The European Union (EU) has suspended preferential market treatment (GSP) for most Indian products, including ready-made garments, textiles, and plastics. The decision came into effect from January 1. In addition to India, the EU has also suspended GSP for products from Indonesia and Kenya.
The European Commission (EC) issued a regulation on September 25 suspending certain GSP benefits for India, Indonesia and Kenya for the period 2026-28, according to the EU's Official Journal. It will be in effect from January 1 of this year to December 31, 2028.
In this regard, the research institute Global Trade Research Initiative (GTRI) said that Indian exporters will face a 'big blow' in the EU market from this month. Because the suspension of GSP benefits, EU importers will have to pay higher duties on about 87 percent of products imported from India. GSP benefits will remain on only 13 percent of products, which include agricultural, leather products, etc.
GSP (Generalized System of Preferences) is a trade facility provided by developed countries to developing and least developed countries. Through this, developed countries waive or reduce tariffs on imports of products from those countries. This increases exports of developing and least developed countries, creates employment, and leads to economic development.
Due to the GSP facility, Indian goods used to enter the EU at a lower rate of duty than the 'most-favoured nation' or MFN duty. Now, that facility has been cancelled for 87 percent of India's exports. In simple terms, if the normal duty rate on a ready-made garment is 12 percent, it would have to pay 9.6 percent duty under the GSP. However, since the GSP facility has been suspended, 12 percent duty will have to be paid.
The EU has withdrawn GSP benefits for India in almost all major industrial sectors, including minerals, chemicals, plastics and rubber, textiles and clothing, stone and ceramics, precious metals, iron and steel, basic metals, machinery, electrical goods and transport equipment. These sectors are the mainstay of Indian exports to Europe.
The EU slightly reduced GSP benefits in 2013 and 2023. This time, it has completely withdrawn this benefit for three years from 2026 to 2028.
India's Free Trade Agreement (FTA) with the EU is now in its final stages. Even so, the country's exporters will face a crisis due to the suspension of GSP, said Ajay Srivastava, founder of GTRI. He said, "While there is optimism about the completion of the India-EU FTA, in reality, Indian exporters will have to face major trade barriers in the short term. Because the European Union's (EU) Carbon Border Adjustment Mechanism (CBAM) tax period is starting at the same time as the withdrawal of GSP benefits."
In the last fiscal year 2024-25, the volume of goods trade between India and the EU was 136.53 billion US dollars. Of this, India's exports amounted to 75.85 billion dollars and imports amounted to 60.68 billion dollars. About 17 percent of India's total exports of goods go to the EU market. And India is the destination of 9 percent of the EU's total exports.
Federation of Indian Export Organizations (FIEO) Director General Ajay Sahai said that the EU has withdrawn GSP benefits for about 87 percent of India's exports; due to which most of the products will now have to enter the EU at full MFN duty. The average 20 percent duty benefit that was available earlier is no longer there. He also said that in such a situation, India's competitiveness will decrease compared to countries like Bangladesh and Vietnam. Because the products of the two countries are still being exported duty-free or at low duty.
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