While the move will impact shipments to the 27-nation bloc just as both sides aim to conclude Free Trade Agreement (FTA) talks next week, the government maintains that this is a continuation of the existing system and will not create a fresh impact.
Experts noted that the move effectively removes an average 20% tariff advantage previously enjoyed by Indian exports. This comes alongside the EU’s Carbon Border Adjustment Mechanism which took effect on Jan 1.
The EU suspended its Generalised Scheme of Preferences (GSP) benefits to these Indian goods, meaning that these exports are subject to higher tariffs in the bloc starting January 1. Only about 13% of exports, including agriculture and leather, retain the benefits under this scheme.
As Both sides AIM to Conclude FTA Talks…
“Since 2016, the EU has progressively suspended GSP tariff preferences for India across an expanding set of product sections… As a result of this phased product-level graduation, for FY25, nearly 47% of India’s exports to the EU, valued at $35.6 billion, are currently outside the scope of EU GSP preferences, with only 53% ($40.2 billion) remaining GSP-eligible,” the commerce and industry ministry said.
The GSP tariff preferences for India were suspended in 2016 starting with minerals, chemicals, textiles, metals, and transport equipment. This was further widened in 2019 to include additional transport categories and substantially broadened in 2023 to cover chemicals, plastics, leather, textiles, stone and glass products, precious metals, base metals, machinery, electrical equipment, and rail transport.
“The same list was extended as per regulations released on December 1, 2025. From January 1, 2026, GSP preferential duties will be suspended for the same list of products until December 31, 2028,” it added.
An apparel product facing a 12% tariff paid only 9.6% under the GSP. With the suspension of the benefit, exporters must pay the full 12% most favoured nation (MFN) duty.
“The EU’s withdrawal of GSP benefits on nearly 87% of Indian exports has effectively removed an average 20% tariff advantage, forcing most products to enter the EU at full MFN duty rates,” said Ajay Sahai, director general, Federation of Indian Export Organisations (FIEO). “This has weakened the price competitiveness of Indian exporters, particularly against countries such as Bangladesh and Vietnam that continue to enjoy preferential access.”