Why India May Not Agree To ‘Zero-For-Zero Tariffs’ With US Under Trade Deal

With India and the United States set to begin virtual talks over the proposed bilateral trade agreement (BTA) this week, New Delhi is unlikely to agree to a zero-for-zero’ tariff strategy with Washington. The two sides may also not go for item-by-item parity during these sector-specific talks, with negotiations revolving around bringing the overall tariff down from both sides amid US President Donald Trump’s “America first” policy push. 

New Delhi and Washington are scheduled to engage in sector-specific talks in the coming weeks, and the first phase of the trade deal between the US and India could be out within the tariff-pause period of 90 days. 

The terms of reference for the pact have been finalised, and further negotiations are set to take place primarily over video conferencing, though negotiators may meet in person as well, according to a report by NDTV Profit.

What Will Be The Focus?

Discussions around a broad package deal on tariffs and non-tariff barriers are likely to take precedence over achieving tariff parity. 

“India and the U.S. may not go for item-by-item parity during these sector-specific talks, and the talks may revolve around shaping the deal on bringing the overall tariff down from both sides,” people in the know told NDTV Profit. 

‘Zero-For-Zero’ Tariffs Unlikely

The deal is also unlikely to have a zero-for-zero tariff strategy as the two countries are at different levels of economic development, according to a report by Press Trust Of India (PTI). 

Certain trade experts have suggested that India can propose a ‘zero-for-zero’ tariff strategy to the US for addressing President Trump’s reciprocal tariff hikes.

However, an official told PTI that zero-for-zero tariffs can be possible between the US and the European Union (EU) as both are developed and advanced nations, but it would not pan out well between India and the US. Given India’s relatively low per capita income, it would still need to keep reasonable tariffs for a wide range of goods.

The zero-for-zero tariff approach is one where two nations identify specific product categories and eliminate the levies on them, instead of imposing a blanket range of tariffs or inking a broader trade deal.

The India-US agreement will always be a “package” deal that could include issues such as goods and non-tariff barriers, the official said adding “it does not happen like this that if he will do ‘zero’ in electronics, we will also do in electronics. Trade agreements do not happen like this. It is a wrong thinking”.

In February, Delhi-based think tank GTRI suggested that India should propose a zero-for-zero tariff strategy to the US for addressing America’s tariff hikes. Under this strategy, it was stated that India can identify tariff lines (or product categories) where it can eliminate import duties for American imports and in lieu of that, the US should also remove duties on a similar number of goods.

While the US is looking at duty concessions in sectors like certain industrial goods, automobiles (electric vehicles particularly), wines, petrochemical products, dairy, agriculture items such as apples, tree nuts, and alfalfa hay; India may look at duty cuts for labour-intensive sectors like apparels, textiles, gems and jewellery, leather, plastics, chemicals, oil seeds, shrimp, and horticulture products.

India-US BTA Talks

India and the US have been engaged in negotiating a bilateral trade agreement (BTA) since March. Both sides have targeted to conclude the first phase of the pact by the fall (September-October) of this year, with an aim to more than double the bilateral trade to USD 500 billion by 2030 from about USD 191 billion currently.

“The work has started for the agreement. India is far ahead of other countries in negotiating a trade deal,” the official added.

From 2021-22 to 2023-24, the US was India’s largest trading partner.  It accounts for about 18 per cent of India’s total goods exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade.

With America, India had a trade surplus (the difference between imports and exports) of USD 35.32 billion in goods in 2023-24.