The European Union (EU) has suspended export benefits to sectors like textiles and plastics under a preferential scheme for India and two other countries from January 1, a move that will impact the country's shipment to the 27-nation bloc.
The development assumes importance as the two sides are likely to announce the closure of negotiations for a free trade agreement (FTA) on January 27. According to the Official Journal of the European Union, the European Commission had, on September 25, 2025, laid down rules for the application of the regulation with regard to the suspension for 2026-2028 of certain tariff preferences granted to certain GSP beneficiary countries - India, Indonesia and Kenya. "It shall apply from 1 January 2026 until 31 December 2028...," it said.
Commenting on the development, think tank Global Trade Research Initiative (GTRI) said that from January 1, 2026, India faces a "major setback" in the EU market as 87 per cent of its exports begin paying higher import tariffs following the European Union's suspension of GSP (Generalised Scheme of Preferences) benefits. Only about 13 per cent of exports, including agriculture and leather, retain the benefits under this scheme, it said.
GSP concessions allowed Indian exporters to ship at less than MFN (most favoured nation) tariffs to EU markets. Now, concessions are suspended for 87 per cent value of Indian goods to the EU. In simple terms, an apparel product facing a 12 per cent tariff paid only 9.6 per cent under the GSP. From January 1 this year, this benefit ends, and exporters must pay the full 12 per cent duty.
The EU has removed GSP benefits across almost all major industrial sectors, including minerals, chemicals, plastics and rubber, textiles and garments, stone and ceramics, precious metals, iron and steel, base metals, machinery, electrical goods and transport equipment - which together form the backbone of India's exports to Europe.
The EU periodically reduces these benefits, as it did earlier in 2013 and 2023. This time, the concessions have been completely withdrawn for three years from 2026 to 2028. "While there is optimism over the conclusion of the India–EU Free Trade Agreement, Indian exporters will, in reality, confront higher trade barriers in the near term, as the loss of GSP preferences coincides with the start of the tax phase of the EU's Carbon Border Adjustment Mechanism (CBAM)," GTRI founder Ajay Srivastava said.
With the FTA's implementation likely to take at least a year, India's exports to the EU will face a difficult period marked by higher tariffs, rising compliance costs and weakened competitiveness, hitting exporters just as global trade conditions remain fragile, he said. He also said that in highly price-sensitive sectors like garments, this increase is enough to undermine India's competitiveness and push EU buyers toward duty-free suppliers like Bangladesh and Vietnam.
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