Garment, leather sectors face growing pressure: Experts

Bangladesh’s garment and leather industries are facing a difficult period of adjustment as the country prepares to graduate from the Least Developed Country (LDC) category, with experts warning that tariff preferences alone will not be enough to sustain export competitiveness.

The key question for the country’s two major export sectors is no longer how long duty-free market access will remain, but whether they can become sufficiently competitive before those advantages begin to disappear.

Although Bangladesh still enjoys preferential tariff facilities, garment exports to the European market are already declining, while competing countries, including Vietnam, are strengthening their positions. The leather sector, despite having significant potential, has remained around the $1 billion export mark for more than a decade.

Experts say Bangladesh must use the additional preparation period following the extension of its LDC graduation to reduce production costs, improve technology and skills, ensure environmental compliance and develop higher-value products.

Commerce Minister Khandaker Abdul Muktadir said it was essential to maintain the competitiveness of Bangladesh’s apparel sector after the country graduates from the LDC category.

He also stressed the importance of export diversification and strengthening sector-specific capabilities.

According to the minister, the additional preparation period should not be used to delay reforms. Rather, it should be utilized for a sustainable and stable economic transition.

He said Bangladesh could earn more than $10 billion annually from the leather sector if locally produced rawhide and leather were properly processed and utilized for export. He added that although the decision to relocate the leather industry from Hazaribagh was correct, the relocation process was not properly implemented.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Mahmud Hasan Khan said a business-friendly environment must be ensured immediately to preserve competitiveness after LDC graduation.

He identified resolving the gas crisis, simplifying customs procedures, ensuring access to low-cost financing and improving logistics and transportation systems as some of the most urgent priorities.

Sakif Shamim, chairman of private research organization Centre for Strategic and Economic Research (CSER) and managing director of Labaid Hospital Group, warned that Bangladesh’s biggest risk would be treating any extension of the LDC transition period as another prolonged period of comfort.

“The reality is that Bangladesh’s garment exports to the European market are declining faster than those of competitors even while tariff preferences remain in place,” he said.

He noted that the leather sector, too, had failed to make significant progress for more than a decade.

At the same time, Shamim said Bangladesh possessed substantial strengths, including its large garment production capacity, skilled workforce, long-standing relationships with global buyers and locally available raw materials for the leather industry.

“These assets now need to be combined with modern technology, productivity, environmental standards and higher-value products,” he said.

According to him, the fundamental question is whether Bangladesh can build an industrial base before preferential access ends in which product quality, productivity, faster delivery, technology and environmental compliance become the main sources of competitiveness rather than low tariffs alone.

Shamim further said that if Bangladesh could utilize the additional time effectively, exports could continue to grow even after tariff preferences decline.

“If the time simply passes, however, the tariff shock after 2032, rising production costs and global competition could create enormous pressure on Bangladesh’s export economy,” he said.

“The choice ahead is between dependence on preferences and standing on competitiveness. The future of Bangladesh’s export economy will depend on which path we choose,” he added.

Leather industry entrepreneur Syed Nasim Manzur said it would be difficult for Bangladesh to establish a strong position in the supply chains of major global buyers without international environmental certification.

He said Bangladesh’s leather industry would remain virtually invisible in developed markets unless the wastewater treatment facility in Savar and broader environmental standards were properly addressed.

With appropriate policy support, infrastructure and environmental compliance, he believes Bangladesh could raise exports of leather and leather goods to $5 billion by 2030.

According to Manzur, the biggest opportunity in the leather sector lies in value addition. Instead of exporting only processed leather, Bangladesh should expand production of shoes, bags, wallets, travel goods, automotive leather and other finished products.

The leather sector urgently needs technological modernization, skilled workers and a permanent solution to environmental management problems. In particular, the Central Effluent Treatment Plant (CETP) in the Savar tannery industrial estate, solid-waste management, water management and overall environmental compliance need to be improved to enable long-term business with major global brands.

A CSER analysis said the European market is critically important for Bangladesh. Under the new European Union tariff framework, countries graduating from the LDC category in 2026 will receive a three-year transition period for retaining Everything But Arms (EBA) benefits.

As a result, if Bangladesh’s graduation is postponed until 2029, the country could potentially retain duty-free access to the European market until around 2032.

However, the analysis warned that the additional time should not simply be used to retain existing advantages. Instead, Bangladesh must take immediate measures to strengthen competitiveness.

The figures indicate why urgent action is necessary. In fiscal year 2025-26, Bangladesh’s garment export earnings stood at $38.7 billion, down 1.64 percent from the previous year.

The situation in Europe is more concerning. During the first six months of 2026, Bangladesh’s garment exports to the European Union fell 16.43 percent to €8.64 billion, while the EU’s overall apparel imports declined 9.7 percent.

Between January and April 2026, Bangladesh’s garment exports to the EU dropped 19.33 percent, compared with a 10.42 percent decline in the EU’s overall apparel imports. Bangladesh also performed weaker than Vietnam, China, India and Turkey during the period.

This trend is particularly worrying because Bangladesh continues to enjoy EBA tariff preferences. Following LDC graduation, average tariffs on Bangladeshi garments in the European market could rise to around 12 percent, according to studies cited in the analysis.

Meanwhile, Vietnam and other competitors are strengthening their positions through improved production efficiency, trade agreements, higher-value products and greater use of technology.

The leather sector presents a different picture. Bangladesh’s leather and leather-goods exports reached $1.23 billion in fiscal 2025-26, up 7.07 percent year-on-year. However, the sector’s decade-long performance shows limited progress. Exports were around $1.13 billion in fiscal 2014-15, meaning earnings have remained broadly stagnant over the decade.

The source also notes that the leather sector could potentially become a multibillion-dollar export industry if Bangladesh can properly process and utilize its domestic raw materials.

To prepare for the post-preference era, Bangladesh must strengthen trade diplomacy with the EU and begin discussions on future preferential market access, including GSP+, a possible free trade agreement and other preferential arrangements.

The garment sector must diversify away from low-value basic products and invest in technical textiles, man-made fibre, sportswear, outerwear, lingerie and functional apparel. Industry 4.0 technologies—including artificial intelligence, robotics, automated cutting, digital production planning and data-driven supply chains—must also become part of the competitiveness strategy.

At the same time, workers will need reskilling and upskilling to operate new technologies.

For the leather sector, permanent solutions to the environmental problems at Savar, international certification, modern waste management and greater production of high-value finished goods are essential.

The broader export strategy should also focus on pharmaceuticals, agro-processing, light engineering, ICT services, footwear, plastics, ceramics and other promising sectors.

Ultimately, Bangladesh cannot rely on tariff preferences as the foundation of its export future. Global buyers increasingly seek suppliers that can ensure stable production, consistent quality, timely delivery, environmental compliance and flexibility.

The proposed three-year extension should therefore be viewed not as permanent protection, but as a transition window. If Bangladesh uses it to reform trade policy, infrastructure, technology, skills, energy, financing and environmental compliance, the country may be able to remain competitive after 2032.

Otherwise, the end of preferential access could turn existing pressures in the garment and leather sectors into a much deeper export crisis.