The European Union’s decision to suspend India’s Generalized Scheme of Preferences (GSP) for three years has dealt a notable blow to Indian exports.
At the same time, it has reshaped South Asia’s trade landscape, opening a new window of opportunity for Bangladesh in the European market.
Sectors such as readymade garments (RMG), textiles, leather, and light engineering now face renewed prospects, as Bangladesh’s competitive standing in Europe appears set to strengthen.
Under the EU’s ruling, India’s GSP benefits will remain withdrawn from January 1, 2026 to December 31, 2028, meaning that roughly 87% of India’s exports to the EU will now be subject to full Most Favoured Nation (MFN) tariffs.
While EU commerce data suggests that the real impact will touch only 2.66% of India’s total exports, the Global Trade Research Initiative offers a different view, arguing that a large share of products previously enjoying GSP benefits will now fall under mandatory MFN duties.
In effect, India is set to lose tariff advantages on a much broader scale than official estimates suggest.
Analysts warn that this change will raise the price of Indian goods in Europe, increasing the risk of losing competitiveness.
For example, a garment that previously carried a 12% MFN tariff could be exported under GSP at 9.6%.
With the benefit now withdrawn, exporters must pay the full tariff, pushing up costs. In Europe’s highly price-sensitive market, even small increases can influence sourcing decisions and redirect orders.
The impact is compounded by the timing, as negotiations for an India–EU Free Trade Agreement (FTA) are still underway.
In the short term, export-driven Indian industries may face heightened pressure, and European buyers may find Indian products less attractive than before.
By contrast, Bangladesh continues to enjoy duty-free or low-tariff access to the EU market, giving it a clear edge.
As European buyers seek cost efficiency and stable supply chains, attention may increasingly shift toward Bangladesh. If this momentum is properly leveraged—particularly in garments, textiles, leather, and light engineering—Bangladesh’s export growth could gain new momentum.
Yet analysts stress that this is not an automatic win. India’s GSP suspension represents a time-bound opportunity, not a guaranteed gain.
Without improvements in productivity, manufacturing capacity, labor and environmental compliance, and policy preparedness, Bangladesh risks failing to capitalize on the moment.
The development should be seen not simply as India’s export setback, but as a strategic opening for Bangladesh to reinforce its long-term position in Europe.
Duty-free advantage
A central strength in Bangladesh’s favor is its Duty-Free and Quota-Free (DFQF) access to the EU.
While Indian exporters now face tariffs ranging from 9% to 12%, Bangladeshi products continue to enter Europe at zero duty. In industries such as apparel—where margins are thin—this tariff gap alone can determine where buyers place their orders.
The RMG, which accounts for nearly three-quarters of Bangladesh’s exports to the EU, stands to benefit the most.
With India’s tariff advantage eroded, categories such as basic knitwear, denim, and casual woven garments are more likely to see orders shift toward Bangladesh.
European brands, increasingly focused on lowering costs and spreading supply risk across multiple sourcing countries, may find redirecting orders from India to Bangladesh both practical and economically sound.
Former BGMEA director Mohiuddin Rubel emphasized that the EU’s move is not a punitive measure but part of its long-standing GSP framework.
He noted that India previously paid an average of 9.6% tariff on garments, while Bangladesh exported under the Everything But Arms (EBA) scheme at zero duty. India had been benefiting from partial relief under the RSP system, but that advantage has now ended.
As a result, Indian apparel exporters may face an additional average tariff burden of around 2.5%.
Rubel argued that even a 1% increase can significantly affect competitiveness in Europe’s price-sensitive market, where India had become increasingly aggressive.
He believes the additional tariff pressure could slow India’s momentum, placing Bangladesh in a relatively stronger position.
At the same time, he cautioned that this advantage will remain temporary, as tariffs could gradually decline once the India–EU FTA is finalized.
Beyond garments, Bangladesh could also benefit in leather and leather goods, home textiles, plastics and packaging, and light engineering products—industries where capacity has been expanding and competitiveness is gradually improving.
Long-term risks
The largest long-term risk for Bangladesh lies in its upcoming graduation from Least Developed Country (LDC) status.
If the country fails to secure EU GSP+ benefits afterward, it could soon face tariff pressures similar to those now confronting India.
Analysts argue that the present period should be used not only to increase orders, but also to strengthen long-term buyer relationships, boost value addition, and broaden product diversity.
At the same time, the EU’s upcoming Carbon Border Adjustment Mechanism (CBAM) is expected to influence future export conditions.
While this could pose challenges, Bangladesh’s relatively high number of green factories offers a potential competitive advantage.
With timely investments in carbon footprint measurement, renewable energy, and environmentally responsible production, sustainability could shift from being a risk into a strength.
Industry observers note that even a 1%–2% tariff difference in Europe’s highly price-sensitive market can trigger order realignments.
Indian garment exporters, who once paid an average of 9.6%, must now bear the full 12% MFN tariff, directly increasing product prices. Meanwhile, Bangladesh’s continued duty-free access positions it naturally ahead in pricing.
A European sourcing agent, speaking on condition of anonymity, summed up the market reality: “Price is the final factor for us. If Indian suppliers raise prices, Bangladesh naturally becomes the alternative.”
The suspension of India’s GSP benefits follows the EU’s ‘graduation’ policy, under which preferential tariffs are withdrawn if a country’s exports in a specific product category exceed a set threshold for three consecutive years.
Under an EU Commission Implementing Regulation adopted in September 2025, India, Indonesia, and Kenya were graduated from GSP benefits for the 2026–2028 period.