India’s exporters will confront a major shift as the EU suspends preferential tariffs on 87% of shipments, complicating the path towards a future free trade agreement amid rising carbon and trade barriers.
From 1 January 2026, Indian exporters have lost preferential access to the EU market for the vast majority of their shipments, a shift that industry analysts warn will tighten margins and intensify competition ahead of any trade deal implementation. According to rep...
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orting by the Deccan Chronicle, the European Union has suspended Generalised Scheme of Preferences (GSP) concessions for product groups representing roughly 87% of India’s exports to the bloc, meaning these goods will now face full Most Favoured Nation (MFN) tariffs.
The measures follow the EU’s established “graduation” criteria, under which tariff preferences are removed when exports in a particular product category exceed a prescribed threshold over a three‑year period. The Global Trade Research Initiative (GTRI) , cited across coverage in The Economic Times and The Times of India , judged the step legally defensible but concluded the immediate economic effect is severe, with most Indian shipments losing tariff advantage “overnight”.
The suspension reaches into the heart of India’s export basket. Industry categories such as minerals, chemicals, plastics, textiles, iron and steel, machinery and electrical equipment are among those now subject to MFN duties rather than reduced GSP rates. By contrast, a limited set of goods including some agricultural items, leather products and handicrafts will continue to qualify for preference, accounting for about 13% of exports to the EU, Reuters-style coverage in regional outlets noted.
For sectors operating on razor‑thin margins, the tariff increase is material. Under the GSP exporters previously benefited from a percentage reduction on the EU’s MFN duty , for example, a concessional adjustment that lowered applied rates for many apparel and industrial lines. With those cuts gone, buyers in the price‑sensitive garments market may shift purchases to suppliers that still offer duty‑free access, such as Bangladesh and Vietnam, analysts warn.
The timing compounds the problem. Multiple outlets report that the GSP withdrawal coincides with the EU moving the Carbon Border Adjustment Mechanism (CBAM) into its tax phase from 1 January 2026. The CBAM introduces an additional compliance and cost burden tied to embedded carbon in imports; GTRI commentary cited by The Tribune and other papers describes the situation as a “double hit” , higher direct tariffs from the end of preferences and rising non‑tariff costs linked to carbon reporting and potential default emissions penalties.
Negotiations on an India‑EU Free Trade Agreement (FTA) have advanced, and several reports indicated an expectation of political conclusion in late January 2026. However, trade experts and the press point out that even after an agreement is finalised, the ratification and implementation process will likely take at least a year, leaving exporters to contend with MFN duties and CBAM charges in the interim.
The combined effects are likely to be felt unevenly across industries. Steel and aluminium producers already face new carbon‑related compliance obligations that increase production costs and expose them to default carbon charges under CBAM if reported emissions are absent or incomplete. In labour‑intensive textile and garment segments, where price competitiveness is paramount, incremental duty costs can make Indian suppliers less attractive relative to duty‑free competitors.
Government and industry bodies will now confront short‑term mitigation choices: absorb the additional costs, pass them to buyers, or seek alternative markets. According to coverage by Millennium Post and other outlets, the GTRI warned that 2026 could prove among the most challenging years for India’s exports to Europe in recent memory.
As exporters adapt, attention will focus on accelerating the FTA’s implementation timetable, improving carbon accounting to limit CBAM exposure, and identifying product segments where India can preserve competitiveness despite the loss of tariff preference. The immediate landscape, however, is one in which tariff relief for the vast bulk of Indian shipments to the EU has been withdrawn, imposing a fresh test on exporters already navigating a volatile global trade environment.
Source: Noah Wire Services
