EU market pays more for Bangladeshi garments than US: RAPID study

Bangladeshi-made major garment items fetch higher prices in the European Union (EU) compared to the US due to different pricing and margin strategies based on preferential market access, according to a study by Research and Policy Integration for Development (RAPID).

"On average, firms obtain 5.0 per cent to 18 per cent higher prices in the EU than in the US market for top ten apparel products," said Jillur Rahman, a lecturer at the Department of Development Studies of Dhaka University.

Citing example, the academic, also deputy director of RAPID, said exporters receive about 20-27 per cent higher prices for T-shirts in Germany than in the US, while trousers command a 9.0-15 per cent price premium in the German market.

He attributed the trend to a systematic price differential between preferential (EU) and non-preferential (US) markets, consistent with destination-specific pricing behaviour.

While the EU provides duty-free access under the Everything But Arms (EBA) initiative, the USA applies Most Favored Nation (MFN) tariffs averaging 12-15 per cent and offers no comparable preference.

Mr Rahman presented the findings of the study "Navigating Post-LDC Graduation: Firm-level Evidence on Export Pricing Strategies in Bangladesh's RMG Sector in Preferential vs Non-Preferential Markets" at a consultation event held on Saturday at the conference room of Department of Development Studies at the University of Dhaka.

RAPID Executive Director Dr Muhammad Abu Eusuf moderated the session. Among others, Additional Secretary of the Ministry of Commerce Abdur Rahim Khan, acting Dean of the Faculty of Social Sciences at DU Dr Taiabur Rahman, Director General of Export Promotion Bureau Md Ruhul Amin and President of Economic Reporters' Forum Doulot Akter Mala spoke.

Bangladeshi apparel exporters pursue markedly different pricing strategies across preferential and non-preferential markets, said Jillur Rahman, adding that firms, on average, charge more than 10 per cent lower prices in the US market than in the EU.

"High US tariffs compel exporters to absorb a significant share of the tax burden within their own margins in order to remain price-competitive at the border," he explained.

The findings also reveal incomplete exchange-rate pass-through, with exporters absorbing about 55 per cent of currency depreciation when exporting to the US, compared with around 40 per cent for the EU suggesting that firms operating in the non-preferential US market have stronger incentives to retain exchange-rate gains in local-currency margins rather than fully transmitting them into lower export prices.

Citing Bangladesh Customs data, the study observes that 43.4 per cent of firms exported only to the EU in 2023, while 11.8 per cent served the US market exclusively, with the remaining 44.8 per cent firms exporting to both destinations.

However, firms operating in both markets accounted for more than 66 per cent of total apparel export value in 2023, indicating that most export earnings are generated by firms with simultaneous access to both markets.

Firm-level characteristics also play an important role in shaping export pricing as the study found that large firms charge about 30-35 per cent higher prices than small and medium-sized exporters across both EU and US markets, reflecting stronger bargaining power, higher product quality, and better access to lucrative buyers.

This advantage is even more pronounced in the US market, compared to the EU market.

Firms exporting to a more diversified set of destinations obtain relatively higher price premiums--around 1.0 to 3.0 per cent in the EU and 5.0 to 8.0 per cent in the USA.

The results indicate that firms concentrated in knitwear exports receive 10-13 per cent lower prices, indicating relatively lower unit values for knitwear products.

By contrast, technological intensity does not significantly affect export prices, suggesting that it mainly contributes to cost efficiency and export volume expansion rather than price premiums.

Firm characteristics such as size, technology, or export concentration do not appear to influence firms' pricing-to-market responses to exchange-rate changes.

The results further highlighted the role of product diversification in shaping firms' pricing strategies across destinations.

Single-product exporters show no statistically significant difference in pricing between the EU and US markets, indicating limited ability to adjust markups and have a greater tendency to behave as price takers.

In contrast, multi-product firms possess greater pricing flexibility allowing them to differentiate prices across markets with different trading conditions.

This distinction clearly separates more vulnerable single-product exporters from more resilient multi-product firm that can strategically manage destination-specific pricing, according to the findings.

Speaking as the chief guest, Abdur Rahim Khan laid stress on export-led investment to bring both technology and investment.

Bangladesh is still largely dependent on cotton-based garment items while the global scenerio is reversed to non-cotton or manmade fibre-based apparel. Over LDC graduation, he said Bangladesh might get three years' extension to be graduated.

Munni_fe@yahoo.com