EU GSP Withdrawal Pushes 87% of Indian Exports Into Higher Tariff Bracket

New Delhi has faced a major setback in the European Union market following the suspension of Generalised Scheme of Preferences (GSP) benefits, a report by the Global Trade and Research Initiative (GTRI) said. As a result, 87% of Indian exports began paying higher tariffs from January 1, the report showed.

GSP concessions allowed Indian exports to enter EU markets at tariffs lower than the most-favoured nation (MFN) rates. For instance, owing to a margin of preference (MoP), an apparel product facing a 12% MFN tariff paid only 9.6% under GSP.

“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),” said Ajay Srivastava, former trade official and founder of GTRI.

Srivastava cautioned that the India–EU trade agreement will likely take a year to be implemented, leaving Indian exporters exposed to higher tariffs amid ongoing global uncertainties and reciprocal tariffs from Washington.

Textiles, one of India’s major export sectors, will face particular difficulty due to high price sensitivity, potentially eroding India’s competitiveness against duty-free suppliers such as Bangladesh and Vietnam.

The EU has removed GSP benefits across major industrial sectors including minerals, chemicals, plastics and rubber, stone and ceramics, precious metals, iron and steel, electrical goods, and transport equipment — all of which form the backbone of India’s exports to Europe, the report said.

Bilateral trade between India and the EU totalled $140 billion in 2024, making the bloc India’s largest trading partner.

GSP benefits now remain only for select goods including agricultural and food products, leather goods, wood and paper, footwear, optical and medical instruments, and handicrafts — which together account for less than 13% of India’s exports.

“The EU’s move follows its GSP ‘graduation’ rules, under which preferences are withdrawn once exports in a product group cross a threshold for three consecutive years,” the report said. “While legally justified, the economic impact is sharp: most Indian exports lose preferential access overnight.”