India Can impose retaliatory tariffs on USA !What is an Ad Valorem Tariff?

Why in News? India has notified the World Trade Organization (WTO) of its plan to impose retaliatory tariffs of about $724 million on U.S. goods due to the U.S. increasing tariffs on Indian passenger vehicles, light trucks, and certain auto parts by 25% ad valorem, effective May 3, 2025. This development occurs as India and the U.S. are close to finalizing a mini-trade deal, led by India’s Special Secretary in the Ministry of Commerce and Industry, Rajesh Agarwal, highlighting trade tensions.

Key Points

1. U.S. Tariff Action:
   • On March 26, 2025, the U.S. imposed a 25% ad valorem tariff on Indian passenger vehicles, light trucks, and specific auto parts, affecting $2.895 billion of Indian exports annually, adding roughly $723.75 million in U.S. duties.
   • The tariffs are indefinite and not formally notified to the WTO as safeguard measures.
2. India’s Response:
   • On July 3, 2025, India proposed retaliatory tariffs on select U.S. products to offset the trade impact, under Article 8 of the WTO’s Agreement on Safeguards (AoS).
   • India may adjust the targeted U.S. products and tariff rates to match the trade impact.
   • This marks India’s second WTO notification in 2025 for retaliatory tariffs against U.S. measures, following earlier tariffs on steel and aluminum.
3. WTO and Legal Basis:
   • India argues the U.S. tariffs violate the General Agreement on Tariffs and Trade (GATT) 1994 and the AoS due to lack of WTO notification and consultations.
   • Without consultations under Article 12.3 of the AoS, India reserves the right to suspend equivalent trade concessions.
4. Trade Deal Context:
   • India and the U.S. are negotiating an interim trade deal, with a July 9, 2025, deadline to avoid broader U.S. tariffs of up to 26%.
   • Disagreements persist over U.S. demands for access to India’s agricultural and dairy markets and India’s push for concessions in textiles, gems, and auto parts.

Issues

1. WTO Rule Violations:
   • The U.S. tariffs, seen as safeguard measures, lack WTO notification, breaching transparency and procedural rules under GATT 1994 and the AoS.
   • The U.S. denies these are safeguard measures, refusing WTO consultations, which India requested.
2. Trade Impact:
   • The tariffs affect $2.895 billion of Indian exports, burdening auto manufacturers with $723.75 million in additional duties.
   • Broader U.S. tariffs could disrupt India’s $53 billion export sector, including pharmaceuticals and textiles, if no deal is reached.
3. Negotiation Challenges:
   • India resists U.S. demands for duty cuts on agricultural products like dairy and soybeans due to domestic political and economic sensitivities.
   • The U.S. seeks market access for automobiles (especially electric vehicles) and whiskey, while India demands benefits for labor-intensive sectors.

Indian Concerns

1. Economic Impact:
   • The U.S. tariffs threaten India’s auto export industry, causing an estimated $723.75 million annual loss in duties.
   • Broader U.S. tariffs could further harm key sectors like textiles and pharmaceuticals.
2. Unilateral U.S. Actions:
   • India views the U.S. tariffs as protectionist and non-compliant with WTO rules, particularly due to the lack of transparency and consultations.
   • The U.S.’s refusal to engage in WTO-mandated talks undermines trust in bilateral negotiations.
3. Protecting National Interests:
   • India prioritizes safeguarding sensitive sectors like agriculture and dairy, resisting U.S. pressure for market access.
   • Commerce Minister Piyush Goyal emphasizes that any trade deal must prioritize mutual benefits and India’s interests.
4. Global Trade Precedent:
   • India’s stance aims to deter other countries from facing similar U.S. tariffs, signaling a shift toward protecting domestic industries.

What is an Ad Valorem Tariff?

An ad valorem tariff is a tax on imported goods calculated as a percentage of their value. For example, a 25% ad valorem tariff on a $100 product results in a $25 duty. In this case, the U.S.’s 25% ad valorem tariff on Indian vehicles and parts increases their cost in the U.S. market, impacting Indian exporters.

Proposed Heading

India Plans $724 Million Retaliatory Tariffs on U.S. Goods Over WTO-Violating Auto Duties