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Bangladesh and the United States have signed a reciprocal trade agreement, informally termed the “Cotton for Zero-Tariff” deal. The agreement provides Bangladesh a quota-based zero-duty advantage in the US market, conditional on the use of US-produced cotton and man-made fibre (MMF) inputs.

The development has raised concerns in India’s textile and cotton sectors due to possible erosion of tariff advantages and potential displacement of Indian cotton exports to Bangladesh.

Key Highlights of the US–Bangladesh Trade Deal

1. Tariff Adjustment

• Bangladesh’s general reciprocal tariff reduced from 20% to 19%.
• Earlier, India faced an 18% tariff in the US market, giving it a narrow edge over Bangladesh (20%).

2. Zero-Tariff Quota Mechanism

• A specified volume of Bangladeshi textile and apparel exports can enter the US at 0% duty.
• This zero-duty benefit is conditional on the use of US-produced cotton and MMF inputs (Rules of Origin clause).

3. Bangladesh’s Reciprocal Commitments

Bangladesh has agreed to:

• Purchase USD 3.5 billion worth of US agricultural products (wheat, soy, cotton, corn).
• Import USD 15 billion of US energy products over 15 years.
• Open its market further to US industrial goods.

Implications for India

According to the Confederation of Indian Textile Industry (CITI), the agreement presents a two-fold challenge:

1. Erosion of Tariff Advantage in the US Market

• Earlier scenario:
  • India: 18% tariff
  • Bangladesh: 20% tariff → India had a 2% edge.
• After the deal:
  • Bangladesh: 19% (general rate)
  • Zero-duty for quota-based exports

This narrows India’s advantage to just 1% under general tariff and creates an 18% disadvantage for zero-duty Bangladeshi exports.

Competitive Context

• Bangladesh is the world’s 2nd-largest apparel exporter (after China).
• India ranks 6th globally.
• US is a major export destination for both.

Indian textile hubs such as:

• Tiruppur (Tamil Nadu)
• Surat (Gujarat)

operate on thin margins. Large global retailers may shift sourcing to Bangladesh to benefit from the zero-duty window.

2. Threat to Indian Cotton Exports

Bangladesh has traditionally been:

• The largest buyer of Indian raw cotton.
• Accounts for nearly 70% of India’s cotton exports.

In 2024:

• India exported USD 1.6 billion worth of cotton yarn to Bangladesh.
• About USD 85 million of MMF yarn.

Impact Mechanism

To access zero-tariff entry into the US:

• Bangladeshi manufacturers must use US-produced cotton.
• This incentivizes a shift away from Indian cotton imports.

Potential consequences:

• Decline in Indian cotton exports.
• Domestic surplus (glut).
• Price depression affecting Indian cotton farmers.

Broader Structural Concerns

1. Cotton vs MMF Imbalance

• Global textile trade composition:
  • 70% Man-Made Fibres (MMF)
  • 30% Cotton
• India’s exports remain largely cotton-dominated.

Higher taxation on MMF raw materials compared to finished goods has historically weakened India’s competitiveness in synthetics.

Strategic Responses for India

1. Seek “Cotton Parity” with the US

India imported 4.13 million bales of cotton in 2024–25, with the US as the top supplier.

India could:

• Negotiate a “Cotton Clause” granting zero-duty access for garments made from US cotton.
• Fast-track a comprehensive India–US Bilateral Trade Agreement (BTA).

2. ESG-Based Branding

Western buyers prioritise:

• Ethical sourcing
• Labour rights compliance
• Fire and factory safety

India can leverage:

• Stronger social compliance record
• Sustainable production practices
• Zero child labour positioning

to attract premium buyers.

3. GST Rationalisation for MMF

The GST Council could:

• Rationalise taxation across the MMF value chain.
• Make Indian polyester and viscose competitive against Bangladesh, China, and Vietnam.

4. Kasturi Cotton Bharat Initiative

The “Kasturi Cotton Bharat” initiative:

• Uses blockchain for traceability.
• Certifies cotton as contamination-free and ethically grown.
• Helps command premium pricing to offset tariff disadvantages.

5. Focus on Technical Textiles

Shift towards high-value segments where quality outweighs tariff gaps:

• Meditech (surgical implants, sanitary textiles)
• Mobiltech (airbags, seatbelts)
• Geotech (road and soil stabilization fabrics)

Domestic procurement guarantees can help firms scale up.

6. Market Diversification

Reduce dependence on the US market by:

• Leveraging FTAs with Australia and UAE.
• Expanding into Latin American and emerging markets.