International Trade Quarterly Milestones (January-March 2026)

India and the European Union (EU) have successfully concluded negotiations for a comprehensive Free Trade Agreement (FTA). Beyond progressively eliminating tariffs across most product lines, the FTA introduces significant structural shifts for cross-border trade that businesses must strategically navigate.

The agreement establishes a strict “Rules of Origin” (RoO) framework to ensure that only goods that undergo substantial processing within India or the EU benefit from the preferential tariffs. The Product Specific Rules (PSR) dictate origin based on Change in Tariff Classification (CTC), specific Value Addition requirements, or Specific Processing Rules, with implications for customs and trade compliance in India. For instance, the steel sector is subject to an innovative “Melt & Pour” criterion, while chemicals offer flexibility between CTC and specific chemical reactions. The FTA also formally incorporates the “Principle of Absorption” and “Bilateral Cumulation,” allowing deeper supply chain integration, but explicitly warns that simple operations, like packaging or minor assembly, trigger the “Insufficient Production Clause,” denying origin status.

To significantly reduce the time and costs associated with compliance under this RoO framework, the FTA introduces a system for self-certification of origin. Instead of relying solely on designated authorities, Indian exporters may now declare origin through a “Statement on Origin” by registering on the DGFT’s Common Digital Platform and issuing self-certified Certificates of Origin. Additionally, EU importers may rely on the “Importer’s Knowledge” criterion to clear preferential goods, provided they have adequate information to substantiate the Indian origin of the product.

The FTA features a bilateral safeguard mechanism, allowing either party to temporarily raise duties to most favoured nation (MFN) levels for up to four years if tariff reductions cause serious injury to a domestic industry. To quickly resolve trade-disrupting issues outside formal dispute settlement, a new, three-tier Rapid Reaction Mechanism has been established.

The FTA will legally enter into force on the first day of the second month following the date on which both India and the EU exchange written notifications confirming the completion of their respective internal legal ratification procedures. Businesses should immediately begin mapping their Harmonised System (HS) codes against PSRs and establish internal protocols for the new self-certification of origin system.

The World Customs Organization has accepted the 7th Harmonised System Review Cycle amendments for the HS 2028 edition, which will take effect from 1 January 2028. The update signals a clear shift toward leveraging customs classifications for public health and environmental regulatory enforcement.

The amendments restructure heading 39.15 to closely track plastic waste in alignment with the Basel Convention, categorising hazardous versus other plastic waste. It also introduces a new legal Note 3 to Chapter 39 to explicitly define “single-use” plastics, expanding the ability of customs authorities to monitor and restrict pollution-intensive items. Within the health sector, vaccines have been reclassified into specific new headings (30.07 for human medicine and 30.08 for others), and a new heading (21.07) resolves long-standing classification disputes regarding dietary supplements.

Exporters and importers must initiate comprehensive reviews of their product matrices and re-map their HS codes well before 2028 to prevent severe disruptions to customs clearance.

In a landmark separation-of-powers ruling,¹ the United States (US) Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorise the US President to impose tariffs unilaterally.

Expanding on constitutional principles, the Court anchored its decision in Article I, Section 8 of the US Constitution, which explicitly vests the power to “lay and collect taxes, duties, and imposts” in Congress. The Court emphasised that the framers deliberately withheld the taxing power from the Executive Branch. To invalidate the tariffs, the Court heavily relied on the “Major Questions Doctrine.” The Court noted that while IEEPA grants the President the power to “regulate importation” during national emergencies, this phrase is too ambiguous to constitute the “clear congressional authorization” required to delegate an extraordinary and core legislative power like taxation. The Court pointed out that the word “regulate” does not ordinarily mean “tax,” and no other statute uses the power to “regulate” to implicitly grant the power to levy taxes. The Court observed that when Congress intends to delegate tariff powers, it does so using express terms (such as “duties” or “surcharges”) accompanied by strict caps, durational limits, and procedural prerequisites, none of which are present in IEEPA.

Since the Supreme Court has invalidated these tariffs as unauthorised, the duties collected under this IEEPA declaration are unlawful. Consequently, US Customs and Border Protection (CBP) will likely face massive refund claims from US importers on record. Indian exporters currently engaged in commercial negotiations should push back against US buyers who seek price cuts, discounts or contract renegotiations under the pretext of absorbing high US import duties. US importers are able to receive refunds for these invalidated tariffs; therefore, Indian exporters should not agree to absorb the cost or grant concessions for an unconstitutional duty that their US counterparts will ultimately recover.

The ongoing crisis in the Middle East and the closure of the Strait of Hormuz highlight the impact of geopolitical disruptions on Indian exports. Many vessels carrying Indian exports have been forced to cancel or alter their voyages mid-transit. To help exporters dealing with stranded cargo, skyrocketing freight costs, and logistical challenges, the government has introduced several practical relief measures to ensure business continuity:

As the situation in the Strait of Hormuz evolves, it remains imperative for both regulators and importers to respond and adapt quickly. On 1 April 2026, the MoF provided a major relief to the domestic manufacturing sector by exempting 40 specified chemicals, petrochemicals, and polymer products, i.e., critical industrial inputs, from Basic Customs Duty. This timely intervention aims to cushion downstream domestic industries from global price volatilities and reduce input costs for the plastics and chemical manufacturing sectors. The exemption is temporary and will remain in force until 30 June 2026.