India Eyes Supply Chain Labour Rule Changes Amid U.S. Section 301 Tariff Review

Government, industry bodies explore labour compliance and traceability measures as USTR proposes 12.5% tariff on Indian goods

India may face revisions to its supply-chain labour compliance framework as part of efforts to address concerns raised by the United States under its Section 301 tariff review.

The two countries have broadly agreed on the terms of an interim bilateral trade agreement aimed at reducing the proposed tariff on products linked to forced labour imports. New Delhi is seeking to lower the proposed 12.5% tariff, although this may require strengthening supply-chain labour compliance mechanisms, according to sources familiar with the matter.

Current domestic regulations prohibit forced labour and are supported by laws, due diligence on upstream supply chains, and existing compliance requirements. However, experts believe gaps remain that may need to be addressed.

The United States has proposed a Section 301 tariff of 10% for the European Union and Indonesia, while India and most other regional competitors face a proposed 12.5% levy. A lower tariff for competing exporters such as Bangladesh and Vietnam could improve their access to the U.S. market in sectors including textiles, agricultural machinery, solar equipment, steel and foundry products.

The Office of the United States Trade Representative (USTR), in its Section 301 investigation report, stated that India does not have a law specifically prohibiting the import of goods produced wholly or partly through forced labour. The report also noted that India does not currently have a supply-chain due diligence framework that authorises Customs authorities to block imports solely on the basis of forced labour content.

However, the allegation in the USTR's Initiation Notice would only stand up to scrutiny in a purely mechanical sense. India ratified the ILO Abolition of Forced Labour Convention, 1957, and was also a signatory to the earlier ILO convention adopted in 1930 that defined forced labour.

In addition, Article 23 of the Constitution and the Bonded Labour System (Abolition) Act, 1976, provide a comprehensive legal framework to prohibit, penalise and remedy forced labour. India also has constitutional protections, labour laws and national guidelines on responsible business conduct that indirectly promote supply-chain labour compliance. What the country does not have is a dedicated market-access regime specifically designed to address supply-chain human rights violations.

According to official sources, the government and industry bodies have conveyed their willingness to establish risk-based due diligence and traceability systems in their response to the USTR. The Ministry of Commerce and Industry informed the USTR that its notice is based on aggregate macroeconomic indicators without identifying any specific Act, policy or practice in India that could be considered "unreasonable or discriminatory" or that burdens or restricts United States commerce.

The ministry further stated that an Act, policy or practice of another country that harms American trade must be clearly identified before initiating a Section 301 investigation.

The Federation of Indian Export Organisations (FIEO) also informed the USTR that India's export supply chains, particularly those serving the U.S. market, are integrated into global value chains governed by stringent contractual, regulatory and reputational requirements. The organisation stated, "Indian exporters typically operate within long-term commercial relationships with multinational buyers, including US companies, that impose strict requirements relating to labour standards, traceability, and ethical sourcing."

The hearing on the USTR's proposed 12.5% tariff will begin on July 7, and India may seek a reduction to the 10% tariff level by addressing the issue of the "failure to impose forced labour importation prohibition."

Experts note that India does not currently have an import-control mechanism comparable to Section 307 of the U.S. Tariff Act, which allows U.S. Customs and Border Protection to detain and exclude goods linked to forced labour anywhere in the supply chain.

"Trade-based import prohibition is not simply a statutory provision. It requires investigation powers, evidentiary standards, enforcement capacity and a mechanism through which businesses can challenge adverse findings. Those institutional requirements are harder to build than the law itself," said Vishwas Panjari, managing partner at SVAS Business Advisors.

"The more practical response is sector-specific. Industries facing direct US scrutiny, particularly textiles, seafood and critical minerals, should focus on sourcing documentation, supplier verification and labour-compliance records," he said.

"The premise of the Section 301 probe is questionable. The present American approach is to use multiple tools — trade deficits, labour standards, subsidies and supply-chain risk, etc., against its trade partners," said Partha Pratim Mitra, former principal labour & employment adviser at the Ministry of Labour & Employment.

The EU Forced Labour Regulation will come into effect in 2027. According to Panjari, any compliance framework developed in response to U.S. requirements should also satisfy European standards.

"Building it once for the US and rebuilding it eighteen months later for the EU will be neither efficient nor credible to either regulator," Panjari added.

Deloitte India Partner Gaurav Didwania said the government and industry should use the July 7 hearing to present evidence of existing labour-law safeguards and supply-chain compliance measures, demonstrating regulatory responsiveness while broader legislative reforms are being considered.

Regarding Section 301, the Confederation of Indian Industry stated that Indian industry and global buyers are increasingly working with suppliers to ensure Responsible Business Conduct practices throughout supply chains. The organisation added that due diligence is evolving into a key compliance requirement in sectors such as automotive and manufacturing.

According to CII, "Recent initiatives in the automotive and manufacturing sectors have focused on strengthening supplier-level implementation of labour and human-rights due diligence," but added that these practices are currently expressed through supplier codes of conduct and prohibit child labour at every stage of the production process, rather than being embedded in law.

The Section 301 proposal follows U.S. efforts to rebuild tariff powers after emergency tariffs were struck down by the US Supreme Court in February. The proposal seeks to impose an extraterritorial compliance obligation on trade partners, Mitra said.

The BTA negotiations provide India with an opportunity to seek specific relaxation from the "forced labour" findings or at least agree to a framework for addressing the issues identified by the U.S. within agreed timelines, according to EY India Policy Leader Agneshwar Sen.

According to Sen, India does not have a direct equivalent to Section 301, which is essentially a unilateral trade enforcement tool. India's closest comparable mechanisms are anti-dumping, countervailing and safeguard actions under the Customs Tariff Act.