive goods) while deferring contentious issues (dairy, agriculture, IP) to the comprehensive agreement.
Connection to this news: The India-US framework is structured as an Interim Agreement paving the way for a full Bilateral Trade Agreement, suggesting that contentious issues like comprehensive agricultural market access, IP protection, and data localization remain unresolved and will be addressed in the BTA negotiations.
Rules of Origin in Trade Agreements
Rules of origin are the criteria used to determine the national source of a product. They are essential in trade agreements because preferential tariff rates apply only to goods that genuinely "originate" in a partner country, preventing trade deflection (routing goods through an FTA partner to exploit lower tariffs).
- Two types: Preferential rules of origin (for FTA benefits) and non-preferential rules of origin (for MFN application, anti-dumping, trade statistics).
- Common criteria: Change in Tariff Classification (CTC), Value Addition (VA) threshold (e.g., minimum 35-40% domestic value addition), and Specific Process Rules.
- The India-US fact sheet references "originating goods of India" for the 18% reciprocal tariff rate, implying rules of origin will be a critical component of the agreement.
- India's experience: Under the India-ASEAN FTA, rules of origin were a major concern as Chinese goods were allegedly re-routed through ASEAN countries, undermining the agreement's intent.
Connection to this news: The White House fact sheet specifies the 18% tariff applies to "originating goods of India," indicating that robust rules of origin provisions will be negotiated to prevent third-country goods from benefiting from the preferential rates.
Non-Tariff Barriers (NTBs) in India-US Trade
Non-tariff barriers encompass a wide range of regulatory and procedural measures that restrict trade beyond tariffs. These include quality control orders, technical standards, sanitary and phytosanitary (SPS) measures, import licensing requirements, and regulatory procedures.
- India's key NTBs flagged by the US: Bureau of Indian Standards (BIS) quality control orders on electronics and IT products, mandatory testing and certification requirements, FSSAI import regulations on food products, price controls on medical devices (DPCO), and agricultural phytosanitary restrictions.
- WTO Agreements governing NTBs: TBT Agreement (Technical Barriers to Trade) and SPS Agreement (Sanitary and Phytosanitary Measures).
- The India-US framework commits to negotiating agreements to accept US or international safety and licensing standards for product imports within six months.
- NTBs often have a greater trade-restrictive effect than tariffs — India ranks high on NTB indices across multiple assessments.
Connection to this news: The fact sheet specifically mentions that India will address "longstanding non-tariff barriers" on agricultural products, medical devices, and communications gear, with a six-month deadline to negotiate standard acceptance agreements, signaling the importance of NTBs as a trade friction point beyond tariffs.
Key Facts & Data
- US reciprocal tariff on Indian goods: reduced to 18% (from earlier 50%)
- Previous additional tariff: 25% removed (linked to Russian oil purchase commitments)
- Indian goods eligible for zero duty upon agreement conclusion: generic pharmaceuticals, gems and diamonds, aircraft parts
- India's tariff reductions: covering all US industrial goods and a range of agricultural products
- NTB negotiations deadline: six months for standard acceptance agreements
- White House fact sheet revision: within 24 hours of original release, specific commitments on digital services tax and pulses were removed
- India's intended purchases: $500 billion worth of US products (energy, technology, agricultural, coal)
- India-US bilateral trade (FY2024-25): $131.84 billion