What lessons can India draw from Vietnam’s apparel export growth after signing the EU-Vietnam FTA?

Vietnam witnessed a notable surge in apparel exports to the EU after the EU-Vietnam FTA came into force in 2020. The agreement reduced tariffs, enhanced investor confidence, and integrated Vietnam more deeply into global value chains. The country leveraged strong foreign direct investment (FDI), efficient logistics, and consistent policy support to expand garment exports.For India, Vietnam’s experience highlights three lessons:Trade agreements must be complemented by domestic reforms, including infrastructure and ease of doing business.Policy coherence is crucial—sector-specific strategies should align with trade opportunities.Integration with global buyers and supply chains enhances resilience.India’s FTA with the EU can replicate similar gains if supported by industrial clusters, simplified compliance systems, and proactive export promotion strategies.

Can India Overtake Bangladesh in EU Textile Exports?

Q: Why is the India-EU Free Trade Agreement considered a potential turning point for India’s textile sector?

The India-EU FTA is significant because it grants duty-free access to the EU textile market, eliminating the previous 12% MFN tariff disadvantage. This substantially narrows the price gap between Indian and Bangladeshi exports, particularly as Bangladesh is set to lose its EBA benefits by 2029. The convergence of these structural shifts creates a rare competitive window.Importantly, the FTA includes a double-stage processing (double transformation) rule of origin. India’s vertically integrated textile industry—where yarn and fabric are largely produced domestically—positions it well to comply with these rules. Bangladesh, which depends heavily on imported fabrics, may face compliance challenges under stricter EU schemes like GSP+.For India, this agreement is not merely about trade expansion but also about employment revival. Textiles are labour-intensive and can absorb semi-skilled workers. If leveraged strategically, the FTA could catalyse export growth, industrial upgrading, and job creation, much like Vietnam experienced after its EU-Vietnam FTA in 2020.

As Bangladesh loses its LDC status, India's new EU deal may reshape the textile export landscape.

Gopi

•February 17, 2026•6 mins read

India-EU FTA opens window for textile exports as Bangladesh’s tariff edge narrows

Not Started

1. Structural Divergence: India vs Bangladesh in the EU Textile Market

India’s textile sector, traditionally a major contributor to manufacturing employment and exports, has steadily lost ground in global garment markets, particularly in the European Union (EU). In contrast, Bangladesh has emerged as a dominant supplier of readymade garments (RMG), especially in mass-market categories.

Within the textile value chain, India’s exports to the EU are concentrated in intermediate products such as yarns and fabrics, rather than in finished garments like T-shirts, shirts, and trousers. Bangladesh, on the other hand, has successfully positioned itself in labour-intensive finished garment segments.

The divergence is evident in market share trends. India’s share in EU imports of knitted/crocheted garments declined from 6.5% (2009) to 4.4% (2023). In contrast, Bangladesh’s share rose from 6% (2000) to 13% (2009) and further to 26% (2023). Similarly, India’s woven garment exports to the EU fell from a peak of $3.5 billion** to **$ 2.9 billion in nominal terms.

This structural divergence reflects India’s limited competitiveness in labour-intensive final-stage manufacturing. If unaddressed, it constrains employment generation and reduces India’s presence in global value chains, particularly in segments that absorb large numbers of semi-skilled workers.

Key Trends:

India: Declining share in EU garment imports.
Bangladesh: Rapid expansion in knitted and woven garments.
Shift from intermediate exports (India) to final product exports (Bangladesh).

2. Pricing, Competitiveness and Structural Constraints

A comparison of per-unit export prices shows that India’s garments consistently command higher unit values than Bangladesh’s across major categories. This could indicate higher value addition or better quality positioning.

However, India’s low market share in the EU suggests that demand in this market is largely driven by price-sensitive mass apparel. Therefore, “premium positioning” alone cannot compensate for cost disadvantages in volume-driven segments.

The more plausible explanation lies in structural constraints: higher production costs, fragmented supply chains, scale limitations, and logistical inefficiencies. Bangladesh’s export model has benefited from focused policy support, labour cost advantages, and streamlined export ecosystems.

Competitiveness in global apparel markets is primarily price-driven at scale. If higher prices stem from structural inefficiencies rather than quality differentiation, India risks remaining confined to niche segments while losing employment-intensive mass production opportunities.

Possible Structural Disadvantages:

Higher production costs
Less integrated logistics and supply chains
Fragmented industrial policy approach
Lower scale efficiencies in garment clusters

3. Tariff Asymmetry and Preferential Access: The EBA Advantage

A major reason for Bangladesh’s export success has been preferential access under the EU’s Everything But Arms (EBA) scheme. As a Least Developed Country (LDC), Bangladesh enjoyed duty-free, quota-free access to the EU market.

Crucially, zero tariffs were granted even if garments did not satisfy the EU’s standard “double transformation” rule of origin (RoO). This allowed Bangladesh to import fabric from third countries, stitch garments domestically, and export them at zero duty.

India, lacking such preferential treatment, faced EU Most Favoured Nation (MFN) tariffs of around 12% on apparel exports. This tariff differential created a significant competitive gap in price-sensitive markets.

Trade preferences can decisively shape global value chain participation. When tariff asymmetries exist, even marginal cost differences translate into major market share shifts. Ignoring tariff diplomacy limits export competitiveness irrespective of domestic reforms.

Tariff Comparison:

Bangladesh (EBA): 0% duty, relaxed RoO
India (MFN): ~12% tariff
Impact: Price advantage for Bangladesh in EU markets

4. Impending Structural Break: Bangladesh’s Graduation from LDC Status

Bangladesh is set to graduate from LDC status in 2029, leading to the loss of automatic EBA benefits. This implies that its apparel exports to the EU could face MFN tariffs of around 12%, unless alternative arrangements are secured.

Bangladesh is expected to seek entry into the EU’s Generalised Scheme of Preferences Plus (GSP+), which provides zero tariffs on roughly two-thirds of tariff lines, including textiles. However, GSP+ imposes stricter rules of origin, including adherence to the double transformation requirement.

Given Bangladesh’s heavy reliance on imported fabrics (including from India), compliance with stricter RoO could become challenging. If the EU maintains its stance, Bangladesh’s current cost advantage may narrow.

The erosion of preferential access could alter competitive dynamics in the EU market. If Bangladesh’s advantage is tariff-driven, its market share may decline. However, if it stems from deep supply-chain efficiencies, it may remain resilient even under higher tariffs.

Post-2029 Scenario:

Loss of EBA benefits.
Possible shift to GSP+ (subject to stricter RoO).
Increased exposure to MFN tariffs if compliance fails.

5. India–EU FTA: Correcting the Tariff Disadvantage

The recently finalised India–EU Free Trade Agreement grants India duty-free access to EU textile markets, subject to the double-stage processing (double transformation) requirement.

Unlike Bangladesh, India already possesses a relatively vertically integrated textile industry. Most yarn and fabric used in apparel production is manufactured domestically. Therefore, compliance with stricter rules of origin is unlikely to pose a major hurdle.

This eliminates India’s earlier ~12% tariff disadvantage, potentially placing Indian exporters on an equal or stronger footing compared to post-LDC Bangladesh.

By aligning tariff access with domestic supply-chain strength, the FTA creates a structural opportunity. If leveraged effectively, it can help India shift from intermediate exports to higher-value finished garment exports.

Strategic Advantages under FTA:

Duty-free access to EU markets.
Compatibility with double transformation norms.
Reduced tariff asymmetry vis-à-vis Bangladesh.
Scope for expansion in finished garments.

6. Employment, Industrial Policy and Strategic Coherence

Textiles remain one of the largest employers in Indian manufacturing, spanning both formal and informal sectors. However, the sector has not generated sufficient employment growth in recent years.

Bangladesh’s success reflects consistent, focused promotion of the garment industry over three decades. India’s approach has been comparatively fragmented, lacking long-term strategic coherence.

The narrowing of Bangladesh’s tariff advantage and the reduction of India’s tariff disadvantage together create a “rare window of opportunity.” The experience of Vietnam’s export surge after the EU–Vietnam FTA (2020) demonstrates how trade agreements can catalyse apparel exports when supported by domestic reforms.

Trade agreements alone do not guarantee export growth. Without cost competitiveness, policy coordination, and supply-chain efficiency, tariff gains may not translate into employment expansion.

Policy Priorities:

Cost-competitive mass garment production
Strengthening vertical integration
Streamlined logistics and export facilitation
Cluster-based industrial strategy
Labour-intensive manufacturing push

7. Broader Governance and Development Linkages

The textile opportunity intersects multiple GS dimensions:

GS3 (Economy): Export diversification, manufacturing competitiveness, employment generation.
GS2 (International Relations): Trade diplomacy, FTAs, preferential access regimes.
GS1 (Society): Labour-intensive sectors and rural-to-urban employment transitions.
Essay Themes: Globalisation, competitiveness, industrial policy, employment crisis.

Reviving textile exports to high-income markets like the EU could serve as a stimulus to address India’s employment challenge, particularly for women and semi-skilled workers traditionally employed in garments.

Export-led manufacturing growth is critical for demographic dividend realisation. Failure to seize this window may entrench India’s position as a supplier of intermediates rather than a global manufacturing hub.

Conclusion

The convergence of two structural shifts—Bangladesh’s impending loss of LDC privileges and India’s tariff gains under the India–EU FTA—creates a strategic opening for India’s textile sector. However, tariff correction must be complemented by cost efficiency, policy coherence, and scale expansion.

If India can align trade policy with industrial strategy, the textile sector can once again become a driver of employment-intensive growth and deeper integration into global value chains.

Quick Q&A

Everything you need to know

Bangladesh’s dominance in the EU garment market can be attributed to a combination of preferential market access, cost competitiveness, and focused industrial policy. Under the EU’s Everything But Arms (EBA) scheme, Bangladesh has enjoyed duty-free, quota-free access as a Least Developed Country (LDC). Crucially, this access did not strictly enforce the EU’s ‘double transformation’ rule of origin, allowing Bangladesh to import fabrics from third countries and still export garments to the EU at zero tariffs.

In contrast, India has faced EU Most Favoured Nation (MFN) tariffs of around 12%, reducing price competitiveness. Although India possesses a relatively strong upstream textile base (yarn and fabrics), its exports to the EU have remained concentrated in intermediate goods rather than finished garments. Bangladesh, on the other hand, strategically prioritised readymade garments (RMGs), building scale, efficiency, and global buyer linkages.

Thus, Bangladesh’s success reflects not merely lower wages but an ecosystem of policy consistency, export orientation, and preferential trade treatment. India’s fragmented policy approach and tariff disadvantages contributed to its declining share in EU apparel imports.

The India-EU FTA is significant because it grants duty-free access to the EU textile market, eliminating the previous 12% MFN tariff disadvantage. This substantially narrows the price gap between Indian and Bangladeshi exports, particularly as Bangladesh is set to lose its EBA benefits by 2029. The convergence of these structural shifts creates a rare competitive window.

Importantly, the FTA includes a double-stage processing (double transformation) rule of origin. India’s vertically integrated textile industry—where yarn and fabric are largely produced domestically—positions it well to comply with these rules. Bangladesh, which depends heavily on imported fabrics, may face compliance challenges under stricter EU schemes like GSP+.

For India, this agreement is not merely about trade expansion but also about employment revival. Textiles are labour-intensive and can absorb semi-skilled workers. If leveraged strategically, the FTA could catalyse export growth, industrial upgrading, and job creation, much like Vietnam experienced after its EU-Vietnam FTA in 2020.

Rules of Origin (RoO) determine whether a product qualifies for preferential tariff treatment under trade agreements. In textiles, the EU typically requires double transformation—meaning fabric must be produced domestically and then stitched into garments within the exporting country. This encourages local value addition and discourages mere assembly operations.

Bangladesh’s EBA advantage allowed it to bypass strict double transformation requirements, enabling the import of cheaper fabrics from countries like China and India while still exporting garments duty-free. This significantly reduced production costs. India, however, faced MFN tariffs, increasing landed prices in the EU market.

With Bangladesh transitioning away from LDC status and India gaining FTA access, RoO compliance becomes a strategic differentiator. India’s integrated supply chain enhances its ability to meet RoO without restructuring. Thus, tariff structures and origin rules are not technicalities—they directly influence production decisions, sourcing strategies, and export competitiveness.

India’s higher per-unit export prices in the EU market can be interpreted in two ways. One possibility is premium positioning—India may be exporting higher-quality, value-added garments, which command better prices. This aligns with India’s strengths in cotton-based textiles and niche segments.

However, India’s declining market share suggests that higher prices may also stem from structural inefficiencies. Factors such as fragmented production units, logistics bottlenecks, higher compliance costs, and labour rigidities can inflate production costs. If EU demand is largely price-sensitive and mass-market oriented, premium positioning alone cannot compensate for lack of scale competitiveness.

Therefore, the more plausible explanation lies in a combination of cost disadvantages and limited scale integration. To capture EU market share, India must address supply-chain efficiency, cluster development, and export facilitation while maintaining quality differentiation.

Vietnam witnessed a notable surge in apparel exports to the EU after the EU-Vietnam FTA came into force in 2020. The agreement reduced tariffs, enhanced investor confidence, and integrated Vietnam more deeply into global value chains. The country leveraged strong foreign direct investment (FDI), efficient logistics, and consistent policy support to expand garment exports.

For India, Vietnam’s experience highlights three lessons:

Trade agreements must be complemented by domestic reforms, including infrastructure and ease of doing business.
Policy coherence is crucial—sector-specific strategies should align with trade opportunities.
Integration with global buyers and supply chains enhances resilience.

India’s FTA with the EU can replicate similar gains if supported by industrial clusters, simplified compliance systems, and proactive export promotion strategies.

To translate tariff advantages into employment gains, India must undertake structural reforms in the textile ecosystem. First, improving logistics efficiency—through port modernisation, faster customs clearance, and better connectivity—can reduce turnaround time and costs. Second, consolidating fragmented production units into globally competitive clusters can enhance scale economies.

Labour reforms and skill upgradation are equally critical. Textiles are labour-intensive; therefore, stable labour policies and training in modern garment manufacturing techniques can boost productivity. Additionally, policy coherence—aligning Production Linked Incentive (PLI) schemes, export incentives, and MSME support—will be essential.

Ultimately, the FTA provides an enabling environment, but sustained competitiveness depends on cost efficiency, innovation, and integration across the value chain. If executed effectively, textile export revival could become a cornerstone of India’s broader employment and manufacturing strategy.