India-EU trade deal: Transforming global apparel supply chains

Table 1: Top 10 affected countries due to the signing of the India-EU agreement (in $ mn)

Source: Analysis using the SMART tool

The data indicates that several countries could experience significant export revenue losses in the apparel sector if the European Union (EU) grants India a 0 per cent tariff on its exports. Such a move would provide India’s textile and garment industry with a substantial competitive edge by eliminating tariff barriers, making Indian apparel more appealing to EU buyers. This advantage is expected to result in trade diversion, where EU imports from countries like Bangladesh, China, and Turkiye may decline in favour of India’s competitively priced products.

Bangladesh, China, and Pakistan are among the most affected nations, given their heavy reliance on the EU market for textile exports. Bangladesh, facing an estimated revenue loss of $220.45 million, is particularly vulnerable. The country’s cotton garments across all age and gender categories risk being replaced by Indian cotton apparel, especially if India enhances its vertical integration within the textile supply chain.

China, with a projected loss of $170.91 million, is likely to encounter intensified competition from Indian exports, particularly in mass-market, low-cost segments where price sensitivity is a critical factor. Pakistan, expected to lose $13.64 million in export revenue, may face similar challenges, especially in price-sensitive markets where India’s tariff advantage could prove decisive.

Other countries heavily reliant on apparel exports to the EU, such as Cambodia and Morocco, would also be impacted. Cambodia, with a potential revenue loss of $14.85 million, would find it difficult to compete with India due to the overlap in product offerings, particularly in mass-market garments. Meanwhile, Morocco, which has carved out a niche in women’s apparel in the EU, could see its growth disrupted by India’s larger economies of scale and increased competitiveness in this segment.

Turkiye, with an estimated revenue loss of $98.32 million, and Vietnam, facing a loss of $21.15 million, are also expected to experience trade diversion, albeit to a lesser extent than some of their counterparts. Both countries benefit from a more diversified apparel export base, including mid-range and high-quality segments. However, India’s competitive pricing, coupled with improved access to the EU market, could still erode their market share, particularly in the price-sensitive lower-end apparel segment.

For Turkiye, the challenge lies in offsetting potential losses in the EU’s price-sensitive market. The country may need to pivot towards higher-end garments and value-added apparel to maintain its foothold, leveraging its established reputation for quality and innovation.

Similarly, Vietnam might explore strategies to mitigate its $21.15 million revenue loss by expanding its presence in non-EU markets, thereby reducing its reliance on European demand. Diversifying export destinations and strengthening its position in premium and niche segments could help Vietnam remain competitive despite India’s growing influence in the EU apparel market.

Both countries will need to adapt to the shifting trade dynamics brought about by India’s tariff advantage, emphasising innovation, diversification, and market differentiation to sustain growth.

This scenario underscores the transformative impact of tariff reductions on global apparel trade dynamics, with India emerging as a formidable player in the EU market at the expense of traditional suppliers.

Table 2: China’s trade diversion due to India-EU trade agreement (in $ mn)

Source: Analysis using the SMART tool, F2F Analysis

Table 3: Bangladesh’s trade diversion due to India-EU trade agreement (in $ mn)

Source: Analysis using the SMART tool

Table 4: Turkiye’s trade diversion after the India-EU trade agreement (in $ mn)

Source: Analysis using the SMART tool, F2F Analysis

Table 5: Vietnam’s trade diversion after India-EU trade agreement (in $ Mn)

Source: Analysis using the SMART tool

Table 6: Morocco’s trade diversion after India-EU trade agreement (in $ mn)

Source: Analysis using the SMART tool

Possible Impact on Apparel Supply Chains: A Summative View

The proposed 0 per cent tariff for Indian textiles under the India-EU trade agreement is expected to cause significant trade diversion, impacting apparel exports from several countries heavily reliant on the EU market.

Bangladesh: Faces a projected revenue loss of $220.45 million, with cotton T-shirts (-$61.53 million) and cotton garments being most affected. Despite EBA status and EU support for rebuilding, logistics issues exacerbate its vulnerability.

China: Likely to lose $170.91 million, primarily in women’s dresses and pullovers, amid strained EU trade relations and upcoming US sanctions.

Turkiye: Estimated revenue loss of $98.32 million, with cotton T-shirts (-$16.49 million) and jerseys among the affected products. While part of the EU-Turkiye Customs Union, it may shift focus to high-end, value-added garments.

Pakistan: Projected loss of $13.64 million, mainly in price-sensitive apparel markets, where India’s tariff advantage is pronounced.

Vietnam: Faces a smaller loss of $21.15 million, with cotton T-shirts (-$2.79 million) and men’s shirts affected. Diversification beyond the EU market could mitigate risks.

Cambodia: Revenue loss of $14.85 million, with overlapping mass-market products intensifying competition.

Morocco: Estimated loss of $3.97 million, primarily in women’s apparel, despite the EU’s CBI support for its sector.

India’s competitive pricing, economies of scale, and enhanced EU market access position it as a major player, reshaping global trade dynamics in favour of its apparel sector.

Fibre2Fashion News Desk (NS)