Bangladesh’s textile and apparel industry is one of the country’s greatest economic success stories. Over four decades it has transformed a low-income agrarian economy into a global manufacturing powerhouse, generating more than 80 percent of export earnings and providing livelihoods to millions. Yet today, one of the most critical pillars of this success, the cotton yarn and spinning sector, is facing an existential crisis that threatens to undermine the entire value chain on which this achievement rests.
Across the country, spinning mills are shutting down or operating far below viable capacity. Warehouses are filled with unsold yarn, working capital has dried up, and banks are accumulating growing distress in their industrial loan books. Industry estimates place unsold yarn inventories at more than Tk12,000 crore, while nearly one-fifth of spinning capacity has already been idled. This is not a routine cyclical downturn. It is the outcome of a long-running structural imbalance in regional trade that Bangladesh has failed to correct.
For years, Indian cotton yarn has entered Bangladesh at prices roughly 25 to 30 cents per kilogram below what local producers can sustainably manage. This gap is often attributed to superior efficiency in India, but that explanation collapses under scrutiny. The true source of the disparity lies in deep, layered policy support across India’s cotton value chain. Indian farmers receive minimum support prices, subsidised seeds and fertilisers, cheap irrigation, and concessional credit. Ginners and spinners benefit from capital subsidies, lower power tariffs, and interest reimbursement schemes. Export-linked incentives allow surplus yarn to be sold abroad at prices that do not reflect its full commercial cost.
Bangladesh’s spinners operate in an entirely different environment. Almost all cotton is imported at full international prices. Energy tariffs are among the highest in the region. Borrowing costs exceed 12 percent. Freight and currency risks fall entirely on the producer. By the time cotton reaches a Bangladeshi spinning mill, its embedded cost is already far higher than the cost structure faced by an Indian competitor. Treating this mismatch as ordinary market competition is a fundamental policy misdiagnosis.
For years, Bangladesh tried to live with this imbalance by keeping its yarn market open in order to supply low-cost inputs to the garment export sector. But that strategy eventually became self-destructive. When Indian yarn began flooding the market, first through land ports and then through Chattogram after land routes were restricted, domestic yarn stocks piled up, prices collapsed, and mills began to fail. Faced with mounting closures and rising financial distress, the government recently imposed a 20 percent safeguard duty on imported Indian yarn.
This move was not protectionism; it was a belated application of international trade law. When a domestic industry suffers serious injury from foreign state-subsidised pricing, safeguard measures are not only permitted under WTO rules; they are required. Yet the safeguard has triggered intense resistance from garment and knitting exporters, who fear that higher yarn prices will erode Bangladesh’s competitiveness in fiercely price-sensitive global markets. Their concern is understandable. Apparel buyers operate on razor-thin margins and are quick to shift orders when costs rise.
But framing this as a choice between spinners and exporters is dangerously misleading. The real distortion today lies inside Bangladesh’s own trade regime. Under the bonded warehouse system, export-oriented garment factories can import yarn duty-free, while domestic spinners must sell their yarn duty-paid into the same market. As a result, even with a safeguard duty in place, much of the imported yarn bypasses it entirely through bonded channels. Indian subsidised yarn enters Bangladesh at zero duty, while locally produced yarn carries the full burden of taxes, energy and finance. This creates an internal market in which foreign yarn is structurally favoured over domestic production.
This is why knitters are now protesting. They are not rejecting local yarn because it is inferior; they are responding to a policy framework that has made foreign yarn artificially cheaper. The safeguard duty, applied without correcting the bonded system, simply transfers tension from the border to the factory floor. Spinners remain unable to sell, exporters remain unable to switch, and imports continue to surge. The result is paralysis, not resolution.
The stakes are far higher than a sectoral dispute. If the spinning industry collapses, Bangladesh will become dependent on imported yarn for the bulk of its most strategic industrial input. That exposes the entire garment sector to external supply shocks, geopolitical risk, and foreign export controls, precisely at the moment when Bangladesh is graduating from LDC status and losing trade privileges. A country that exports more than $40 billion in apparel cannot afford to surrender control over its basic raw material.
What is needed now is not a retreat from the safeguard, but the completion of it through a coherent, value-chain-wide policy response. First, Bangladesh should remove the most heavily dumped yarn counts – particularly 28s to 30s, which dominate mass knitwear production from bonded import eligibility. This would require importers to pay duty on the yarn that directly competes with local spinners, while still allowing duty-free access to specialty and technical yarns not produced domestically. Both spinning and garment associations have privately acknowledged that this is the only practical way to restore balance without choking off supply.
Second, the government should restore meaningful export incentives for garments made with locally produced yarn. A rebate in the range of four to five percent would neutralise the price gap between imported and domestic yarn, allowing factories to switch sourcing without losing competitiveness. Buyers do not care where yarn comes from; they care about FOB price. Policy must align with that reality.
Third, spinners require targeted relief on their main cost drivers. India subsidises cotton; Bangladesh must subsidise energy and finance. Temporary power and gas rebates for spinning mills, a low-interest refinancing window, and loan rescheduling facilities would not be handouts but defensive tools against foreign state support. Without such measures, even the best trade policy will fail.
The safeguard duty was necessary. By itself, it is not enough. The real test now is whether Bangladesh can align its trade, bonded, export and industrial policies into a single coherent framework that preserves both spinning capacity and export competitiveness. The choice is not between protecting spinners and supporting exporters. It is between maintaining a self-sustaining textile economy and drifting into a hollowed-out assembly industry dependent on foreign yarn. History will judge this moment not by the slogans we choose, but by whether we had the courage to fix what we allowed to become broken.
The writer is a Port Shipping & Logistics Strategist and Industry Analyst and Adjunct Faculty, Bangladesh Maritime University
