The Canary in the Cotton Mill

https://doi.org/10.5281/zenodo.19854469

Start with a number: $28.57 billion

That is what Bangladesh’s garment factories earned in the first nine months of this financial year , July through March. A year earlier, the same nine months brought in $30.24 billion. The difference is $1.67 billion, roughly five and a half percent of the total, quietly erased.
What makes this uncomfortable is not the size of the loss. It is the geography. Nine of Bangladesh’s ten largest export markets shrank simultaneously , Germany by 14%, Denmark by nearly as much, France by over 12%, Italy by more than 10%. Japan, the United States, the United Kingdom, Canada, the Netherlands , all contracting, all in the same window. Only Spain registered marginal growth.
Nine markets at once. That pattern does not have a cyclical explanation.
When a single market weakens, there is usually a cause close at hand. When nine contract together, the common thread is not any individual partner’s circumstances. It is Bangladesh , its competitive position, its cost structure, its reliability under pressure. That reading leads somewhere more consequential than a bad year.

What Bangladesh is experiencing is not a cyclical downturn but an early and partial exposure to a post-preference competitive regime for which its garment sector remains structurally underprepared. The policy response to a bad year , wait it out , is the wrong response to a regime shift.

Three things went wrong. None of them tells the whole story

There are real and well-documented reasons for what happened in 2025–26. They deserve to be taken seriously , and then placed in the larger picture they do not quite explain.
The first was Washington. The Trump administration’s tariff retaliation raised the cost of importing Bangladeshi goods into the American market. The knock-on effect in Europe was indirect but significant: EU buyers watching global trade fracture became more cautious, cutting orders or consolidating supply chains around sourcing partners they considered more stable. Bangladesh, already competing against Vietnam, Cambodia, and producers in Ethiopia and Myanmar, found orders thinning from both sides of the Atlantic simultaneously.
The second was the Strait of Hormuz. From late February 2026, the Iran crisis disrupted one of the world’s critical shipping corridors , historically the passage for roughly 20% of global oil trade (Reuters, 2026). For Bangladesh, this was not an abstraction. Diesel prices rose. Factory generators, already running hard to compensate for an unreliable national grid, became substantially more expensive to operate. Production schedules slipped. Lead times stretched. In an industry where a contract can be won or lost in a matter of weeks, stretched lead times translate directly into lost business.
The same energy disruption affected Vietnam , and Vietnam grew through it. The differential is specific: an estimated 60% or more of Bangladesh’s non-grid-connected factories depend on diesel generation as primary or backup power, compared to Vietnam’s more diversified grid and gas-based energy mix (ESCAP, 2024). The shock was regional. The damage was not.
The third factor is domestic and longer-running. Bangladesh’s industrial power infrastructure , gas supply to factories, grid reliability, the regulatory environment for private generation , has been falling behind buyer expectations for years. This is not a new problem. It is a quiet drag accumulating beneath strong headline export numbers, becoming visible precisely when external conditions deteriorate and buyers grow less tolerant of friction.
Together, these three shocks explain a rough year. What they do not explain is why Bangladesh is navigating them more poorly than its neighbours, or why the underlying picture looks softer than recent export numbers implied. That explanation requires a different lens , and an understanding of what global buyers actually optimise for.

What buyers are actually deciding

Bangladesh’s export contraction is not only a story of what is happening in Dhaka. It is equally a story of what is being decided in the sourcing offices of retailers in London, Paris, and Frankfurt.
Global apparel brands optimise across three variables, in roughly this order: reliability, cost, and compliance. Reliability , the confidence that an order placed today will be fulfilled at the agreed specification, on the agreed date , is the binding constraint. Cost matters once reliability is established. Compliance has moved from optional to necessary but sits third in the buyer’s calculus unless regulatory pressure forces it higher.
Bangladesh’s cost position remains competitive. Its compliance trajectory, though weak relative to Vietnam and Cambodia, is not the primary driver of order cancellations today. What is driving hesitation is uncertainty , the reasonable concern of a sourcing manager that factory energy outages will extend lead times, that political instability will disrupt production windows, that the country’s institutional infrastructure cannot deliver the predictability a global supply chain requires.

This is what the canary is actually sensing. Not a single shock, but a gradual erosion of Bangladesh’s core competitive advantage: its ability to offer cost-competitive, sufficiently reliable production at scale.

Rising energy costs, lengthening lead times, inadequate inspection infrastructure, and an informal labour force without formal accountability mechanisms are collectively degrading the reliability proposition that justifies sourcing from Bangladesh at all. When Vietnam demonstrates that it can absorb the same external shocks and maintain delivery, the comparison is immediate and unflattering.
The buyers are not waiting for Bangladesh’s policy response. They are already adjusting their supplier portfolios. The contraction this year is the early evidence of that adjustment.

A graduation that changes the rules permanently

Bangladesh is scheduled to formally graduate from the Least Developed Country category in 2026. The practical significance of this for an export sector built on preferential access is difficult to overstate.
Since 2001, Bangladesh has benefited from the European Union’s Everything But Arms framework , a scheme granting duty-free, quota-free EU access to virtually all exports from LDC-classified countries. Approximately 60% of Bangladesh’s garment exports flow to the EU. Under EBA, they enter at zero tariff. After graduation, without a replacement arrangement, they face average Most Favoured Nation rates of around 9.6% on garments (WTO, 2023).
The cost of that change on EU-bound garment exports alone is approximately $2.7 billion annually in foregone revenue. Across all trading partners, total preference erosion approaches $7–8 billion per year , roughly 14% of Bangladesh’s total annual export earnings (WTO, 2023; CPD, 2024).
Two paths to something like a replacement exist. The first is GSP+, the EU’s preference scheme for middle-tier developing countries. The requirement: ratification and effective implementation of 32 international conventions covering labour rights, human rights, environment, and governance (European Commission, 2023). Bangladesh’s compliance against those 32 is incomplete. The second is bilateral free trade agreements , with the EU, the United Kingdom, Canada, Japan. None of those negotiations have been formally launched.
The distinction from the current export slump is this: the Hormuz disruption will resolve. American tariff policy is volatile and may ease. The post-graduation loss of EBA access, if not substituted, is permanent.

Three million people are in the middle of this

Bangladesh’s garment sector employs roughly 3.04 million workers. Of those, approximately 92% , some 2.80 million people , are employed informally, according to sector-specific factory mapping data (MiB, 2024). No written employment contract. No social security. No formal grievance mechanism. No legal floor on dismissal. When export orders fall, these workers are the first to go and the last to be recalled.
Current scenario analysis places between 314,000 and 448,000 jobs at immediate risk from the current disruption and early graduation adjustment (MiB, 2024; AFWA, 2024). Under an adverse post-graduation scenario , a 14–18% sector compression , direct exposure in registered factories could reach 420,000 to 540,000 positions, with further displacement across sub-contracting chains that sit largely outside formal accounting.
On wages, the arithmetic is unforgiving. The nominal RMG minimum wage rose from BDT 9,857 in 2015 to BDT 12,500 following the 2023 wage board determination , a 27% nominal increase. Over the same period, cumulative inflation reached 57.5% (BBS, 2023). Real wages fell by roughly 20%. The 2023 minimum represents less than 54% of the estimated living wage benchmark for Dhaka , BDT 23,254 as calculated by the Global Living Wage Coalition in 2022; given inflation since that date, the gap is almost certainly wider now (GLWC, 2022).
The familiar industry response , that unilateral wage increases push buyers toward lower-cost competitors , is not wrong in the short run. But it obscures the medium-term dynamic. A workforce that is chronically underpaid, without formal protections, and without skills investment becomes less productive, more prone to unrest, and progressively less attractive to the higher-standards buyers who increasingly determine where growth in global apparel flows. The low-wage, high-informality equilibrium is less stable than it appears.

Fifty-eight percent of those workers are women

Around 1.77 million women work in Bangladesh’s garment factories , approximately 58% of the total workforce (MiB, 2024). They sit at the convergence of nearly every structural disadvantage in the sector.
The wage gap is persistent: female workers earn on average 11.5% less than male workers in equivalent roles, a disparity that has not narrowed meaningfully despite sustained advocacy over many years (SANEM, 2022). The supervisory ceiling is stark: women hold approximately 9% of supervisory positions in Bangladeshi factories, against 19% in Cambodia and 26% in Vietnam (ILO & Better Work, 2018). The digital exclusion is a forward-looking liability: a 2023 survey found that 59% of female RMG workers do not regularly use a mobile phone, meaning that factory digitisation is being rolled out across a workforce where most female workers lack the basic digital literacy to adapt to it (UNCDF, 2023).
These are not only equity issues, though they are that. EU and UK legislation on mandatory human rights due diligence , in force since 2024–25 , requires importing companies to assess suppliers against explicit ESG criteria including gender pay transparency, supervisory representation, and skills investment. Bangladesh’s performance on all three is measurably weaker than its principal competitors. That gap shows up in sourcing decisions , and in the reliability calculus of buyers who find compliance verification in Bangladesh more costly and less certain than in Vietnam or Cambodia.
The historical pattern in comparable export contractions is consistent: female informal workers are the first to lose jobs and the last to be rehired when orders recover (ILO, 2020). Cambodia has demonstrated what targeted policy can achieve , subsidised childcare, gender-sensitive TVET enrolment, formalised maternity provisions , and the resilience outcomes during sector adjustment were measurable (ADB, 2020). Bangladesh has not yet made that investment at scale.

The institutions are not ready

Two decades of strong export growth under preferential access have not produced the institutional infrastructure needed to compete without it. The gap shows up across three dimensions.
On labour inspection: the Department of Inspection for Factories and Establishments has approximately 1,200 inspectors for more than 3,555 registered garment factories (ILO, 2023). By the author’s calculation from the principles of ILO Labour Inspection Convention No. 81 , which ties inspection capacity to covered worker populations , Bangladesh’s effective ratio sits roughly 34 times below what meaningful enforcement requires. Most factories operate most of the time without serious regulatory oversight. Informality is not merely tolerated; the inspection system structurally enables it.
This is not only a governance problem. EU and UK human rights due diligence regulations require importing companies to verify supplier compliance. A sector operating at this inspection deficit is not credibly auditable. Buyers face a choice between expensive private auditing of Bangladeshi suppliers and sourcing from countries where public inspection infrastructure makes verification less burdensome. That is a competitive cost that does not appear in any tariff schedule.
On skills: more than 60% of RMG workers currently lack the technical competencies required for modern machinery and digital production tools (ESCAP, 2024). BGMEA estimated in 2017 , the most recent comprehensive sectoral assessment available , that this skills gap costs the sector up to $6 billion annually. Bangladesh’s TVET system alignment with industry needs scores approximately 4.5 out of 10, against Vietnam’s score of around 8.0 (ESCAP, 2024). The 2024 Sustainable Development Report assigns Bangladesh a composite ESG compliance score of 62.1 against Vietnam’s 73.0 and Cambodia’s 64.9 (SDR, 2024).
On coordination: the Ministry of Commerce, the Ministry of Labour and Employment, the Ministry of Education, and Bangladesh Bank are all pursuing reform agendas relevant to LDC graduation. They are doing so independently. Vietnam and Cambodia both established inter-ministerial transition bodies before their structural adjustments. Bangladesh has no equivalent.

A sequenced response , not a wish list

The policy agenda is not obscure. The challenge is sequencing: not all reforms are equally time-sensitive, feasible, or impactful, and treating them as a flat list is how urgency gets diluted.

Tier one , Stabilise competitive fundamentals (immediate). Before trade architecture or labour reform, Bangladesh must address the reliability deficit that is actually driving buyer hesitation today. The Ministry of Power, Energy and Mineral Resources, in coordination with Bangladesh Bank, should within 90 days initiate an emergency energy reliability programme for export-oriented industrial zones , prioritising grid stabilisation, accelerated gas connection, and incentivised transition away from diesel dependency. This is the binding constraint. If Bangladesh cannot deliver orders reliably, it does not reach the compliance stage where other reforms would matter.

Tier two , Secure market access (non-negotiable, time-bound). The Ministry of Commerce should initiate, within 60 days, a formal and publicly accountable assessment of Bangladesh’s compliance gaps against the 32 GSP+ conventions, followed by a time-bound remediation roadmap (Ministry of Commerce, 2024). The cost of failing to qualify , $2.7 billion annually in EU garment tariffs alone , substantially exceeds the cost of the reforms required. Simultaneously, the Ministry of Commerce, in coordination with Bangladesh Bank and the Prime Minister’s Office, should formally open bilateral FTA negotiations with the United Kingdom, Canada, Japan, and ASEAN member states.

Tier three , Upgrade labour standards and ESG compliance (essential, medium-term). The Ministry of Labour and Employment should direct DIFE to enforce mandatory written employment contracts for all RMG workers , including those in sub-contracting , as a condition of factory licensing renewal, and expand the DIFE inspector cadre by a minimum of 500 positions within twelve months. Public TVET programmes should reserve 40% of enrolment for female participants with active outreach. Tax incentives for on-site childcare and formalised maternity benefits, modelled on Cambodia’s approach, should be introduced and clearly communicated to factory owners. Mandatory annual gender pay audits tied to export certification would introduce market accountability that voluntary reporting has not produced.

Overarching , Coordinate. The Prime Minister’s Office should establish a National Graduation Transition Commission bringing together the Ministries of Commerce, Labour, and Education alongside Bangladesh Bank, BGMEA, and civil society, with a mandate to sequence and monitor these tiers in alignment rather than in parallel isolation. A publicly accessible dashboard tracking progress against declared milestones would serve both domestic accountability and international signaling.

The adjustment is not optional

There is a version of this story in which the 2025–26 export decline is temporary , a consequence of American tariff volatility, a regional energy disruption, cyclical demand softness. Recoverable. Already receding.
That version is not wrong. It is incomplete in a way that is consequential.
The more important reading is that Bangladesh is experiencing, in compressed and partially reversible form, the competitive environment it will face permanently once LDC graduation removes the preferential architecture underwriting its export sector. The current shocks may ease. The post-graduation loss of EBA access will not reverse absent specific policy action. The $7–8 billion annual preference erosion does not come back on its own.
Three million people work in this sector. Fifty-eight percent of them are women. Ninety-two percent have no formal employment contract and no structural safety net beneath them. The 314,000 to 448,000 jobs at immediate risk are not a modelling artefact. They are households in the industrial corridors of Dhaka, Gazipur, and Narayanganj.

The evidence from comparable transitions is consistent enough to read as a rule: countries that invest early in reliability, trade diversification, labour formalisation, and institutional coordination navigate the adjustment with substantially less disruption than those that do not.

The adjustment Bangladesh faces is not optional. The only question is whether it will be managed through deliberate policy, or imposed through market exit.
The canary has been singing for a while. It is not asking for sympathy. It is asking for a response.

About the author

Pritam Chowdhury has done Master’s in Development Studies at the Department of Economics, Jahangirnagar University, Savar, Dhaka. His research focuses on LDC graduation, labour market informality, and gender equity in Bangladesh’s ready-made garment sector. This article draws on findings from the author’s master’s thesis, supervised by Dr. Mohammad Lutfor Rahman, Professor of Economics.

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