The European Union (EU) has suspended tariff concessions under its Generalised Scheme of Preferences (GSP) for key Indian export sectors, including textiles, plastics, chemicals, metals and machinery, with effect from January 1, 2026. The move will significantly raise import duties on nearly 87 per cent of India’s exports to the 27-nation bloc, dealing a setback to exporters at a time of fragile global trade conditions.
The decision, notified through the Official Journal of the European Union, follows a European Commission regulation adopted on September 25, 2025. The suspension of preferential tariffs will apply for a three-year period from January 1, 2026, to December 31, 2028, in line with the EU’s GSP graduation rules. Similar measures have also been applied to Indonesia and Kenya.
The development comes just weeks ahead of the expected conclusion of negotiations for the long-pending India–EU Free Trade Agreement (FTA) on January 27, raising concerns that exporters will face higher trade barriers in the interim period before the agreement comes into force.
Under the GSP, Indian exporters were able to ship goods to the EU at tariffs lower than the most favoured nation (MFN) rates. For instance, an apparel product that attracted a 12 per cent MFN duty paid only 9.6 per cent under GSP. From January 1, exporters will now have to pay the full MFN duty, eroding price competitiveness in a highly price-sensitive market.
According to think tank Global Trade Research Initiative (GTRI), only about 13 per cent of Indian exports to the EU—primarily agriculture, leather and select handicrafts—will continue to enjoy GSP benefits. The remaining exports, which form the backbone of India’s shipments to Europe, will now face higher tariffs.
“The EU has removed GSP benefits across almost all major industrial sectors—minerals, chemicals, plastics and rubber, textiles and garments, stone and ceramics, precious metals, iron and steel, base metals, machinery, electrical goods and transport equipment,” GTRI Founder Ajay Srivastava said. “While legally justified under GSP graduation rules, the economic impact is sharp.”
Srivastava warned that the loss of GSP preferences coincides with the start of the tax phase of the EU’s Carbon Border Adjustment Mechanism (CBAM), further increasing compliance costs for Indian exporters. “Even with optimism around the India–EU FTA, its implementation could take at least a year, during which exporters will face higher tariffs, rising regulatory costs and weakened competitiveness,” he said.
He added that sectors such as garments could be particularly affected, as even a small increase in duties may push EU buyers towards duty-free suppliers like Bangladesh and Vietnam.
India’s graduation from the GSP for the 2026–2028 period follows EU rules under which preferences are withdrawn once exports in a product group exceed a specified threshold for three consecutive years. India was formally graduated under Commission Implementing Regulation (EU) 2025/1909.
Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said the withdrawal of GSP benefits has eliminated an average tariff advantage of around 20 per cent that Indian exporters previously enjoyed. “This has materially weakened India’s price competitiveness vis-à-vis suppliers such as Bangladesh and Vietnam, which continue to benefit from duty-free or lower-duty access,” he said.
Sahai noted that the impact would be most pronounced for industrial exports such as minerals, chemicals, plastics, iron and steel, machinery and electrical goods, which account for a major share of India’s exports to the EU and are now fully exposed to MFN tariffs.
India’s bilateral trade in goods with the EU stood at USD 136.53 billion in 2024–25, with exports worth USD 75.85 billion and imports at USD 60.68 billion, making the EU India’s largest trading partner for goods. The EU accounts for about 17 per cent of India’s total exports, while India absorbs around 9 per cent of the bloc’s overseas shipments.
With preferential access now restricted to a small basket of products, exporters are bracing for a challenging period until a comprehensive India–EU FTA potentially restores tariff advantages and improves market access.
