USTR Proposes 12.5% Penalty Tariff on Indian Goods in Section 301 Forced Labour Findings

Proposed duties emerge as India and the US continue bilateral trade agreement negotiations

The Office of the United States Trade Representative (USTR), in its Section 301 findings on forced labour shared on Tuesday, stated that India has failed to effectively enforce forced labour import prohibition measures and has proposed new tariffs of 12.5 per cent on most Indian goods.

The proposed penalty is higher than the 10 per cent tariff recommended for Bangladesh, Pakistan, Indonesia, Cambodia and Malaysia. A second Section 301 investigation involving India, focusing on excess capacities, is also expected, which could result in additional penalties.

According to sources tracking the matter, the proposal comes at a time when India is seeking to conclude a bilateral trade agreement with the United States and secure tariff rates around 18 per cent or lower. India is also seeking assurances that such rates would remain below those applied to competing developing countries, including Vietnam, Bangladesh, Indonesia and Malaysia.

Sources indicated that securing a competitive advantage through lower tariff rates is considered important for balancing Washington’s requests that India eliminate or reduce import tariffs on industrial products and a large number of agricultural items, while also addressing non-tariff barriers.

India, in its response, said it remains engaged with the United States on the issue as part of Section 301 proceedings. “India is also parallely engaged with the US for finalisation of a framework agreement as was announced on February 2, 2026, and in accordance with the joint statement released on February 7 2026,” according to a Commerce Department statement.

A US trade team is currently in India negotiating the first tranche of the India-US bilateral trade agreement (BTA). As part of the framework announced in February this year, the United States had proposed additional tariffs of 18 per cent on India, which it is now suggesting would become a locked-in rate to protect New Delhi from higher tariffs under Section 301, sources said.

“Whatever the US tariffs that India agrees on, whether 18 per cent or lower, it wants assurance that these would be lower than those on competing developing countries such as Vietnam, Bangladesh, Indonesia and Malaysia. Otherwise, it will be difficult to justify the deal politically and economically,” a source tracking the matter said.

The USTR findings report stated: “For economies that impose a forced labour import prohibition; have taken on commitments related to forced labour import prohibitions through an agreement on reciprocal trade; or have imposed a partial regime with the effect of preventing the importation of certain forced labour goods, the trade representative proposes 10 per cent as the rate of additional duties. For all other economies, the trade representative proposes 12.5 per cent as the rate of additional duties,” explaining the proposed duties.

Tariff Breakdown

The USTR has also proposed a textile mechanism under which a specified volume of apparel and textile imports from certain economies could enter the United States at a reduced Section 301 tariff rate.

Of the 60 countries under investigation, those proposed to receive the lowest 10 per cent tariff include the European Union, the United Kingdom, Mexico, Canada, El Salvador, Argentina, Ecuador, Guatemala and Taiwan.

India and China are among the countries proposed to face a 12.5 per cent penalty tariff.

The USTR has invited written comments from interested parties regarding the proposed measures by July 6 and requests for personal appearances by June 22. Public hearings are scheduled for July 7.

Comments have also been invited on specific products that may be subject to increased duties, including whether products should remain within or be removed from the scope of the action, and whether products currently listed in Annex A (list of essential items excluded from the penal tariffs) should be added to the scope of the action.

Expiry of Existing Tariffs

The United States’ global tariffs of 10 per cent imposed on all countries for 90 days by the Trump administration after the US Supreme Court invalidated the reciprocal tariffs (at 25 per cent on India) are scheduled to expire on July 24, 2026.

Washington is seeking to complete Section 301 determinations before that date, allowing the proposed new tariffs to potentially replace the current global 10 per cent levies.