EU’s broader GSP suspension to hit $66 billion of Indian exports for at least a year before FTA relief

In February 2025, India and the EU decided to ramp up talks for the proposed free trade agreement

• $66 billion of Indian exports to the EU face higher tariffs starting this month
• GSP benefits suspended for 87 percent of Indian goods until FTA is implemented
• Most Indian exports to the EU will pay full MFN tariffs for at least a year

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Nearly $66 billion worth of Indian exports face higher costs in the European Union for at least a year after the 27-nation bloc widened and extended the suspension of Generalised Scheme of Preferences (GSP) benefits, taking away the tariff advantage for 87 percent of the goods.

The higher tariffs kick in this month and are likely to remain in place until a free trade agreement (FTA) between the two sides, expected to be announced on January 27, is implemented. The India-EU FTA will lower duties and offer preferential access, experts said.

For now, the move compounds the challenges for Indian exporters already grappling with steep American duties.

More tariff pain?

Even as GSP suspension is in place until December 2028, preferential market access through FTA could help Indian exporters regain some of the tariff advantages.

After it is signed, the FTA may take around a year to be ratified by the European Parliament and possibly individual EU member states.

While EU's multi-stage ratification process can take time, experts widely expect implementation to take at least a year.

The timing of the expanded GSP suspension is significant, as the India-EU free trade agreement is in its final stages of negotiation, trade expert and distinguished professor at the Centre for Social Development Biswajit Dhar said.

While MFN duties under the FTA are expected to be lower, Dhar cautioned that if GSP concessions are deeper than the tariff reductions eventually offered, exporters are staring at a lose-lose situation.

“Until the FTA is implemented, Indian exporters will have to absorb higher costs for at least a year, which will be especially difficult for sectors such as textiles and clothing that are already facing elevated tariffs in the US,” he added.

Wait for FTA 

The impact is widespread. 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, Global Trade Research Initiative (GTRI) founder Ajay Srivastava said.

Shashi Mathews, Partner at CMS INDUSLAW, concurred.

“India is now largely outside the preferential regime for exports to the EU, and most shipments have to pay full standard EU tariffs. The reason is that there has been growth in exports to the EU and, therefore, in a phased manner, these preferential tariffs were removed for many sectors. With the trade deal still to be finalised, some sectors will face higher duties till December 2028 or until the FTA is implemented,” Mathews said.

India’s total merchandise exports to the EU stood at $75.85 billion, meaning almost 87 percent of shipments to the 27-nation bloc will now face full Most Favoured Nation (MFN) duty rates during this period.

“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,” GTRI’s Srivastava added.

Experts estimate that with the EU extending and broadening the scope of GSP withdrawal, it has effectively eliminated an average tariff advantage of around 20 percent for several Indian exporters.

Preferential access is now limited to a small basket of products, such as select agricultural items, leather goods, and handicrafts, accounting for less than 13 percent of India’s exports to the bloc.

Why GSP matters

The Generalised Scheme of Preferences (GSP) is a trade programme under which developed countries offer lower tariffs on goods imported from developing countries to promote their economic growth.

For India, GSP benefits have historically allowed its exports to the EU to enter at reduced duty rates, giving them an advantage compared with other non-preferential exporters.

The EU applies GSP rules when exports from a developing country exceed certain thresholds in a particular product.

In 2016, the EU removed GSP benefits for several industrial products, including chemicals, plastics, metals, engineering goods, and transport equipment, as its exports in these sectors had grown significantly.

Over the following years, the scope of products excluded from GSP preferential treatment gradually increased, with additional suspensions implemented in 2019 and 2023, affecting a larger share of India’s exports.

The latest EU regulation has again broadened the scope of suspension of GSP benefits for India.

“Whatever happens on January 27, the EU’s offers under the FTA will take effect only on the date of implementation, which could take a while as the agreement must be ratified by the European Parliament,” Dhar said.