The bulk of Indian exports to the European Union (EU) will see their tariffs go up by 20% as the economic bloc claws back concessions under the Generalised System of Preferences (GSP) effective January 1, according to experts.
However, the hit to Indian merchandise shipments could be short-lived, as a soon-to-be signed free trade agreement between New Delhi and Brussels will supersede the GSP withdrawal. However, there are concerns that the roll-out of the FTA benefits could take several months.
The order for GSP withdrawal came on September 25. “The EU has withdrawn GSP tariff preferences on nearly 87% of Indian exports from January 1 this year, requiring most products to now enter at full MFN duty rates.
It has materially weakened India’s price competitiveness vis-à-vis suppliers such as Bangladesh and Vietnam,” CEO and director general of Federation of Indian Export Organisations (FIEO) Ajay Sahai said.
“The impact is most pronounced for industrial exports—including minerals, chemicals, plastics, iron and steel, machinery, and electrical goods—which constitute a major share of India’s shipments to the EU and are now fully exposed to MFN tariffs,” he added.
Other products where GSP benefits no longer would apply include textiles and garments, stone and ceramics, precious metals and transport equipment
What did Ajay Srivastava say?
“This loss comes at a particularly bad time. Although the India–EU Free Trade Agreement is close to being concluded, it will take at least a year to come into force.
Until then, Indian exporters must absorb full MFN tariffs, raising costs and squeezing already thin margins,” founder of Global Trade Research Initiative (GTRI) Ajay Srivastava wrote in a report.
“Preferential access is limited to a small basket of products, mainly select agricultural items, leather goods, and handicrafts, together accounting for less than 13% of India’s total exports to the EU,” Sahai said.
“For most textiles, garments and industrial goods, Margin of Preference (MoP) under GSP averaged about 20%. An apparel product facing a 12% Most Favoured Nation (MFN) tariff paid only 9.6% under GSP. From January 1, this benefit ends and exporters must pay the full 12% duty,” Srivastava explained.
Pressure on exporters is further intensified because the EU’s Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on January 1, 2026. Indian steel and aluminum exporters already face rising carbon reporting and compliance costs, with a real risk of being charged inflated default emissions, Srivastava said.
“The GSP result is a double hit—higher tariffs from GSP withdrawal and higher non-tariff costs under CBAM. Until the India–EU FTA is implemented, 2026 is likely to be one of the toughest years for Indian exports to Europe in more than a decade, he added.
EU’s GSP
The EU’s GSP is a trade system that helps developing countries grow by reducing or removing import duties on their products. The level of benefit depends on the development level of the exporting country. Least developed and vulnerable countries are allowed to sell to the bloc at zero duties without any quota restrictions. The standard GSP offers partial or full removal of 66% of EU tariff lines. Countries like India and Indonesia get benefits under standard GSP.
In the latest GSP review the EU has also excluded select products from Indonesia and Kenya from GSP benefits. The benefits are removed on a product category when exports of those products from a GSP country become so successful that they no longer need help to compete in the EU market. It is triggered when the average value of imports of a specific product group exceeds a certain percentage of total GSP imports for three consecutive years.