What does a European program to help certain developing countries have to do with the global textile industry?

Apparently, not much. The Everything But Arms (EBA) program was created by the European Commission to help poor countries, by giving them preferential access to the European market.

In fact, the European Union levies zero percent tariffs on the products imported from EBA countries.

And so far, so good.

But when you read that one of such EBA countries is Bangladesh, the above question begins to make sense.

Bangladesh may seem just as an overly populated poor country next to India. And it is actually an underdeveloped country whose inclusion in the EBA program is by all means warranted.

However, because of such abundance of cheap labor, Bangladesh has become a global manufacturing hub for the textile industry.

On the other side, think about Europe and all the fashion and textile brands that are headquartered there. Luxury makers such as LVMH and Gucci, premium brands such as D&G and Moncler, fast fashion giants like Zara and H&M.

And here is the answer: the EBA program allows European firms to outsource their production to cheap and productive Bangladesh and assures the continuous flow of textile goods to the Continent at zero tariffs.

How Bangladesh Became A Global Textile Manufacturing Hub

There are two reasons why Bangladesh became a global manufacturing hub for the textile industry.

The first lies in Bangladesh’s economic data: its massive population of 160 million people combined with a low GDP per capita of only 4,000 USD means that the country has great abundance of cheap labor.

Hit by adverse weather conditions and foreign competition, the Bangladeshi farmers that used to inhabit the countryside could not rely on their unstable agricultural income anymore. They left their lands in search for a stable salary in the many factories that populate Bangladesh’s huge cities like Dhaka.

That salary, however, is extremely low. Actually, it is the lowest in the world at 160 USD per month and can be as low as 40 USD for unskilled workers.

A Bangladeshi worker is 75% cheaper than a Chinese worker. That is the second reason behind Bangladesh’s rise in the textile industry.

Textiles is a labor intensive business. It was the first industry to develop in industrial Britain in the late 1700s and has since shifted around the globe in search of cheap labor. It does not require a lot of fixed investments. There is no innovative technology that can make it more efficient. Textiles just need a lot of cheap workforce.

China, which developed by attracting foreign factories through its cheap and abundant workforce, has been losing its edge in textiles. Chinese salaries have been growing dramatically in the last few years, as the country shifts to a more advanced technological economy.

As a result, textile businesses are fleeing China. Some land in Vietnam, but the bulk of them choose Bangladesh.

As a result, Bangladesh has taken over the role of the textile factory of the world.

Why Textiles Is So Important for Europe

Since the first industrialization began in Britain and France, Europe has always had a love affair with the textile industry. Even after the massive delocalization of production to low cost countries that started decades ago, textiles still account for 6% of manufacturing employment in the European Union.

But that is not where big money is. Europe is home to the world’s most famous fashion and textile brands. In the luxury sector, Luis Vuitton, Gucci, Armani, Hermes, Burberry, and many others are the most famous brands at global level.

Three out of four of the world’s fashion capitals, Paris, Milan, London, and New York, are in Europe. Two large European countries, France and Italy, derive a substantial amount of their GDP and exports from this sector. Even a heavy-industry player like Germany is home of global leading brands in sports apparel: Adidas and Puma.

For most of the sector, production has been moved to the East already since the 1980s.

Moreover, a couple of decades ago, Europe developed a new kind of fashion, so called fast fashion, now represented by global giants such as Zara (Spain) and H&M (Sweden).

The success of fast fashion businesses is based on providing extremely cheap clothes at the latest design. If you look at where they such garments are actually made, you will see that it is in Bangladesh.

The Role of The EBA Program in Textiles Trade Between Europe And Bangladesh

Europe’s fast fashion industry could not survive without Bangladesh. And Bangladesh could not be developing its massive textile manufacturing base without a huge export market like the European Union.

From 2007 to 2015, Bangladesh’s export to the EU grew by a factor of three, from 5,464 million EUR to 15,145 million EUR.

Such amount now represents almost half of the total amount of Bangladesh’s exports.

You might have already guessed that most of this trade is made of textile products. In fact, textiles account for 90% of Bangladesh’s exports to the European Union.

The EBA program allows this flow to continue frictionless.