From January 1, the European Union (EU) stopped export incentives for industries including plastics and textiles under a preferential program involving India and two other nations. While India’s commerce ministry suggests the transition will not dampen the country’s exports to the 27-member union, the EU has in fact been phasing out Generalized System of Preferences (GSP) tariff benefits for Indian goods such as textiles, chemicals and minerals since 2016.
“The same list has been expanded under the regulations published on December 1, 2025. From January 1, 2026, GSP preferential tariffs will be suspended for the same list of products until December 31, 2028,” the ministry said in a statement.
This exclusion was significantly expanded in 2019 and 2023.
As a result of this multi-tiered product tiering, around 47% of India’s shipments to the EU – worth $35.6 billion – currently fall outside the GSP parameters for 2024-25, leaving only 53% ($40.20 billion) eligible for benefits.
Indian exports face setback in EU market, says GTRI
On the contrary, trade specialists claim that this shift will negatively affect the country’s foreign trade to Europe.
This situation is particularly notable as both sides are expected to announce the conclusion of free trade agreement (FTA) negotiations on January 27.
According to the Official Journal of the EU, on 25 September 2025, the European Commission adopted a regulation regarding the suspension of special tariff incentives for the period 2026-2028 for GSP participants India, Kenya and Indonesia.
“It will apply from January 1, 2026 to December 31, 2028…,” it said.
Earlier, GSP rebates allowed Indian firms to export at rates lower than MFN (Most Favored Nation) tariffs. Currently, these benefits are suspended for 87% of the value of India’s exports to the EU.
Think tank Global Trade Research Initiative (GTRI) said from January 1, 2026, India faces a “fundamental setback” in the EU market as 87% of its exports start paying higher import duties after the European Union suspended GSP benefits, it said PTI.
Only about 13% of exports, including agriculture and leather, retain benefits under the scheme, GTRI said.
Essentially, apparel that was previously taxed at 9.6% under GSP instead of the standard 12% must now be subject to the full 12% rate from January 1.
The EU has abolished GSP status in almost all primary industrial categories – including rubber, chemicals, minerals, machinery, base metals and transport equipment – which form the core of India’s European trade. The EU regularly adjusts these incentives, as seen in 2013 and 2023. However, the current withdrawal is absolute for the three-year period 2026 to 2028. The GSP remains a unilateral trade framework designed to allow developing countries access to EU markets at lower than MFN tax rates.
