India and Indonesia were the top two beneficiaries of the European Union’s Generalised System of Preferences (GSP) schemes for exports in 2022, with clothing, machinery, and footwear accounting for nearly half of all standard GSP imports, per a joint report of the EU to the European Parliament and the Council.

In 2023, however, the situation is expected to change significantly as some of the largest recipients of GSP benefits, including several sectors from India, graduated out of the scheme. The EU is hopeful that preferential tariffs could be extended through a transition to Free Trade Agreements.

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“Some of the largest exporters among GSP beneficiaries have already left or are expected to leave the scheme as they have or will have negotiated preferential trade agreements with the EU (Vietnam) or are in the process of negotiating such agreements (India and Indonesia),” the report noted.

GSP scheme

Under the GSP scheme, the EU allows identified products originating in certain developing countries preferential access to its markets in the form of reduced or zero rates of customs duties. As the items become more competitive and reach a particular threshold, the GSP is withdrawn.

The EU has already withdrawn the GSP benefit from about 1,800 items from India in 2023, and the present policy will now continue for another four years until 2027, according to the latest decision endorsed by the EC. The items include electrical machinery, plastics, articles of stone and articles of leather and could affect exports worth $7.9 billion, per industry estimates.

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“The government is assessing the effect of the EU GSP withdrawal on Indian exports. When the US withdrew GSP benefits for India, it did not hit exports much. The same may hold true for the EU as well,” a source tracking the matter told businessline.

Moreover, as indicated in the EU report, a successful conclusion of the proposed India-EU FTA may lead to the replacement of GSP benefits with preferential tariffs offered under the FTA, the source added.

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