EU GSP Withdrawal Hits 87% Of India’s Exports, Preferential Access Lost: GTRI

New Delhi, Jan 23 (KNN) India has suffered a significant setback in its exports to the European Union (EU) from January 1, 2026, as 87 per cent of its shipments to the bloc have begun attracting higher import duties following the suspension of Generalised Scheme of Preferences (GSP) benefits. 

Under the GSP regime, Indian products earlier entered the EU at tariffs lower than the Most Favoured Nation (MFN) rates. With the suspension, exporters are now required to pay full MFN tariffs on most goods.

According to the Global Trade Research Initiative (GTRI), the withdrawal applies to 87 per cent of the value of Indian exports to the EU, resulting in an immediate loss of preferential market access, reported ANI.

Loss of Tariff Preference Across Key Sectors

Under GSP, exporters benefited from a ‘margin of preference’, typically a percentage reduction on the EU’s MFN tariff. This margin averaged around 20 per cent for many textile, garment, and industrial products. For instance, an apparel item subject to a 12 per cent MFN duty earlier attracted a reduced tariff of 9.6 per cent under GSP. 

From January 2026, such products are required to pay the full 12 per cent duty.

The impact spans most major industrial sectors that form the core of India’s exports to Europe, including minerals, chemicals, plastics, textiles, iron and steel, machinery, and electrical goods. 

GSP benefits now remain only for a limited 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.

Graduation Under EU Rules

The EU’s decision follows its ‘graduation’ rules, which mandate the withdrawal of preferences when exports from a beneficiary country exceed a defined threshold in a product category for three consecutive years. India has been graduated for the 2026–2028 period under an EU regulation adopted in September 2025.

While GTRI acknowledges that the move is legally justified under EU regulations, it notes that ‘the economic impact is sharp’, as most Indian exports lose preferential access almost overnight.

Added Pressure from Carbon Rules

The loss of GSP benefits comes at a challenging time for Indian exporters, coinciding with the start of the tax phase of the EU’s Carbon Border Adjustment Mechanism (CBAM) from January 1, 2026. 

GTRI describes the situation as a ‘double hit’, combining higher tariffs due to GSP withdrawal with increased non-tariff costs linked to carbon compliance.

Steel and aluminium exporters are already facing rising reporting and compliance expenses, with the risk of being charged higher default emissions as CBAM enters its definitive phase. These additional costs are expected to directly affect profit margins and weaken India’s competitiveness in the EU market.

Competitive Pressures Ahead

In price-sensitive sectors such as garments, the tariff increase is already sufficient to shift EU buyers towards duty-free suppliers like Bangladesh and Vietnam. 

Although negotiations for the India–EU Free Trade Agreement (FTA) are nearing completion, its implementation is expected to take at least a year or more. Until then, Indian exporters will have to absorb full MFN tariffs, further squeezing margins. 

Against a backdrop of a fragile global trade environment, GTRI cautioned that 2026 is likely to be one of the most difficult years for Indian exports to Europe in over a decade.

(KNN Bureau)