How India’s US deal tariff advantage over Bangladesh vanished overnight

However, the statement added that the volume of duty-free textile and apparel products from Bangladesh to the US would be determined on the basis of Dhaka’s imports of “U.S.-produced cotton and man-made fibre textile inputs” from Washington. Bangladesh is the second-largest exporter of textiles and apparel goods after China.

Steep commitments by Dhaka

A Commerce and Industry Ministry official said that Bangladesh has significantly opened its economy to the US in exchange for a slight gain in textiles. “India has protected several sectors that Bangladesh has opened. The deal has to be seen in its entirety,” the official said in response to a query by this newspaper.

Under the agreement, Bangladesh has committed to provide “significant preferential market access for U.S. industrial and agricultural goods”. Dhaka has committed to purchasing $3.5 billion of US agriculture products, like wheat, soy, cotton, and corn, and $15 billion worth of energy products in 15 years.

Two-fold challenge for India

Confederation of Indian Textile Industry (CITI) Chairman, Ashwin Chandran, said that the US-Bangladesh deal opens a fresh challenge for India’s textiles and apparel exporters.

“This challenge is two-fold. First, the tariff differential between India and Bangladesh has halved from 2% to 1% (India faces an 18% US tariff), which is a matter of concern in a sector with narrow profit margins. Secondly, the US–Bangladesh Agreement on Reciprocal Trade could likely adversely affect India’s cotton yarn exports to Bangladesh,” Chandran said.

Bangladesh is already among the leading exporters of textiles and apparel to the United States, alongside China, Vietnam, and India. Any additional advantage for Bangladesh could further increase competition for Indian exporters.

18% disadvantage compared to Dhaka

International trade expert and former trade negotiator, Abhijit Das, said, “Till late last night, we were under the impression that India would be able to expand textile exports to the US reciprocal tariffs have come down to 18% whereas some of our competitors, such as Bangladesh, would face 19%, some of the others, such as Vietnam, would face 20%, etc.

Today, we see an announcement from the White House which says that Bangladesh and the US have reached a deal whereby, in respect of textiles, the US will bring down reciprocal tariffs to zero, subject to quota. The size of the quota is not known, but what is quite likely to happen is that the perceived tariff advantage, which we imagined we would have over Bangladesh by about one percentage point, gets reversed into a tariff disadvantage of 18% compared to Bangladesh.”

Dhaka’s trade moves in response to Indian deals

Dhaka, which is in the midst of a general election, sprang into action after a slew of Indian trade deals with the UK, US and EU that will particularly benefit labour-intensive sectors such as the textile and footwear sectors. This is concerning for Bangladesh as it is the second-largest textile exporter in the world after China. The sector is also Dhaka’s key foreign exchange earner.

Bangladesh is also pushing for a Free Trade Agreement (FTA) with the European Union after India gained a competitive edge in the textile sector with a trade agreement with the European bloc and the UK. In 2024, India accounted for around 5% of the EU’s textile and apparel imports, while China led the pack (28%), followed by Bangladesh (22%), Turkey (11%), Vietnam (6%), and India.

Bangladesh Chief Adviser Professor Muhammad Yunus, on February 1, called for an early start to FTA negotiations with the European Union, after graduating from Least Developed Country (LDC) status. The change of status will result in the country losing a few trade concessions.

Low in India-Bangladesh ties

Trade deals signed by Bangladesh and India further assume significance as ties between New Delhi and Dhaka have soured in the last few months. In April last year, New Delhi terminated the transhipment facility for Bangladesh’s export cargo. In 2020, India permitted the transhipment of export cargo from Bangladesh to third countries using Indian Land Customs Stations en route to Indian ports and airports, to enable smooth trade flows for Bangladesh’s exports to countries such as Bhutan, Nepal, and Myanmar.

This came after Yunus had remarked that with Northeast India being “landlocked”, Dhaka was the “only guardian of the ocean for all this region”. This statement was widely interpreted as an attempt by Dhaka to assert its leverage over access to the Northeast — a matter of concern for Delhi. Yunus’s efforts to portray Beijing as a new strategic partner had further complicated the already tense India-Bangladesh relationship.

“The seven states of eastern India, known as the Seven Sisters, are a landlocked region. They have no direct access to the ocean,” Yunus said. “We are the only guardians of the ocean for this entire region. This opens up a huge opportunity. It could become an extension of the Chinese economy — build things, produce things, market things, bring goods to China and export them to the rest of the world,” he added.

The North-Eastern states of Assam, Arunachal Pradesh, Manipur, Meghalaya, Nagaland, Mizoram, Tripura and Sikkim collectively have a 1,596 km long international border with Bangladesh, 1,395 km border with China, 1,640 km border with Myanmar, 455 km border with Bhutan and 97 km border with Nepal, but are only connected with the rest of India through a 22 km strip of land called the ‘Chicken Neck’ corridor.

Over the last decade-and-a-half, India sought to engage with the Sheikh Hasina government in Dhaka to open pathways to the Northeast via Bangladesh. However, after Hasina’s ouster and the installation of an interim government led by Yunus, these plans have fallen through.