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Picture Courtesy: Economics Times

Context:

The recently announced US–Bangladesh deal offers conditional benefits for Dhaka, but at a cost that may far outweigh the gains. At the same time, it will impact India too.

Key highlights of US - Bangladesh trade deal:

• Tariff adjustment: The agreement fixes a 19% reciprocal tariff for Bangladeshi exports to the US, marginally lower than the earlier proposed 20%, providing limited but important cost relief for exporters. 

• Zero tariff access for textiles: A major feature is the creation of a zero-reciprocal tariff window, under which a specified quota of Bangladeshi textile and apparel exports can enter the US market duty-free, enhancing competitiveness of the RMG sector.
• Rules of origin conditionality: The duty-free quota is conditional on sourcing inputs, with the eligible export volume linked to Bangladesh’s use of US-origin cotton and man-made fibre, thereby integrating supply chains and benefiting US producers. 

• Reciprocal market opening by Bangladesh: Bangladesh has agreed to greater market access for US industrial and agricultural goods, reducing barriers and facilitating increased US exports. 

• Agricultural import commitments: Dhaka will purchase approximately USD 3.5 billion worth of US agricultural commodities, including wheat, soybeans, cotton, and corn, strengthening bilateral farm trade. 

• Energy procurement agreement: Bangladesh has committed to import around USD 15 billion of US energy products (such as LNG and refined fuels) over a 15-year period, supporting its growing energy demand and deepening long-term trade ties. 

• Supply chain integration objective: The deal aims to create a mutually dependent textile value chain, linking US raw material suppliers with Bangladesh’s manufacturing base, while reducing US reliance on alternative sourcing hubs.  

Implications of the US - Bangladesh trade deal for India:

• Competitive pressure on textile exports: Bangladesh’s zero-tariff quota for apparel and preferential access could erode India’s price competitiveness in the US market, especially in labour-intensive segments like cotton garments, knitwear, and basic apparel where both countries compete directly. 

• Supply chain realignment in south asia: The conditional use of US-origin cotton and man-made fibres may shift sourcing patterns away from traditional suppliers, potentially reducing India’s yarn and fabric exports to Bangladesh and weakening its upstream textile linkages. 

• Challenge to India’s cotton and MMF Sector: If Bangladesh increasingly substitutes Indian raw materials with US inputs to qualify for duty-free access, India’s cotton, yarn, and man-made fibre exports could face demand contraction. 

• Trade diversion risk: Preferential treatment for Bangladesh may lead to trade diversion, where US buyers shift orders from Indian manufacturers to Bangladeshi firms due to lower effective tariffs and integrated supply incentives. 

• Opportunity in higher-value segments: As Bangladesh focuses on mass apparel exports, India can move up the value chain technical textiles, fashion garments, design-led products, and sustainable textiles to retain market share. 

Measures to counter emerging challenges in India’s textile trade:

• Accelerate the India - US trade pact: India must fast-track the proposed Bilateral Trade Agreement (BTA) to address tariff disadvantages, reduce non-tariff barriers, simplify compliance requirements, and ensure faster and more predictable market access for Indian textile exporters. 

• Leverage ESG and ethical manufacturing advantage: As global buyers increasingly prioritise Environmental, Social, and Governance (ESG) standards, India should position itself as a reliable ethical sourcing destination, highlighting better labour compliance, absence of child labour, improved factory safety, and sustainable production to attract premium brands concerned about reputational risks. 

• Shift strategically toward Man-Made Fibres (MMF): Since nearly two-thirds of global textile trade is MMF-based, India needs to rebalance its cotton-heavy export structure by expanding polyester, viscose, and blended fabric capacity, supported by rational taxation and incentives across the entire MMF value chain. 

• Rationalise the MMF tax structure: The existing duty and GST distortions—where raw materials face higher taxes than finished products must be corrected to make domestic synthetic textiles globally price-competitive against major exporters such as Bangladesh, Vietnam, and China. 

• Focus on high-value technical textiles: India should prioritise technology-intensive segments—such as medical textiles (Meditech), automotive textiles (Mobiltech), and infrastructure fabrics (Geotech)—where product quality, standards, and innovation matter more than tariff differentials, supported by public procurement and domestic demand creation. 

• Seek a “Cotton Reciprocity” Arrangement with the US: With the United States emerging as a key cotton supplier to India, New Delhi should negotiate a sector-specific cotton arrangement that allows preferential or zero-duty access for garments manufactured using US-origin cotton, helping neutralize Bangladesh’s sourcing-linked advantages. 

• Diversify export markets: To reduce excessive dependence on the US, India should expand exports to FTA-linked markets such as the UAE and Australia, while exploring growth opportunities in emerging regions like Latin America, Africa, and Eastern Europe. 

Conclusion:

In the face of shifting global trade dynamics and emerging preferential arrangements, India needs a comprehensive strategy that combines proactive trade negotiations, cost and logistics efficiency, tax and policy rationalisation, and large-scale modernisation of the cotton–textile value chain. At the same time, moving toward man-made fibres, technical textiles, sustainable and traceable production, and stronger ESG compliance will be critical to attract premium global buyers. Diversifying export markets and strengthening domestic demand can further reduce external vulnerabilities. A coordinated policy push along these lines will help India build a resilient, future-ready textile ecosystem and secure its position as a competitive and reliable player in the global apparel and textile supply chain.

Source: Economics Times