The signing of the Bangladesh-Japan Economic Partnership Agreement (EPA) on February 6, 2026, marks a transformative moment for South Asia’s textile and apparel corridor. While India has operated under a similar bilateral framework since 2011, Bangladesh’s latest deal is being widely recognized as a more agile and commercially intelligent architecture. Unlike previous pacts, this agreement is designed not merely to preserve Bangladesh’s export base as it approaches graduation from Least Developed Country (LDC) status. Instead, it positions Dhaka to aggressively capture market share from China, aiming to become Japan’s leading high-volume apparel sourcing partner.

Redefining Rules of Origin

The critical differentiator between India and Bangladesh lies in Rules of Origin (RoO). India’s 2011 Comprehensive Economic Partnership Agreement (CEPA) with Japan has largely underperformed in apparel due to its double-stage transformation requirement both the fabric and garment must be domestically produced for duty-free eligibility. This restriction has historically constrained India’s ability to compete effectively in Japan’s high-volume apparel market.

Bangladesh’s 2026 EPA, by contrast, introduces a Single-Stage Transformation rule. This enables Bangladeshi factories to import high-quality yarns or synthetic fabrics from global leaders including Japan, China, and Korea and still qualify for duty-free exports after local garment production. This effectively eliminates the fabric bottleneck that has hindered India, providing Dhaka with a significant competitive advantage.

India vs Bangladesh in the Japanese market

Despite India’s vertically integrated textile ecosystem, spanning cotton cultivation to finished garment, the country has failed to convert this advantage into Japanese market dominance. Bangladesh, though more reliant on imported raw materials, has captured nearly four times the export value of India in this corridor.

Table: Apparel & textile exports to Japan (2025-26)

The figures reveal Bangladesh’s rapid growth despite lower domestic fiber production. While India relies heavily on cotton, Bangladesh’s shift to man-made fibers (MMF) and the flexibility of importing high-performance fabrics gives it a clear edge in the Japanese premium and technical apparel segments. The projected inflow of Japanese FDI underscores Tokyo’s confidence in Bangladesh’s ecosystem.

Capturing the China Plus One opportunity

Bangladesh’s timing is propitious. Japanese retailers such as Fast Retailing (Uniqlo) and Adastria are actively diversifying away from China in search of alternative sourcing partners. China’s share of Japan’s apparel imports fell from 55 per cent to 46 per cent in 2025, while Bangladesh recorded 17.2 per cent year-on-year growth in Q1 2025 alone.

One important factor in this momentum is the Bangladesh Specialized Economic Zone (BSEZ) in Araihazar, which provides a Japan-standard ecosystem. Unlike India’s fragmented textile clusters, BSEZ hosts Japanese companies such as Sumitomo Corporation and NICCA Chemical, offering cutting-edge dyes, machinery, and compliance frameworks aligned with Tokyo’s stringent quality benchmarks.

High-tech synthetics at Araihazar

A Dhaka-based apparel manufacturer recently partnered with NICCA Chemical to establish a high-speed production line for technical outerwear within BSEZ. Previously, importing Japanese-developed synthetic waterproof fabrics would have incurred a 10 per cent duty upon re-export to Japan. Under the new EPA, this circular supply chain is entirely duty-free.

This policy change has lowered landed costs for Japanese retailers by 12 per cent, making Bangladesh more price-competitive than Vietnam in the premium synthetic segment. Analysts see this as a potential blueprint for scaling high-value exports in other functional wear categories.

From volume to value

The textile and apparel sector remains Bangladesh’s economic backbone, contributing over 80 per cent of total export earnings and approximately 10 per cent of GDP. Today, the country is the world’s second-largest apparel exporter, but its strategy is shifting from sheer volume to value-led growth, emphasizing man-made fibers, functional garments, and premium segments. Environmental compliance and automation are central to this evolution. With over 200 LEED-certified factories, the highest concentration globally Bangladesh is attracting international retailers seeking sustainable, high-tech production. By 2035, the industry aims to reach $100 billion in annual exports, leveraging vertical integration, automation, and aggressive market diversification.

A new regional hierarchy in apparel trade

Bangladesh’s 2026 EPA with Japan illustrates the power of trade architecture over raw resource endowment. By combining single-stage flexibility, specialized zones, high-tech partnerships, and sustainability, Dhaka is emerging as a formidable competitor in East Asia’s apparel market. For India, the lesson is clear: supply chain control alone is insufficient. Future competitiveness will depend on regulatory flexibility, strategic zone development, and alignment with buyer requirements a framework Bangladesh has now perfected.