EU suspends India’s GSP benefits, The Hindu reports

EU's GSP Suspension Hits Indian Exports Amid Trade Tensions

The European Union has officially suspended Generalized Scheme of Preferences (GSP) benefits for a significant portion of India's exports to its markets, effective from January 1, 2026, through December 31, 2028. This decision, outlined in the EU's Implementing Regulation 2025/1909, targets product groups where India's exports have surpassed competitiveness thresholds over three consecutive years, leading to their "graduation" from preferential treatment. Under the GSP scheme, which offers reduced or zero tariffs to developing nations as an exception to World Trade Organization rules, Indian goods previously enjoyed lower duties compared to standard Most Favoured Nation rates. Now, exporters in sectors like textiles, chemicals, plastics, engineering goods, and metals face higher import tariffs, potentially eroding their edge in the lucrative EU market.

Reports initially highlighted that this affects around 87 percent of India's export value to the EU, covering broad categories from mineral products to machinery and vehicles. However, Indian government officials and trade bodies have pushed back, arguing the actual hit is far smaller. In 2023, EU imports from India totaled about €62.2 billion, with only €12.9 billion eligible for GSP preferences due to prior graduations in 12 major categories. The latest suspension impacts roughly €1.66 billion worth of trade—about 2.6 to 2.7 percent of total exports—leaving agriculture, leather products, and some others still under the scheme at around €11.24 billion. This graduation reflects India's growing export strength, but it comes at a tricky time, coinciding with the EU's Carbon Border Adjustment Mechanism tax phase, which adds further cost pressures on carbon-intensive goods.

Conflicting Views Emerge on the Scale of Impact

Trade analysts and exporters express worry over the immediate fallout, especially for labor-intensive industries that could lose ground to rivals like Bangladesh and Vietnam, which retain fuller GSP access. Groups such as the Global Trade Research Initiative warn of sharper economic blows, noting that without preferences, Indian products might struggle against higher duties of up to 12 percent in some cases. The timing adds irony: just days before the expected wrap-up of India-EU Free Trade Agreement negotiations around January 27, 2026, this move erects short-term barriers even as long-term ties strengthen. Exporters in textiles and plastics, key suspended sectors, fear reduced competitiveness, with some calling for urgent government support to offset rising costs.

"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," said Ajay Srivastava, founder of the Global Trade Research Initiative.

On the other side, India's Commerce Ministry and the Federation of Indian Export Organisations downplay the disruption. They stress this is not a fresh withdrawal but an extension of existing suspensions for those product groups, with many items already facing zero duties under MFN rules or still qualifying under specific conditions like rules of origin. No new products have been added to the suspension list, and the ministry views the graduation as a badge of India's rising global prowess in exports.

What Lies Ahead for India-EU Trade Relations

The GSP framework, part of the EU's broader aid to developing countries, includes tiers like standard GSP for nations like India, enhanced GSP+ for those meeting strict labor and environmental standards, and Everything But Arms for the poorest. India's position under standard GSP has evolved as its economy booms, prompting periodic reviews and graduations since 2013. While the suspension stings select sectors, optimists point to the impending FTA as a potential game-changer, promising reciprocal tariff cuts and deeper market access. Exporters are bracing for adjustments, possibly diversifying markets or absorbing costs, while watching how CBAM taxes interplay with lost preferences.

Government efforts to negotiate relief or accelerate the FTA could mitigate blows, but the mixed messaging—87 percent versus 2.6 percent—highlights the need for clarity. Overall, this episode underscores the dynamic nature of global trade, where success in one area triggers recalibrations elsewhere. As India navigates these hurdles, its exporters remain resilient, buoyed by overall export growth and strategic pivots.

In summary, the EU's GSP suspension for Indian exports from 2026-2028 affects a narrow but notable slice of trade, valued at about 2.6 percent by official estimates, amid broader graduation due to competitiveness. While concerns mount over tariffs and CBAM, the upcoming FTA offers hope for balanced gains, reflecting evolving India-EU economic ties.