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U.S.-Bangladesh trade agreement a cause of concern for Indian apparel exporters

February 10, 2026 5 min read Economics International Relations GS3 (Economics) GS2 (International Relations)
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What Happened

  • The United States and Bangladesh signed a trade agreement reducing the US reciprocal tariff on Bangladeshi goods to 19% (down from a proposed 37%), with a special zero-duty quota for textiles and apparel made with US-origin cotton and man-made fibres.
  • India exported $1.47 billion worth of cotton yarn (570 million kg) to Bangladesh in 2024-25, making Bangladesh the biggest destination for Indian yarn — this trade channel faces disruption as Bangladesh may shift sourcing to American cotton to qualify for zero-duty access.
  • Indian apparel and textile exporters face a competitive disadvantage: India's reciprocal tariff is 18% with no comparable zero-duty quota mechanism, while Bangladesh now has a route to zero-tariff access for qualifying textile products.
  • The tariff gap between India (18%) and Bangladesh (19%) appears narrow at one percentage point, but the zero-duty clause for US-material-based textiles gives Bangladesh a decisive edge in the crucial American garments market.
  • The deal requires Bangladesh to provide significant preferential market access for US industrial and agricultural goods, including chemicals, medical devices, machinery, ICT equipment, energy products, and agricultural products.

Static Topic Bridges

India's Textile and Apparel Export Ecosystem

India is the world's sixth-largest exporter of textiles and apparel, with the sector contributing approximately 12% of total export earnings and employing over 45 million workers directly (and 100 million indirectly), making it the second-largest employer after agriculture. The sector spans the entire value chain from raw fibre to finished garments.

  • India's textile and apparel exports (FY 2024-25): approximately $35-37 billion
  • Key export categories: cotton textiles, readymade garments (RMG), handloom products, jute, silk
  • Major export destinations: US (27%), EU (18%), Bangladesh (cotton yarn), UAE, UK
  • India's share in global textile and apparel trade: approximately 4-5%, compared to China (31%) and Bangladesh (7% in RMG)
  • Government support schemes: Amended Technology Upgradation Fund Scheme (ATUFS), PLI Scheme for Textiles (launched 2021 for MMF apparel, MMF fabrics, and technical textiles with outlay of Rs 10,683 crore), PM MITRA (Mega Integrated Textile Region) parks
  • India's cotton yarn exports to Bangladesh ($1.47 billion in FY 2024-25) serve Bangladesh's RMG sector, which then exports finished garments to the US and EU

Connection to this news: If Bangladesh shifts to sourcing US cotton and fibres to qualify for zero-duty access, India's cotton yarn exports to Bangladesh — its largest yarn export market — face significant substitution risk, while Indian finished garment exporters lose price competitiveness in the US market.

Rules of Origin and Preferential Trade Agreements

Rules of Origin (RoO) are criteria used to determine the national source of a product for trade purposes. In preferential trade agreements, RoO prevent trade deflection — where goods from non-member countries are routed through a member country to gain tariff preferences. The US-Bangladesh deal's requirement that textiles use "US-origin" cotton and fibres to qualify for zero duty is a specific form of RoO.

  • Types of RoO: Change in Tariff Classification (CTC), Value Addition/Regional Value Content (RVC), and Specific Process Rules (e.g., yarn-forward rule in textiles)
  • The "yarn-forward rule" common in US FTAs (e.g., USMCA/NAFTA, DR-CAFTA) requires that qualifying textile products use yarn produced in member countries — the US-Bangladesh deal's cotton-sourcing requirement is a variant of this principle
  • India has RoO provisions in its trade agreements: India-ASEAN FTA, India-UAE CEPA (2022), India-Australia ECTA (2022)
  • Concerns about RoO circumvention led India to tighten origin verification in FTAs, particularly after reports of Chinese goods being routed through ASEAN to claim preferential tariffs
  • WTO Agreement on Rules of Origin (Annex II) provides guidelines for non-preferential RoO

Connection to this news: The US-Bangladesh deal's zero-duty clause is effectively tied to sourcing rules that benefit US cotton producers, creating an incentive for Bangladesh to substitute Indian yarn and cotton with American inputs, demonstrating how RoO in trade deals can reshape upstream supply chains.

India's Trade Competitiveness: GSP, FTA Strategy, and Tariff Landscape

India's trade competitiveness in the US market has been shaped by several factors including the loss of GSP benefits, the absence of a bilateral FTA with the US, and the competitive advantages enjoyed by countries like Bangladesh, Vietnam, and Cambodia through various preferential arrangements.

  • India was removed from the US Generalized System of Preferences (GSP) in June 2019; GSP provided zero-duty access for approximately 2,000 product categories
  • Bangladesh enjoyed duty-free, quota-free access to the EU under the Everything But Arms (EBA) scheme until 2029 (under review); it now has a specific US arrangement
  • Vietnam benefits from the US-Vietnam Bilateral Trade Agreement and proximity to supply chains
  • India-US trade: India's current account surplus with the US in goods trade has been a point of US concern; the US is India's largest single-country export market
  • India's FTA strategy has shifted under PM Modi — CEPA with UAE (2022), ECTA with Australia (2022), negotiations with EU and UK ongoing; no FTA with US
  • Under the India-US interim deal, India faces 18% reciprocal tariff; Bangladesh faces 19% but with a zero-duty textile quota

Connection to this news: The US-Bangladesh deal exposes India's structural disadvantage — without a comparable zero-duty mechanism in the India-US deal for textiles, Indian exporters face a widening competitive gap even as the headline tariff rates appear similar.

Key Facts & Data

  • US tariff on Indian goods: 18% (reciprocal); US tariff on Bangladeshi goods: 19% (reciprocal) with zero-duty textile quota
  • India's cotton yarn exports to Bangladesh (FY 2024-25): $1.47 billion (570 million kg)
  • India's textile and apparel sector employment: 45 million direct, 100 million indirect
  • Bangladesh RMG exports: approximately $47 billion (2023-24), 85% of Bangladesh's total exports
  • India removed from US GSP: June 2019
  • India-US interim deal tariff: 18% reciprocal; Bangladesh-US deal: 19% with zero-duty clause for US-material textiles
  • Key Indian textile export schemes: ATUFS, PLI for Textiles (Rs 10,683 crore), PM MITRA parks