A recent study by RAPID and the Friedrich-Ebert Stiftung paints a worrying picture for Bangladesh's ready-made garment (RMG) industry. The report warns that Bangladesh's apparel exports to the European Union (EU) could plummet by up to 21 per cent due to the combined impact of Vietnam's rising dominance and Bangladesh's impending graduation from Least Developed Country (LDC) status.

Reasons for the decline

On major reason is the EU-Vietnam Free Trade Agreement (EVFTA), in effect since 2020 that grants Vietnam zero-duty access to the EU market, giving it a significant edge over Bangladesh. This advantage is projected to boost Vietnam's apparel exports substantially. Add to this Bangladesh oncoming graduation from LDC status in 2026. This will result in the loss of duty-free access to the EU under the Everything But Arms (EBA) initiative, potentially leading to tariffs of up to 12 per cent on Bangladeshi garments. Bangladesh has lagged behind Vietnam in developing its domestic textile industry. This means higher reliance on imported raw materials, making Bangladeshi garments less competitive on price. The study also highlights Bangladesh's slower progress in implementing effective policies to improve its business environment and attract investment.

Table: Apparel exports to EU

The study emphasizes the importance of Free Trade Agreements (FTAs) in shaping global trade. While the EVFTA benefits Vietnam, Bangladesh currently lacks comprehensive FTAs with major markets like the EU. Negotiations for FTAs with Japan and Singapore are ongoing, but experts stress the need for diversification and structural reforms to enhance competitiveness.

In fact several factors impact garment exports. For example stringent rules of origin under the EU's Generalized Scheme of Preferences (GSP+) can hinder Bangladesh's exports. And the EU's focus on sustainability and labor rights requires Bangladesh to improve its practices to maintain market access. Also, inadequate infrastructure, including port facilities and energy supply, adds to production costs and delays in Bangladesh.

The study therefore urges the Bangladeshi government to:

• Negotiate extended transition periods with the EU for LDC graduation.

• Relax rules of origin under the GSP+.

• Pursue additional FTAs to diversify market access.

• Invest in backward integration, particularly in man-made fibers and recycling technologies.

• Improve trade infrastructure and address energy supply deficits.

• Align with EU standards on sustainability and labor practices.