EU GSP Suspension Hits 87% of Indian Exports; 2026 Set to Be a Tough Year for Trade

EU Withdraws GSP Benefits: 87% of Indian Exports Hit by Higher Tariffs

India has suffered a major setback in its trade with the European Union after 87 per cent of its exports to the bloc began attracting higher import duties following the EU’s suspension of Generalised Scheme of Preferences (GSP) benefits. Earlier, GSP concessions allowed Indian products to enter EU markets at rates lower than the Most Favoured Nation (MFN) tariffs. With the suspension now in effect, exporters must pay full MFN duties on most shipments.

Under the GSP framework, exporters received a “margin of preference”, typically averaging around 20 per cent for textiles, garments, and industrial goods. For instance, an apparel item that faced a 12 per cent MFN tariff earlier paid only 9.6 per cent under GSP. From this month, however, exporters are required to pay the entire 12 per cent duty.

Wide Impact Across Key Export Sectors

The withdrawal has impacted nearly all major industrial sectors forming the backbone of India’s exports to Europe. These include minerals, chemicals, plastics, textiles, iron and steel, machinery, and electrical goods. GSP benefits now remain only for a narrow set of products, such as agricultural items, leather goods, and handicrafts, which together account for less than 13 per cent of India’s exports to the EU.

The EU’s decision follows its “graduation” rules, under which tariff preferences are withdrawn once exports in a particular product group exceed a defined threshold for three consecutive years. Accordingly, India has been graduated for the 2026–2028 period under a regulation adopted in September 2025. While a GTRI report acknowledges that the move is legally justified, it notes that “the economic impact is sharp, as most Indian exports lose preferential access overnight”.

GSP Withdrawal Meets CBAM, Exporters Face ‘Double Hit’

The timing of the GSP suspension has further compounded challenges for Indian exporters. According to the GTRI, the loss of tariff preferences coincides with the tax phase of the EU’s Carbon Border Adjustment Mechanism (CBAM). This has resulted in what the report describes as a “double hit”, higher tariffs due to GSP withdrawal and rising non-tariff costs under CBAM.

Indian steel and aluminium exporters are already grappling with increased carbon reporting and compliance expenses, with the risk of being charged inflated default emissions as CBAM entered its definitive phase on January 1, 2026. Together, these pressures are expected to erode margins and weaken India’s competitiveness, especially in price-sensitive sectors such as garments, where EU buyers may increasingly turn to duty-free suppliers like Bangladesh and Vietnam.

With the India-EU Free Trade Agreement still likely to take a year or more to come into force, exporters will have to absorb full MFN tariffs in the interim. As global trade conditions remain fragile, the GTRI warns that 2026 could be one of the toughest years for Indian exports to Europe in over a decade.

(This article has been syndicated from ANI)