Bangladesh’s concerns over EU-India free trade agreement

After nearly 20 years of negotiations, India and the European Union (EU) finalised a free trade agreement (FTA) last week. Once it comes into force, tariffs will be eliminated on around 96 per cent of EU goods exported to India, while the EU will remove duties on 90 per cent of Indian products. This is expected to significantly boost bilateral trade.

Through this agreement, free trade in goods will begin between India, the world’s second most populous country, and the EU’s 27 member states. Together, the EU and India account for about 25 per cent of global GDP and command a market of nearly two billion people. Leaders on both sides have described the deal as the “mother of all deals”.

Once the FTA takes effect, India will enjoy duty-free access to the EU market for a wide range of products, including readymade garments, leather goods, frozen fish and shrimp, plastics and more. This is likely to intensify competition for Bangladeshi exports, particularly garments, in the EU market.

At present, Bangladesh enjoys duty-free access to the EU under the Generalised System of Preferences (GSP). However, Bangladesh is set to graduate from least developed country (LDC) status to developing country status in November this year. After graduation, Bangladesh will continue to receive GSP benefits in the EU market for three years, until 2029.

Exporters and economists warn that once the EU–India FTA is implemented, Bangladesh’s major export sector, readymade garments, will face severe challenges.

According to them, even if Bangladesh qualifies for GSP Plus after LDC graduation, garments will not receive duty-free access under the current scheme.

They argued that the alternative would be to sign an FTA with the EU. Otherwise, Bangladeshi garments will have to be exported to the EU with tariffs, potentially reducing exports to this crucial market.

The EU is Bangladesh’s largest export destination. According to the Export Promotion Bureau (EPB), Bangladesh exported goods worth USD 48 billion in FY2024-25, of which USD 21 billion went to the EU. Exports to the United States stood at USD 8.65 billion, Canada USD 1.46 billion, and Japan USD 1.41 billion.

According to BBC, The Guardian and Al Jazeera, European Council president António Luís Santos da Costa and European Commission president Ursula von der Leyen finalised the FTA with Indian prime minister Narendra Modi at a high-level meeting in Delhi last Tuesday.

The agreement has not yet been signed; approval from the European Parliament and EU member states is required. If approved, the deal could be signed by the end of the year and implemented next year.

Trade talks between India and the EU began in 2007 but collapsed due to disagreements over automobiles, agriculture and dairy products. Negotiations resumed in 2022, driven by concerns over high US tariffs, China’s dominance in global manufacturing, and controls on exports of critical goods. After two decades of effort, the two sides finally reached a breakthrough.

European Commission data show that EU-India trade stood at EUR 120 billion in 2024. EU imports from India amounted to EUR 71 billion, while India imported EUR 49 billion worth of goods from the EU.

Under the FTA, India will immediately eliminate tariffs on 30 per cent of EU imports. EU officials say duties will be removed on 96.6 per cent of goods exported to India, saving European companies around EUR 4 billion annually.

Tariffs on cars imported from EU will be reduced from 30-35 per cent to 10 per cent over several years. Most duties on machinery, chemicals and pharmaceuticals will be eliminated, while nearly all aircraft and aerospace products will become duty-free. Tariffs on wine and spirits will be cut from the current 150 per cent to between 20 and 50 per cent.

To protect European farmers, the EU will retain tariffs on beef, poultry, sugar, flour, garlic and ethanol, a move expected to ease approval of the deal in the European Parliament.

In return, the EU will remove tariffs on 90 per cent of Indian exports, rising to 93 per cent within seven years. Indian exporters will gain immediate duty-free access for products such as garments, leather goods, frozen shrimp and fish, chemicals, plastics, rubber, gems and jewellery.

Garments account for the bulk of Bangladesh’s exports to the EU. Of the USD 21 billion exports to the EU last fiscal year, USD 19.71 billion came from readymade garments, about 50 per cent of Bangladesh’s total garment exports. Overall, Bangladesh exported USD 39 billion worth of garments last year.

Fazlul Hoque, former president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told Prothom Alo, “Vietnam, our current competitor, and India, our future competitor, have both signed FTAs with the EU, the world’s largest market.”

“We are far from reality. Many believe we have no competitors and that no one can match our low prices. That is wrong. India is not that expensive. Wages are low in many Indian states, and India aims to overtake Bangladesh in garment exports,” he said.

Fazlul Hoque added, “After the EU-India FTA, we should be concerned. We must stop focusing on the wrong issues and work on improving our competitiveness. At the same time, the government must take the initiative to sign an FTA with the EU. Otherwise, garment exports will be severely affected after 2029.”

On the back of EU trade preferences, Bangladesh has become Europe’s second-largest garment exporter after China, overtaking China in segments such as denim, trousers and T-shirts.

After LDC graduation, if Bangladesh fails to secure either an FTA or GSP Plus benefits, it will face tariffs of around 12.5 per cent on garment exports to the EU after 2029. Meanwhile, India and Vietnam will continue to enjoy zero-duty access under their FTAs. Industry leaders warn that a collapse in Bangladesh’s garment exports would then be inevitable.

MA Razzaque, chairman of the private research organisation Research and Policy Integration for Development (RAPID) told Prothom Alo that Bangladesh will retain GSP benefits in the EU market for three years after LDC graduation, making dramatic changes in exports unlikely before 2029. However, India’s exports to the EU are expected to rise sharply.

He also said that after graduating from LDC status, Bangladesh may qualify for GSP Plus. However, under the current GSP Plus rules, duty-free access for ready-made garments will not be available. If the policy framework is revised, opportunities could emerge.

MA Razzaque noted a policy decision is urgently needed on whether Bangladesh should pursue changes to the GSP framework or negotiate an FTA with the EU, followed by formal talks.

He added that the EU has already indicated it has not received any formal expression of interest from Bangladesh regarding post-LDC trade arrangements.

The interim government has amended labour laws through an ordinance. MA Razzaque stressed that passing the ordinance into law without changes after the parliamentary elections would be viewed positively in negotiations with the EU over trade preferences.