The European Union is currently in discussions with many countries to conclude trade agreements. Instability and the ongoing threats of import tariffs from the United States play a significant role in this. On 9 January 2026, the European Union reached a political agreement with the Mercosur countries, and on 27 January 2026, after no fewer than 20 years (!) of negotiations, with India.
Importers sourcing goods from India and customs representatives lodging declarations for goods from India understand it has been possible for a very long time to import goods from India at reduced customs duty rates. But how exactly does this work, and what is about to change? To answer that question, it is important to understand what “preference” means.
Preference
When goods enter the European Union, import duties must be paid in many cases. In certain situations, preferential arrangements may be applied that allow importers to claim reduced duty rates. In many cases, this even means that no import duties apply at all. This preferential treatment is referred to as “preference”.
Goods for which it can be demonstrated that they originate in a country to which a preferential arrangement applies are referred to as being of “preferential origin”. In short, goods of preferential origin qualify for reduced import duty rates. Preferential arrangements may arise from measures to support developing countries, free trade agreements, and the establishment of customs unions.
Generalised System of Preferences (GSP)
The European Union supports developing countries through the Generalised Scheme of Preferences (GSP). Countries that qualify for this support are referred to as “beneficiary countries”. Beneficiary countries must be parties to various international conventions relating to human rights, labour rights, environmental protection, and good governance. If they comply with these requirements, the EU reduces its import duties.
Countries remain beneficiary countries until they have developed such a well-functioning economy over a period of three years that they are no longer regarded as developing countries, or if they fail to comply with the provisions of the conventions.
The GSP is unilateral in nature. This means that its provisions apply in only one direction, namely to imports into the European Union. Under GSP-based preferences, only the beneficiary country enjoys the advantages.
Anyone currently releasing goods from India into free circulation may be making use of preferential arrangements under the GSP. In doing so, the European Union supports the Indian economy without requiring direct reciprocal commitments from India.
Trade Agreements
A trade agreement involves at least two parties. When a trade agreement is concluded between two countries, it is referred to as “bilateral”. If three or more parties are involved, it is considered “multilateral”.
The European Union currently has the world’s largest network of trade agreements, with more than 40 separate agreements covering over 70 countries. These agreements aim to promote trade between two or more countries by introducing simplifications and lower import duty rates.
In some cases, trade agreements are combined with other forms of cooperation. Since Brexit, for example, the European Union and the United Kingdom have been bound by the EU–UK Trade and Cooperation Agreement (TCA). This agreement not only governs trade between the UK and the EU, but also cooperation in areas such as law enforcement and judicial cooperation in criminal matters, thematic cooperation, and participation in EU programmes.
The key difference between the GSP and a trade agreement is that the latter is based on mutual commitments. In the case of the trade agreement with India, not only India but also the European Union will benefit from the agreement. A country that benefits from preferential arrangements under a trade agreement is no longer eligible for preferential treatment under the GSP.
In India’s case, the trade agreement comes at a strategically favourable moment. In September 2025, the European Union had already decided to suspend the GSP scheme for (parts of) Indian exports, as the country is no longer considered a “beneficiary country” based on its export competitiveness over the past three years.
If you have any questions regarding origin and preference, please contact our consultants.
