Indian exports to face higher tariffs

The European Union (EU) has suspended export benefits under the Generalised Scheme of Preferences (GSP) for India, Indonesia, and Kenya from January 1, 2026, a move that will significantly affect Indian shipments to the 27-nation bloc. The suspension comes just days before India and the EU are expected to announce the closure of Free Trade Agreement (FTA) negotiations on January 27.

The European Commission had announced in September 2025 the rules for suspending certain tariff preferences for 2026-2028. Under this regulation, only around 13 per cent of Indian exports, including agriculture and leather products, retain GSP benefits. The remaining 87 per cent of exports, covering key sectors such as textiles, plastics, minerals, chemicals, iron and steel, machinery, electrical goods, and transport equipment, will now attract full Most Favoured Nation (MFN) tariffs.

Think tank Global Trade Research Initiative (GTRI) described the move as a “major setback” for India in the EU market. Products that previously enjoyed reduced tariffs under GSP will now face higher duties. For example, an apparel item previously paying a 9.6 per cent tariff under GSP will now incur the full 12 per cent duty.

Experts warn that the suspension coincides with the EU’s Carbon Border Adjustment Mechanism (CBAM), which could further increase costs for exporters. GTRI founder Ajay Srivastava noted that highly price-sensitive sectors like garments could see their competitiveness weaken, potentially pushing EU buyers toward duty-free suppliers such as Bangladesh and Vietnam.

The EU’s GSP is a unilateral trade arrangement that allows developing countries to export at lower-than-MFN tariffs. Preferences are withdrawn once exports in a product category exceed thresholds over three consecutive years, a process known as “graduation.” India’s GSP graduation for 2026–2028, under Commission Implementing Regulation (EU) 2025/1909, is legally justified but has sharp economic implications.

India’s bilateral trade in goods with the EU totaled USD 136.53 billion in 2024-25, with exports worth USD 75.85 billion. The EU accounts for roughly 17 per cent of India’s total exports, making it a crucial market. Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said the withdrawal of GSP benefits materially weakens India’s price competitiveness, particularly in industrial exports, while preferential access now remains limited to select agricultural products, leather, and handicrafts.

With the FTA likely to take over a year for implementation, Indian exporters face a challenging period marked by higher tariffs, rising compliance costs, and increased competition in the EU market.