India-US trade pact talks may gather pace only after Section 301 excess capacity findings

India-US Bilateral Trade Agreement (BTA) negotiations are unlikely to see meaningful progress until the US concludes its pending Section 301 investigations into alleged structural excess capacity even though Washington has already announced the outcome of its separate forced-labour probe, sources said.

The outcome of the excess capacity investigations is expected to have a greater bearing on the contours of the trade agreement, as it could result in additional trade measures, including higher tariffs, on a wide range of products such as steel, automobiles, textiles, medical devices, solar panels and petrochemicals, shaping the overall negotiating environment between the two countries.

“The forced-labour investigation has provided some clarity on the emerging US trade regime, but it is only one part of the larger Section 301 exercise. The excess-capacity investigations are likely to have much broader implications for trade flows and market access. Meaningful movement in the BTA is expected only after those findings are out,” a source tracking the matter told businessline.

Last week, the US announced an additional 10 per cent tariff on imports from India under its new Section 301 forced-labour regime. Although India secured a lower rate than several competing economies, such as Vietnam, China and Turkey, exporters have pointed out that the benefit is limited in sectors such as textiles. Competing countries including Bangladesh, Indonesia, Malaysia and Cambodia, are set to enjoy preferential tariff-rate quotas, per the USTR announcement. 

The additional forced-labour tariffs would be imposed on about 55 per cent of India’s exports as an estimated 45 per cent of exports fall under various exempted categories, according to the Indian government’s calculations.

The bigger concern, however, is that India, and fifteen other countries, are now awaiting the outcome of the investigations into alleged excess capacities in several sectors, as the findings could result in further trade actions or tariffs affecting a broader range of imports. Others being investigated include China, the EU, Singapore, Switzerland, Norway, Indonesia, Malaysia, Cambodia, Thailand, Korea, Vietnam, Taiwan, Bangladesh, Mexico and Japan.

“Unless the Section 301 tariffs on excess capacity are decided there can be no further progress on India-US BTA . Let’s wait for final decision on 301 excess capacity tariffs,” pointed out Pankaj Chadha, Chairman, EEPC India. 

Engineering goods, including steel and automobile products, are amongst the target products in the excess capacity investigations. As per the USTR notification on the Section 301 excess capacity investigations, “India’s global goods trade surplus sectors include textiles, health, construction goods, and automotive goods. For example, evidence suggests the solar module sector is plagued by excess capacity, including that India’s current module manufacturing is nearly triple annual domestic demand. India also has created significant excess capacity in petrochemicals, steel, and other industries”.

Trade expert Biswajit Dhar noted that the US had not only highlighted multiple sectors where excess capacities may exist in India, but also mentioned `other industries’, which basically gave it the freedom to include anything. “The list of items being investigated is formidable in India’s case. The US can come up with just any action against any item. India has to wait for these outcomes to get a better grip on the situation,” Dhar said.

The USTR noted that India recorded a bilateral goods trade surplus of $58 billion with the US in calendar year 2025. According to Indian government data, however, the surplus narrowed to $34.41 billion in FY26 as imports from the US rose sharply while exports remained largely flat.