Why Bangladesh’s Textile Industry Faces Long-Term Risks from EU Carbon Levies

According to a draft study by the Centre for Policy Dialogue, Bangladesh's immediate tariff exposure under the mechanism remains marginal—yet the contingency facing its export base is structurally significant. With apparel accounting for the overwhelming share of Bangladesh's external sales, any extension of CBAM to textiles would impose a measurable competitive burden on the country's flagship industry.

Current scope versus potential exposure

CBAM currently applies to iron and steel, aluminium, cement, fertilisers, electricity and hydrogen—sectors selected for their elevated carbon-leakage risk. The CPD analysis finds that these product lines constitute just 0.60% of Bangladesh's total exports, leaving the immediate fiscal channel effectively narrow.

The latent exposure, however, is considerably wider. The same study identifies apparel among sectors that could fall within an expanded CBAM scope. Those potentially affected categories represent 81.61% of Bangladesh's total exports and 39.75% of its shipments to the EU—figures that quantify the scale of the contingency without implying present coverage. The study stresses that the 81.61% figure denotes potential vulnerability rather than current coverage, underscoring the conditional nature of the risk.

Compounding pressures on the RMG sector

The CBAM question does not arrive in isolation. Bangladesh is concurrently navigating the erosion of trade preferences following its expected graduation from the UN's Least Developed Country category, a transition that will reduce preferential market access in parallel with any new carbon-related trade measures. The CPD draft flags this overlap as a structural vulnerability for the ready-made garment sector.

In remarks at the Expert Group Meeting, CPD Executive Director Dr Fahmida Khatun indicated that products currently within CBAM scope are not major Bangladeshi exports to the EU, but cautioned that the mechanism could grow more relevant if its scope expands. She urged government and industry to establish carbon-accounting systems and assess compliance preparations rather than treat the issue as academic. Dr Sakib Bin Amin of North South University, who presented the draft findings, framed the analysis around RMG competitiveness, the erosion of tariff preferences and wider economic spillovers.

Separate indicators reinforce the squeeze. Bangladesh Bank has noted that the RMG sector faces stiffer competition and rising costs, while domestic industry sources point to a raised value-addition requirement of up to 40% for garment exports. In parallel, factory-level adoption of AI-driven IoT monitoring systems has yielded productivity gains of up to 25% in some facilities—an operational lever exporters may lean on as they weigh decarbonisation and compliance investment.

Indicators worth tracking

Three variables carry analytical weight. First, any EU legislative signal extending CBAM scope to textiles and apparel, which would convert the 81.61% exposure figure from theoretical to operational. Second, the trajectory of Bangladesh's LDC graduation and the bilateral negotiations accompanying the loss of tariff preferences. Third, the pace at which manufacturers install verifiable emissions measurement and carbon-accounting infrastructure—a prerequisite for any defensible position under EU climate-related procurement standards.