Retain EU and US Apparel Market Share Through Immediate Competitiveness Measures

Situation

Bangladesh is losing ground in its two largest apparel export destinations simultaneously. The European Union and the United States together account for the bulk of shipments, and the contraction in both value and volume signals a structural erosion of price competitiveness and market positioning. The data for the first five months of 2026 show a steep decline that, if unaddressed, will accelerate the narrowing gap between Bangladesh and its closest competitor, Vietnam, and permanently shift sourcing allocations. The government must act within the current fiscal quarter to arrest the slide before seasonal order renegotiations lock in reduced volumes for the second half of the year.

Evidence

Apparel exports to the EU fell by 18.89% year-on-year to €7.28 billion during January through May 2026 [The Business Standard, July 18, 2026]. The decline was driven by a 10.46% drop in export volume and a 9.41% decline in unit prices [The Business Standard, July 18, 2026]. As a result, Bangladesh’s share of total EU apparel imports slipped to 21.5% from 23.9% a year earlier [The Business Standard, July 18, 2026]. Exports to the United States contracted by 8.1% year-on-year to $3.25 billion over the same January to May period [OTEXA, July 12–14, 2026]. The competitive pressure is compounded by financing costs: commercial lending rates for apparel entrepreneurs are hovering near 15% [The Business Standard, July 18, 2026]. The broader trajectory is set by 2025 full-year figures, when Bangladesh eked out export growth of only 0.89% to $38.82 billion, while Vietnam grew by 10.53% to reach $37.51 billion [The Business Standard, July 18, 2026]. That differential, if sustained, will erase Bangladesh’s dollar-volume lead within the current calendar year.

Prescription

1. Bangladesh Bank to introduce a time-bound apparel export refinancing scheme at rates substantially below the 15% commercial lending rate [The Business Standard, July 18, 2026]. The central bank should launch a dedicated refinancing window for export-oriented apparel units, providing funds to scheduled banks at a subsidized rate and requiring a pass-through that ensures a meaningful reduction in the effective rate for the exporter. The scheme must be open for applications promptly and operate for a defined interim period, targeting working capital for confirmed orders from EU and US buyers. The mechanism: banks on-lend against letters of credit or confirmed purchase orders, Bangladesh Bank monitors monthly uptake and export realization, and the subsidy element is booked under the existing agriculture and industry refinance portfolio to avoid a supplementary budget requirement.
2. National Board of Revenue to reduce the source tax on apparel export proceeds for the current fiscal year by a substantial margin. The NBR should immediately issue a statutory regulatory order lowering the tax deduction at source on export proceeds. This cash-flow measure will release liquidity into exporter working capital without creating new direct expenditure. NBR must notify the order expeditiously and instruct authorized dealer banks to apply the reduced rate at the time of realization of export proceeds.
3. Ministry of Commerce, jointly with the Bangladesh Garment Manufacturers and Exporters Association, to deploy an urgent buyer-retention mission to key EU and US accounts. A delegation of senior officials and industry leaders should visit major apparel importing firms in key EU and US markets expeditiously. The mission’s objective is to offer a jointly underwritten price support mechanism on confirmed orders placed in the near term, funded through a combination of government export promotion grants and a voluntary industry levy. The support must be designed to avoid distorting fob price declarations, with a mechanism that ties benefits to export performance without altering invoice values.
4. Bangladesh Bank to issue a directive easing usance-period financing terms for apparel exporters. The central bank should extend the maximum permissible usance period for import of raw materials by apparel exporters for orders destined for the EU and the US, effective for a time-bound period. This will lower the per-unit working capital requirement and partially offset the 15% commercial lending rate [The Business Standard, July 18, 2026] without an explicit interest subsidy. Banks will continue to report usance liabilities under existing foreign exchange regulations.
5. Ministry of Finance to activate a dedicated apparel productivity facility managed by the central bank. The facility, seeded with a substantial allocation from the foreign exchange reserves, should provide medium-term loans for investments in automation, energy efficiency, and fabric mill modernisation. Disbursement must be tied to verified purchase of capital machinery and linked to agreed unit-cost reduction milestones, with concessional interest rates. The facility should be operational as rapidly as possible, with a first tranche prioritising factories that have experienced significant EU volume losses.

Risks and tradeoffs

The refinancing scheme risks diverting bank credit away from other sectors if not ring-fenced, requiring strict monitoring of end-use. The source tax reduction narrows the revenue base, requiring careful calibration to avoid a precedent for permanent exemptions. Buyer-retention price support may invite claims of export subsidization under World Trade Organization rules, requiring careful legal structuring as a buyer-facing marketing support rather than an export price rebate. Extending usance periods raises the central bank’s contingent foreign exchange liability if exporters default on import payments. The productivity facility from reserves could add to net domestic asset growth and complicate monetary management, demanding active mopping-up operations. The most binding constraint remains the 15% commercial lending rate [The Business Standard, July 18, 2026], which no single regulatory instrument can reduce quickly in a tight monetary environment.

Bottom line

Bangladesh’s apparel export decline in the EU is driven by simultaneous volume and price losses, and exports to the US are also contracting, with Vietnam closing the gap at a speed that demands intervention within the current quarter. A sequenced package of cheaper working capital, reduced tax drag, aggressive buyer engagement, eased import financing, and targeted productivity investment is the narrow path to stabilizing market share before the next order cycle begins.