How a Sunset Clause Could Change India's Trade Pact With Washington

India is considering seeking a built-in review mechanism, commonly known as a "sunset clause", in its proposed interim trade agreement with the United States. The move comes as New Delhi looks to secure market access benefits while protecting itself from future shifts in US tariff policy.

According to a Business Standard report, India may push for an automatic review provision in the agreement, drawing inspiration from a similar clause recently incorporated into the European Union's tariff arrangement with the US. The issue has gained prominence as US Trade Representative Jamieson Greer holds trade discussions in New Delhi.

At its core, the proposal reflects India's desire to benefit from a trade deal today without being permanently tied to terms that could lose value if Washington alters its tariff regime in the future.

What Is a Sunset Clause?

A sunset clause is a legal provision that sets an expiry date for an agreement, law or policy unless it is renewed by the parties involved.

Most trade agreements remain in force indefinitely unless one side chooses to withdraw. A sunset clause reverses that logic by requiring both parties to actively renew the arrangement after a specified period.

This differs from a standard review clause, which merely allows governments to assess how an agreement is functioning. A sunset clause goes a step further by linking the review to the continuation of the agreement. If the parties do not agree to extend it, the arrangement can lapse.

For India, such a mechanism would provide a formal opportunity to revisit trade commitments if external conditions change significantly.

Why Is India Considering It?

The primary driver is uncertainty surrounding US trade policy.

India is currently negotiating an interim trade arrangement with Washington while seeking a competitive tariff advantage over rival exporters such as Vietnam and other ASEAN economies. Commerce and Industry Minister Piyush Goyal has repeatedly emphasised the importance of securing a "comparative advantage" for Indian exporters.

However, New Delhi is also aware that US tariff policies can change rapidly through different legal and administrative channels. Even if India secures favourable tariff treatment today, future tariff actions by Washington could alter the commercial value of the agreement.

A sunset clause would act as a safeguard by ensuring there is a scheduled opportunity to reassess the deal if tariff conditions change.

The EU Model

India's interest in a sunset clause follows a recent precedent set by the European Union.

The European Parliament recently approved legislation implementing tariff elements of the EU-US trade arrangement but inserted a sunset provision under which tariff preferences will expire on December 31, 2029, unless renewed.

The legislation also requires the European Commission to evaluate the agreement's impact on industry, agriculture, small businesses and trade patterns before that deadline.

The EU's approach effectively allows Brussels to benefit from the arrangement while retaining the flexibility to revisit it later. India appears to be examining a similar model for its negotiations with Washington.

Why US Tariff Policy Is a Concern

The backdrop to the negotiations is a rapidly evolving US trade landscape.

Earlier this year, the US Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorise the President to impose tariffs. Following the ruling, the White House turned to Section 122 of the Trade Act of 1974, which permits temporary import surcharges of up to 15% for a period of 150 days, and imposed a temporary 10% tariff on imports.

This temporary tariff framework has increased pressure on negotiators to reach an agreement before key deadlines.

At the same time, the Office of the US Trade Representative has proposed additional duties under Section 301 investigations related to allegations of forced labour compliance failures in several economies. India is among the countries facing the possibility of higher additional tariffs under the proposal.

For Indian negotiators, these developments highlight the risk that a trade agreement negotiated under one set of rules could later be affected by entirely different tariff measures.

Have Similar Mechanisms Been Used Before?

One of the most prominent examples is the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA.

The agreement includes a 16-year term and requires a joint review every six years. If the participating countries fail to reaffirm their commitment, the agreement could eventually expire after a series of subsequent reviews.

While the mechanism provides governments with flexibility, it also drew criticism from businesses concerned that periodic renewal requirements could create uncertainty for long-term investments.

What Would It Mean for India?

If India succeeds in incorporating a sunset clause or automatic review mechanism into an interim trade deal, the agreement would effectively become time-bound rather than open-ended.

Such a provision would allow India to accept tariff concessions now while preserving the ability to reassess the arrangement if US trade policies change or if competing exporters receive more favourable treatment in the future.

However, there is also a trade-off. While sunset clauses provide governments with policy flexibility, they can create uncertainty for businesses making long-term investment, sourcing and supply-chain decisions.

Ultimately, India's interest in a sunset clause reflects a broader shift in global trade negotiations.

As tariff policies become increasingly dynamic and geopolitical considerations play a larger role in commerce, New Delhi appears determined to ensure that any agreement with Washington includes safeguards against future policy changes that could erode its benefits.