What Happened
- The United States and Bangladesh signed a reciprocal trade agreement under which Bangladeshi textile and apparel goods manufactured using US-produced cotton and man-made fibre will receive zero reciprocal tariff access to the American market.
- The overall reciprocal tariff rate for Bangladesh was set at 19%, down from the earlier 20%, while the zero-tariff textile provision applies only to garments made with American inputs.
- In return, Bangladesh committed to lowering duties on US industrial, agricultural, and energy goods and pledged to purchase $3.5 billion worth of US products including wheat, soy, cotton, and corn.
- Indian Commerce Minister Piyush Goyal assured that India will receive the same concessional duty access for garments made using American yarn and cotton under the India-US interim trade agreement, with effective tariffs on such garments potentially falling to approximately 3%.
- India's reciprocal tariff rate on exports to the US currently stands at 18% following the February 2026 India-US interim trade deal, compared to 50% earlier (25% reciprocal + 25% penalty tariff).
Static Topic Bridges
Reciprocal Tariffs and Bilateral Trade Agreements
Reciprocal tariffs are duties imposed by one country in response to tariffs levied by another, often as part of broader trade negotiations. The concept has gained renewed significance under the current US administration's trade policy, which seeks to reduce the US trade deficit by aligning tariff rates bilaterally. Unlike multilateral frameworks under the WTO, reciprocal tariff agreements are negotiated country-by-country, creating a patchwork of differential duty structures.
- India-US interim deal (February 2026): Reciprocal tariff reduced from 50% to 18% on most Indian goods; zero duty on generic pharma, gems, diamonds, and aircraft parts
- US-Bangladesh deal: Overall 19% tariff; zero tariff on textiles made with US cotton/man-made fibre
- India has committed to purchasing $500 billion of US products (energy, aircraft, technology, coking coal) over 5 years under the framework
- Effective tariff comparison: India 18%, Bangladesh 19% (general) / 0% (US-input textiles), China 30-35%, Vietnam 20%
Connection to this news: The US-Bangladesh zero-tariff textile provision creates a differential advantage for Bangladeshi garments made with American inputs, potentially undercutting Indian exporters in the $80 billion US apparel market unless India secures identical terms through its own interim agreement.
India's Textile and Apparel Export Sector
India is the world's second-largest textile producer and sixth-largest exporter of textiles and apparel. The sector employs over 45 million workers directly and 100 million in allied activities, making it the second-largest employer after agriculture. India's share in the $80 billion US apparel import market rose from about 5% to nearly 7% over the past two years, with the US accounting for 28-29% of India's total textile exports.
- India's textile exports to the US: approximately $10.5 billion (30% of total textile and apparel shipments)
- India supplied roughly 6% of US apparel imports in 2024, amounting to $4.8 billion
- Bangladesh exports approximately $44 billion in garments globally, of which 80% ($35 billion) are cotton garments
- Bangladesh's structural weakness: domestic spinning and fabric capacity can support only $3-4 billion, creating dependence on imported inputs
- India retains a competitive advantage in integrated manufacturing (spinning, weaving, dyeing, and garment-making)
Connection to this news: While the zero-tariff provision for Bangladesh creates competitive pressure, India's vertically integrated textile ecosystem and broader product range provide structural resilience; the key risk lies in potential cotton yarn export displacement if Bangladesh shifts sourcing to US cotton.
Most Favoured Nation (MFN) Principle and WTO Framework
The MFN principle under Article I of GATT requires WTO members to extend the same tariff treatment to all trading partners equally. Bilateral trade deals that offer preferential tariffs are permitted under Article XXIV of GATT (for free trade areas and customs unions) and the Enabling Clause (for developing countries). The proliferation of bilateral reciprocal tariff deals represents a shift away from the multilateral trading order.
- GATT Article I: MFN obligation requires non-discriminatory tariff treatment
- GATT Article XXIV: Exception for FTAs and customs unions that cover substantially all trade
- Enabling Clause (1979): Permits preferential treatment for developing countries (e.g., GSP programmes)
- US withdrawal from TPP (2017) and emphasis on bilateral deals marked a turn away from multilateral trade negotiations
- India is not a member of any major FTA with the US; the India-UK FTA (signed July 2025) grants duty-free access to 95% of agri-food exports
Connection to this news: The US-Bangladesh textile zero-tariff provision operates outside the standard MFN framework, using a bilateral mechanism tied to sourcing American inputs, which effectively creates a preferential trade channel that other exporters like India must individually negotiate to match.
Commodity-Specific Trade Provisions and Rules of Origin
Rules of origin determine which country a product can claim as its origin for tariff purposes. The US-Bangladesh textile deal introduces an input-based rule of origin by conditioning zero tariffs on the use of US-produced cotton and man-made fibre. This mechanism serves dual purposes: promoting US raw material exports while granting market access to the partner country's finished goods.
- Rules of origin are classified as preferential (for FTAs) and non-preferential (for MFN treatment, anti-dumping, etc.)
- Common criteria: Change in Tariff Classification (CTC), Value Addition rule, and Specific Process rule
- The US-Bangladesh textile provision uses a specific process/input rule: garments must be made from US cotton/man-made fibre to qualify for zero tariff
- India's cotton production: approximately 30 million bales (2024-25); India is a major supplier of cotton yarn to Bangladesh
Connection to this news: The input-specific condition means Bangladesh must shift from Indian and other cotton sources to US cotton for zero-tariff eligibility, potentially disrupting existing supply chains and India's cotton yarn exports to Bangladesh.
Key Facts & Data
- US reciprocal tariff on India: reduced from 50% to 18% (February 2026 interim deal)
- US reciprocal tariff on Bangladesh: 19% (general); zero for textiles made with US cotton/man-made fibre
- India's textile exports to the US: ~$10.5 billion (30% of total textile exports)
- India's share of US apparel imports: ~7% ($4.8 billion in 2024)
- Bangladesh global garment exports: ~$44 billion (80% cotton-based)
- Bangladesh domestic spinning capacity: supports only $3-4 billion of its $44 billion garment exports
- Bangladesh committed to purchasing $3.5 billion of US products (wheat, soy, cotton, corn)
- India committed to purchasing $500 billion of US products over 5 years under the India-US framework
- India-UK FTA (July 2025): duty-free access to 95% of agricultural and processed food exports