The European Union has suspended preferential export benefits for key Indian sectors, including textiles, plastics, and several industrial categories, under its Generalized Scheme of Preferences. This move is set to raise tariffs on most Indian shipments to the 27-nation bloc from January 1, 2026.
The decision comes at a sensitive time, as India and the EU are expected to announce the closure of negotiations for a long-pending free trade agreement on January 27. The implementation of any trade pact is likely to take at least a year, leaving exporters exposed to higher duties in the interim.
According to the Official Journal of the European Union, the European Commission adopted rules on September 25, 2025, suspending tariff preferences for the 2026–2028 period for three beneficiary countries, India, Indonesia, and Kenya. The regulation applies from January 1, 2026, until December 31, 2028.
Trade think tank Global Trade Research Initiative said the suspension represents a major setback for Indian exporters, with about 87% of India’s exports to the EU now subject to higher most-favored nation tariffs. Only around 13% of shipments, largely agricultural products and leather goods, will continue to receive preferential treatment.
Under the GSP framework, Indian exporters previously benefited from reduced tariffs compared with MFN rates. For example, an apparel item facing a standard 12% duty paid about 9.6% under the scheme. From January 2026, such products will be charged the full tariff, eroding price competitiveness.
The EU has withdrawn GSP benefits across almost all major industrial product groups, including minerals, chemicals, plastics and rubber, textiles and garments, stone and ceramics, precious metals, iron and steel, base metals, machinery, electrical equipment, and transport equipment. These sectors form the core of India’s exports to Europe.
While the bloc periodically trims such benefits, having done so in 2013 and 2023, this marks a complete withdrawal for a three-year period.
GTRI founder Ajay Srivastava said that despite optimism around the India-EU free trade agreement, exporters will face higher trade barriers in the near term, as the loss of tariff preferences coincides with the start of the taxation phase of the EU’s Carbon Border Adjustment Mechanism.
He added that in highly price-sensitive segments such as garments, even a small tariff increase could divert orders to duty-free competitors such as Bangladesh and Vietnam, especially as global trade conditions remain fragile.
The EU’s GSP operates as a unilateral arrangement for developing countries, with benefits withdrawn once exports in a product group exceed a prescribed threshold for three consecutive years.
Under these graduation rules, India has been classified as ineligible for preferences for the 2026–2028 period under Commission Implementing Regulation (EU) 2025/1909, adopted in September 2025.
India’s bilateral trade in goods with the EU stood at $136.53 billion in 2024–25, with exports of $75.85 billion and imports of $60.68 billion, making the bloc India’s largest goods trading partner. The EU accounts for about 17% of India’s total exports, while India absorbs around 9% of the EU’s overseas shipments.
Federation of Indian Export Organizations Director General Ajay Sahai said nearly 87% of Indian exports will now enter the EU at full MFN duty rates, eliminating an average tariff advantage of about 20% that exporters previously enjoyed.
He noted that the impact will be most visible in industrial products such as minerals, chemicals, plastics, iron and steel, machinery and electrical goods, while preferential access is now limited to a small basket of products, mainly select agricultural items, leather goods and handicrafts, representing less than 13% of India’s exports to the EU.
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