India Faces Higher EU Tariffs as GSP Suspension Hits 87% of Exports

From January 1, 2026, India faces a major setback in the EU market, as 87% of its exports begin paying higher import tariffs following the EU’s suspension of Generalised Scheme of Preferences, or GSP, benefits.

GSP concessions allowed Indian exports to ship at less than MFN tariffs to EU markets. Now concessions are suspended for 87% value of Indian goods to EU. Technically, under GSP, exporters received a margin of preference—a percentage reduction in the EU’s MFN tariff. For most textiles, garments and industrial goods, this MoP averaged about 20%. In simple terms, an apparel product facing a 12% MFN tariff paid only 9.6% under GSP. From January 1, this benefit ends and exporters must pay the full 12% duty. With GSP suspension, tariff concessions end and products will pay full MFN tariffs.

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 tax phase of the EU’s Carbon Border Adjustment Mechanism. With the FTA’s implementation likely to take at least a year, if not longer, 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.

In highly price-sensitive sectors such as garments, this increase is enough to undermine India’s competitiveness and push EU buyers toward duty-free suppliers like Bangladesh and Vietnam.

The impact is widespread. The EU has removed GSP benefits across almost all major industrial sectors—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.

GSP now remains only for a limited group of products—agriculture and food, leather goods, wood and paper, footwear, optical and medical instruments, and handicrafts—accounting for less than 13% of India’s exports to the EU.

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.

The European Union’s Generalised Scheme of Preferences is a unilateral trade arrangement that allows developing countries to export to the EU at lower-than-MFN tariffs. Countries are grouped by income and export competitiveness, with benefits withdrawn through “graduation” once exports in a product group become large over time.

The EU’s move follows its GSP “graduation” rules, under which preferences are withdrawn once exports in a product group cross a threshold for three consecutive years. Accordingly, India has been graduated for 2026–2028 under Commission Implementing Regulation (EU) 2025/1909, adopted in September 2025. While legally justified, the economic impact is sharp: most Indian exports lose preferential access overnight.

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 aluminium exporters already face rising carbon reporting and compliance costs, with a real risk of being charged inflated default emissions. 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.