Garment exports in crisis under Europe's unrest and the yarn policy squeeze at home

Deep concern has grown over the future of Bangladesh's ready-made garment sector amid continuing social and economic unrest in Europe's major economies. While demand is falling in foreign markets, policy decisions at home are pushing production costs up.

In countries such as France, Italy, Portugal, Belgium and Spain, protests against the rising cost of living, higher energy prices and a housing crisis have spread, stalling overall economic activity across the region.

As a result, alongside a fall in European consumers' purchasing power, demand for clothing has come under severe strain. The situation has become so complicated that European buyers are suddenly ordering previously finalised purchase orders to be put on hold.

According to Export Promotion Bureau (EPB) statistics, nearly half of Bangladesh's total garment exports go to European Union countries. Any shock in the European market therefore hits Bangladesh's main export sector directly.

According to European Commission projections, Europe's economic growth in 2026 could slow to 1.1 percent, down from 1.5 percent last year. The effects of this slowdown are already becoming visible.

Updated data from Eurostat, the EU's statistics agency, show that overall clothing imports into Europe fell by 1.29 percent in the eight months from January to August this year. Over the same period, garment exports from Bangladesh there shrank by 12.67 percent, although August and September showed some signs of recovery.

Amid this adverse situation in the European market, a domestic policy decision has placed a new cost burden on local garment manufacturers. To protect domestic textile mills, the government has withdrawn the bonded warehouse facility for importing 10 to 30 count yarn, widely used in knitwear production.

Under the revised rules, importers must now provide a bank guarantee equal to 100 percent of the value of the imported yarn, which can be released after export is completed and documents are produced.

According to garment manufacturers, this obligation is effectively working as an indirect non-tariff barrier. As a result, they are having to source yarn from the local market at comparatively higher prices.

While imported high-quality 30-count yarn costs 3.15 US dollars per kilogram, yarn of the same standard in the domestic market costs 3.75 dollars. Because of this obligation to use local yarn, production costs are rising by up to 0.15 dollars per piece of clothing on average.

On one side, European buyers are pressing hard for lower prices citing the global downturn; on the other, rising local production costs are putting Bangladesh's competitiveness in the international market at risk. Alongside this, the process of setting a new wage structure for garment workers is under way, which will push production costs higher still once implemented. At the same time, the existing energy crisis and the extra cost of electricity and gas are adding further pressure.

Meanwhile, fierce competitors such as Vietnam and India are securing advantageous duty-free positions by signing free trade agreements (FTAs) with the European Union. There is a strong fear that if the restrictions on importing raw materials at home are not reconsidered quickly, international buyers may turn in the coming months to alternative markets such as Vietnam, Cambodia, India or Pakistan.