Textile–garment standoff: Can a middle ground be found to save both?

Highlights:

• Proposed end to duty-free yarn imports sparks industry confrontation
• Garment exporters warn competitiveness loss; mills demand protection
• Textiles and garments are interdependent pillars of export economy
• Cheap Indian yarn imports surged, idling local textile capacity
• Cost gap driven by Indian subsidies, rising Bangladeshi input costs
• Economists urge balanced, time-bound fixes to avoid value-chain damage

The simmering conflict between Bangladesh's textile mills and garment exporters has exposed a fault line at the heart of the country's export economy—one that policymakers can ill afford to mishandle.

The immediate trigger was a commerce ministry letter asking the National Board of Revenue (NBR) to scrap the zero-duty facility for yarn imports under the bonded warehouse system. The ministry believes duty-free imports have tilted the playing field against local spinning mills and should be suspended to protect domestic producers.

While the NBR has yet to act on the 12 January request, the response from the two industries has been swift—and sharply divided.

Garment exporters have called the proposal "suicidal", warning that removing access to cheaper imported yarn would cripple competitiveness in global markets. Textile millers, on the other hand, see the move as a "lifeline" and have demanded immediate action. The Bangladesh Textile Mills Association (BTMA) has gone a step further, threatening to shut down mills from 1 February if the interim government fails to intervene.

This is not a clash between rival sectors. The two industries are deeply interdependent—and together form the backbone of Bangladesh's export economy.

The labour-intensive apparel sector earned nearly $39 billion last fiscal year, accounting for about 85% of total merchandise exports. The capital-intensive textile sector, with investments of around $23 billion, supplies yarn and fabric to garment factories. Both employ millions, rely heavily on bank financing and are highly exposed to global market shocks.

Trade and tariff analysts warn that a hostile stand-off risks destabilising the wider economy at a time when business confidence is already fragile and investors are waiting for clarity following the 12 February national elections. Supporting one sector at the expense of the other, they caution, could push the entire value chain into a deeper crisis.

How the standoff emerged

Bangladesh once relied heavily on imported yarn and fabric. Over the past three decades, however, large investments have created strong backward linkages, enabling local producers to supply nearly all knitwear demand and around half of woven garments.

That progress has come under pressure in the past two to three years. As imported yarn—mainly from India—has become cheaper, garment exporters have increasingly shifted to imports. Government data show yarn imports doubled in the two years following FY2022–23, with India dominating the supply.

The fallout for local mills has been severe. As garment orders slowed, spinning mills accumulated inventories three to four times higher than normal, while nearly half of installed capacity went idle. The slowdown spread to weaving, dyeing and printing, affecting operations across nearly 2,000 textile units.

After months of appeals from mill owners, the government moved to curb duty-free yarn imports under bond licences. Once the proposal became public, exporters reacted sharply. The BTMA's shutdown threat soon followed, pushing the two sectors into open confrontation.

BTMA argues that continuing zero-duty imports poses an existential threat to local mills. Garment manufacturers' associations—BGMEA and BKMEA—counter that scrapping the bond facility would raise production costs by 8% to 10%, adding more than $2 billion annually to exporters' expenses.

Without duty-free imports, exporters would face additional duties of around 37% on yarn, forcing them to source locally at an extra cost of $0.40–$0.60 per kilogram.

At present, Indian yarn costs about $2.55 per kg, while Bangladeshi mills say they cannot sell below $2.80—and even then struggle to break even. Exporters argue that buyers will not absorb the difference. Millers say the comparison is unfair.

Why local yarn costs more

Bangladeshi spinning mills argue that Indian exporters benefit from extensive government support, allowing them to sell yarn in Bangladesh at prices lower than in India's domestic market—what local producers describe as dumping.

According to industry estimates, Indian incentives provide benefits of nearly $0.30 per kg through export rebates, technology upgrade funds, production-linked incentives and state-level subsidies on power, land and financing.

By contrast, support for Bangladesh's textile sector has steadily declined. Cash incentives for garments made with local yarn have fallen from as high as 25% to just 1.5%. Gas prices jumped by 179% in a single adjustment three years ago. Bank interest rates have climbed to around 16%, while access to low-cost loans under the Export Development Fund has narrowed. Reduced tax rate facilities have also been withdrawn.

Some mills have compounded their problems by over-investing in high-end machinery, increasing debt burdens. The result is a widening competitiveness gap between textile producers in Bangladesh and India.

Is a middle path possible?

Economists argue that while growing dependence on imported yarn carries long-term risks—particularly supply concentration—cutting off access to cheaper inputs abruptly could damage the $40 billion garment export sector.

Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said the government should explore time-bound solutions rather than blunt import restrictions.

These could include limited cash compensation, special loan facilities within LDC rules, anti-dumping investigations, or a quota system that allows duty-free imports up to a certain threshold.

Others suggest reallocating part of the government's 0.3% special cash incentive on garment exports—worth nearly Tk2,000 crore annually—to support the textile sector directly.

Commerce Secretary Mahbubur Rahman acknowledged the dilemma, saying the government is examining alternatives.

"The textile industry is facing problems, no doubt. Something has to be done," he told The Business Standard. "We are thinking about what options are possible."

"There are ways. There could be a mix— imposing restrictions at places and relaxing steps at other places, so that all sectors are treated how they should be," said Muhammad Abdul Mazid, former chairman of NBR.

"They should not be seen as two mere industries, they are a vital part of the economy. There must be a holistic approach to balance the tariff issues," he said. While NBR can reassess the impact on withdrawal of bond facilities from certain industries, the commerce ministry has to align tariff structure to the country's key trade partners, he said, suggesting all parties involved to sit together to find solutions.

Cash incentives, subsidies, loans and weighing on options such as anti-dumping duty are among other measures suggested to support the industry which is deemed to be affected by changes in import tariff structure.  

The challenge now is to act quickly—and carefully. A misstep could fracture a value chain that took decades to build, at a time when Bangladesh can least afford another economic shock.