The proposed free trade agreement (FTA) between the European Union and India poses a medium-term structural challenge for Bangladesh’s garment sector, according to industry people.
This is because the FTA threatens to erode the country’s long-standing price advantage in the EU, rather than lead to immediate losses in market share.
So, while the deal is unlikely to trigger abrupt changes in Bangladesh’s exports, it is expected to gradually shift buyer preferences towards India, they said.
To support their claim, industry people cited how India’s vertically integrated textile ecosystem would allow it to translate duty-free access under the FTA into effective price competitiveness more efficiently than Bangladesh.
India’s strong backward linkage in textiles significantly reduces friction related to the rules-of-origin (RoO) for its products, thereby lowering compliance costs and improving margin flexibility.
Meanwhile, Bangladesh’s dependence on imported fabrics limits its RoO versatility and raises effective costs for exporters, compressing its margins even before commercial negotiations can begin.
As such, even relatively modest tariff differentials stemming from the FTA could exert disproportionate influence on sourcing decisions of EU apparel buyers, said Shovon Islam, managing director of Sparrow group.
India’s exports to the EU reached $75.85 billion in FY25, accounting for 17.3 per cent of its overall outgoing shipments.
India’s garment exports to the EU are expected to surpass the bloc’s growing apparel imports in the early years of the FTA’s implementation, intensifying competitive pressure in the market.
The EU has become the primary battleground for Bangladesh’s apparel exports amid recent US tariff measures and shifts in global trade policy.
Bangladesh’s woven and knit garment exports to the EU in FY25 were worth $19.7 billion, up 9.1 per cent year-on-year, securing roughly 20 per cent of the bloc’s apparel market.
However, the redirection of global apparel sources towards Europe has led to oversupply, shifting bargaining power decisively in favour of EU buyers.
This is evinced by tougher price negotiations, shorter lead-time expectations and mounting pressure on supplier margins, which reflects clear structural implications for Bangladesh’s export earnings.
Besides, Bangladesh struggles to move beyond basic cotton products, a segment where differentiation is limited and price competition is intense.
Local exporters have also been unable to fully pass on inflation-driven cost hikes related to energy, compliance, wages and financing, resulting in sustained margin compression.
The risks are expected to intensify following Bangladesh’s graduation from least developed country (LDC) status in 2026.
In absence of preferential trade arrangements, exporters may be forced to absorb nearly 40 per cent of the post-2029 price impact to remain competitive in the EU market, said Salim Afzal Shawon, head of research at BRAC-EPL Stock Brokerage Limited.
Without timely policy intervention and a strategic shift towards higher value-added products, the country risks a gradual erosion of its market position in its most important export destination.
For Bangladesh, the danger lies not in sudden displacement, but in slow and steady strategic marginalisation, he added.
Fazle Shamim Ehsan, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, said the FTA is unlikely to immediately create major disruptions for Bangladesh.
However, the situation could turn critical after 2029 if Bangladesh fails to secure GSP Plus benefits, he added.
In that case, Bangladesh’s exporters would have to pay around 12 per cent duty on apparel shipments to the EU, while India would enjoy duty-free access.
This would effectively create a tariff gap of about 24 per cent between the two countries, placing Bangladesh at a significant competitive disadvantage, Ehsan said.
Sparrow Group’s Shovon Islam said India currently exports apparel to the EU by paying nearly 12 per cent duty, while Bangladesh enjoys duty-free access under the GSP scheme.
This advantage has allowed Bangladesh to maintain a favourable position for years, with nearly half its total garment exports destined for the trade bloc.
But once India’s new trade agreement comes into effect, that advantage is expected to diminish, Islam added.
He also pointed out that the Indian government provides export incentives ranging from 5.5 per cent to 8 per cent.
Combined with low-cost financing, stronger logistics and faster delivery capabilities, these incentives are already encouraging global buyers to shift towards India.
Besides, China is offering special pricing and highly competitive deals to strengthen its presence in the EU. Due to this layered competitive pressure, industry people believe any market share Bangladesh loses in Europe cannot be offset by gains in the US alone.
Overall, they warned that without timely policy action and market diversification, Bangladesh’s export sector – particularly the apparel industry – could face a deepening crisis.
To mitigate the risks, stakeholders stressed the need to swiftly conclude negotiations with the EU on GSP Plus or pursue a bilateral FTA.
Alternatively, they suggested forming a special support fund for exporters, such as the Covid-era stimulus packages, to provide low-interest loans and ease their financial stress.
