The US-Bangladesh trade deal announced on Tuesday may indirectly deal a blow to the export ambitions of India’s textile sector. Under the trade agreement between the two countries, the US is reducing the tariff rate on Bangladesh goods to 19%, which is marginally higher than the 18% imposed by the Donald Trump administration on India.
But a clause in the joint statement will serve as a big boost to Bangladesh’s textile exports to the US, while eroding some of the competitive advantage that India was hoping to enjoy.
Business analysts said the deal provides significant support to Bangladesh’s apparel industry, which generates more than 80% of the country’s export revenue, employs around four million workers, most of them women, and contributes roughly 10% to the country’s gross domestic product.
The Zero-Tariff Clause
One clause in the joint statement reads: "
The United States commits to establish a mechanism that will allow for certain textile and apparel goods from Bangladesh to receive a zero reciprocal tariff rate. This mechanism will provide that a to-be-specified volume of apparel and textile imports from Bangladesh can enter the United States at this reduced tariff rate, but this volume shall be determined in relation to the quantity of exports of textiles, e.g. US produced cotton and man-made fiber textile inputs, from the United States."It is this clause that has caused worries in the Indian textile industry, which had till last week been rejoicing a tariff rate lower than that of Bangladesh as part of the India-US trade deal.
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What It Means For India
The India-US trade framework was being seen as an important breakthrough that could improve access to America’s $118 billion textile and apparel import market. The US is already India’s largest destination for textile exports, accounting for roughly $10.5 billion in shipments. Of this total, apparel makes up nearly 70%, while made-ups contribute about 15%, according to an ET report.
At the industry level, exporters in Tiruppur, the country’s largest knitwear cluster, initially responded with strong optimism following the India-US announcement. As reported by PTI, Tiruppur Exporters’ Association president K M Subramanian said exports of garments to the US could potentially double to Rs 30,000 crore within three years, alongside the creation of nearly five lakh new jobs.
Another exporter from Tiruppur, Starrlight Exporters founder M Rathinasamy, told PTI that orders earlier routed to Bangladesh and other competing countries were expected to shift back to Tamil Nadu following the India-US agreement.
The 18% reciprocal tariff on Indian goods would have removed a long-standing competitive handicap and position Indian exporters more favourably compared with major rivals such as Bangladesh, China, Pakistan and Vietnam, which faced higher tariff levels. That competitive edge versus Bangladesh may be in for a setback now.
Shares of several Indian textile firms saw selling pressure on Tuesday - stocks that had earlier rallied on expectations linked to the India-US trade arrangement reversed direction, with companies including Gokaldas Exports, KPR Mill, Arvind and Pearl Global Industries declining by more than 5% at one point during the session.
The negative market response reflected investor concerns that preferential provisions extended to Bangladesh under the new US-Bangladesh trade deal could weaken the competitive advantage Indian exporters were anticipated to enjoy in the US market.
The possibility of zero-tariff entry for select Bangladeshi textile and apparel exports has moderated the earlier optimism surrounding Indian exporters. Market participants are concerned that even limited tariff-free access could reduce the competitive benefit India appeared to gain in the US market.
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18% tariffs, boost to exports, agriculture protected: How India benefits from trade deal with US? ExplainedThat said, several key aspects of the exemption remain uncertain. The agreement does not clearly outline which categories of textile or apparel products would qualify for duty-free treatment, the quantity of exports that would be covered, or when the provision would come into effect.
The arrangement is also tied to Bangladesh’s use of textile inputs sourced from the US, a condition that may restrict its scope or increase costs for Bangladeshi manufacturers, says the ET report.
Because of these unresolved details, the zero-tariff provision may ultimately have a limited impact on India’s competitive standing.
Additionally, as India and the US continue discussions to finalise the details of their trade arrangement following last week’s framework announcement, there remains room for India to maintain a distinct advantage over Bangladesh, or at least remain on par, in the American textile market.
At the same time, India has already achieved a significant milestone in Europe. The EU-India trade agreement announced on January 27 provides Indian textile exports with immediate duty-free access to the European Union’s USD 263 billion textile market, with tariffs set to be fully removed under the pact.