AEPC Flags FTA Utilisation Crisis: 75% of Apparel Export Benefits Unclaimed Despite 50+ Trade Deals

With just days to go before the India-UK Comprehensive Economic and Trade Agreement (CETA) comes into force on July 15 which is going to provide duty-free access on nearly 99% of Indian exports to the British market, India's apparel sector is about to get a major boost.

Tariffs of up to 12% on textiles and clothing exported to the UK will fall to zero, potentially adding $1.35 billion annually to India's garment export revenues and doubling India's market share in UK apparel imports from 6% to 12% over the next three to five years.

And if a full-fledged Bilateral Trade Agreement with the United States, which is the world's single-largest apparel import market at $81 billion annually, eventually gets signed, India's preferential market access could cross 80% of global apparel trade.

The opportunity is massive at this point but so is the gap between what is on paper and what exporters are actually claiming.

India's Free Trade Agreement Utilisation is Still Low

Despite all these big numbers and huge potential on cards, India's Free Trade Agreement utilisation is stuck at a mere 25%. So to address that issue, the Apparel Export Promotion Council (AEPC) is conducting its pan-India seminar, first of which was held in Bangalore on June 25th. The event features apparel industry leaders, government officials and trade experts to talk about where India's $13 billion apparel export engine is heading and what is holding it back.

Talking about why FTA utilisation is India's most pressing trade challenge, Dr Sanjay Kumar Mangla, Associate Professor of Economics and International Trade at Symbiosis Institute of Management Studies (SIMS), Pune, said, "FTA utilisation, not merely signing an FTA, drives the growth. The challenge is not market access. It is market penetration."

"India currently has FTAs with more than 50 countries whose combined population is 1.75 billion, larger than India's own domestic market of 1.45 billion. The EU alone is the world's single-largest cumulative apparel importer at $216 billion, while the UK market, with CETA enforcement now imminent, represents a fresh $21 billion opportunity. Bangladesh and Vietnam enjoy an effective 8-12% price advantage in these markets simply because they have preferential access that India is only now beginning to secure," he added.

UK FTA Has a Liberal Advantage: AEPC Secretary General

In an exclusive interaction with GoodReturn, Mithileshwar Thakur, Secretary General of AEPC, talked about why the India-UK CETA stands apart from earlier trade agreements.

"The UK FTA has an advantage over other FTAs," Thakur said. "The rules of origin in the UK FTA are fairly liberal. It is essentially a change of tariff heading plus value addition of around 45%. It is not fabric-forward or yarn-forward."

This difference is very important for Indian exporters. In a fabric-forward rule, like the one in the India-EU FTA, the fabric used to make the garment must come from within the country for the finished product to get lower import duty benefits. India is strong in cotton textiles and mostly produces the supply chain at home, so cotton garments usually qualify easily under most FTAs. The bigger challenge is with man-made fibre (MMF) garments, because India has often depended on imported fabric for those.

"Because the rules of origin of the UK FTA are so liberal, I think we will not have any difficulty in meeting that criterion in MMF garments also," he said. "So the UK has a special advantage over other agreements."

Low Awareness, Not Just Compliance, Is the Root Problem of Low FTA Utilisation

When asked about why many exporters ignore the FTA benefits altogether due to complicated compliance rules, Thakur said.
"Compliance is one challenge, but most of the time they are simply not aware. Awareness is the real gap. Our FTA utilisation has been very low, almost 25%. We are trying to make everybody aware of the FTA benefits, the documentation requirements, and the rules of origin, so that they prepare themselves and come to know what lies ahead of them. Otherwise, you end up doing something that is not yielding worthwhile results."

India Must Move Up the Value Chain

Bangladesh is outpacing India in apparel exports despite being a fraction of India's size. When asked about the real reason behind this disparity, Dona Ghosh, Joint Director General of Foreign Trade (DGFT), Government of India, explained, "Bangladesh has been able to integrate well in the global value chain, which means they are compliant with most requirements," she said.

"They are also very labour-intensive, and the unit cost matches. India does not believe in exploiting labour. We have our minimum wage standards. That is totally fine. So where should India tap in? We should tap into value-added products."

"If you look at your own garments, you would see a certain percentage of viscose, a certain percentage of lycra. These man-made fabrics have a lot of exposure and scope. We can move into value-added products like athleisure, casual wear, loungewear, innerwear. When we start using these kinds of product categories, there is a huge market. We have to innovate. That's it." Dona Added.

Bangladesh Vs India: The LDC Advantage

"First, Bangladesh's LDC status gives it zero-duty access under the Hong Kong Declaration of 2005 in several developed markets. Second, their labour cost has historically been minimal, as low as $75 per month, until recent protests pushed it to around $112. India's minimum wage obligations, while ethically correct, put Indian manufacturers at a cost disadvantage for low-value commodity garments." Thakur said

AI, Automation and 4.5 Crore Jobs In the Sector

"Our productivity is low compared to Bangladesh and Vietnam. We make 2.4 garments per hour. Bangladesh makes 3, with four extra working hours. Vietnam makes 2.8. Our productivity has to grow," he said.

"You may be in a labour-intensive industry, but you cannot afford not to adapt to the latest technology. However, I do not believe in the theory that AI will replace human beings. It cannot. The creativity element cannot be compressed. AI can fetch you things in the public domain. If something takes five hours, it can do it in five minutes. But creativity cannot be replaced," Dona added.

ESG and Worker Welfare In The Sector

On the question of worker welfare alongside all this export growth, both Thakur and Ghosh pointed to international brands as the most effective compliance enforcers, perhaps more so than government regulation.

"Brands ensure workers are treated well. There is SA 8000 certification that covers worker housing, social compliance, and environmental standards. If you are not meeting those standards, the brand will simply not source from you," said Thakur.

"Their ESG norms are very stringent. Carbon footprint at every point of the supply chain. Digital product passports are coming; they will trace the product from fibre to finished garment."

Ghosh added that India's formal export sector is generally well-governed on this front. "The grey market is a different story. But in the organised export sector, the brands insist on compliance. It is actually very good."