Impacts of EU circular textiles policy on trade partners: A case study of Bangladesh

Sustained demand from the EU has been a key driver of Bangladesh’s ready-made garments (RMG) sector, with exports reaching $21.64 billion as of May 2024. This trade provides numerous benefits to Bangladesh, contributing significantly to the nation’s economic growth and offering stable employment opportunities to millions of workers, the majority of whom are women. As of 2023, Bangladesh had made notable progress in adopting sustainable practices in the sector, including the operation of 206 Leadership in Energy and Environmental Design (LEED)-certified green factories, which strengthen its competitive position in the global textile industry.

However, these benefits exist alongside significant social and environmental challenges. Issues such as inadequate waste management in the informal Jhut sector, which handles leftover fabric and textile waste from production, and a reliance on informal employment marked by poor working conditions persist. Tackling these challenges while leveraging the sector’s strengths is crucial to advancing sustainability in the global RMG trade.

In response to these challenges, the EU launched the Strategy for Sustainable and Circular Textiles (the strategy) in 2022.
The strategy aims to ensure textiles placed on the EU market are more sustainable, circular, and less harmful to the environment by addressing their entire life cycle – from production to disposal. While the strategy introduces various policies, three key measures are likely to significantly affect Bangladesh and other major textile-producing countries:

1. Ecodesign for Sustainable Products Regulation (ESPR): This regulation sets design requirements for textile products to improve their durability, repairability, recyclability, and levels of recycled content and non-toxicity, as well as improved traceability via a digital product passport.
2. Digital product passport (DPP): This measure, a core feature of the ESPR, mandates detailed product information to facilitate traceability, including material composition and environmental impact data.
3. Corporate Sustainability Due Diligence Directive (CSDDD): This directive requires companies to conduct due diligence on human rights and environmental impacts throughout their supply chains.
4. Waste Framework Directive (WFD): This directive establishes regulations for member states to improve waste management practices, including mandatory separate textiles collection, harmonized textiles extended producer responsibility (EPR) schemes and enhanced textile recycling systems to reduce waste generation.

The combined impact of these policy measures will have a wide range of consequences for key textile trading partners of the EU. Yet little is understood as to the scale and nature of these consequences. This is important given the EU relies on Bangladesh as its second-largest apparel supplier, along with other non-EU textile producers, to meet its demand for sustainable goods. The success of the EU’s new circular textile policies will largely depend on the capacity of these value chain actors to comply with stricter requirements and adapt to the evolving regulatory landscape.

Recognizing the strategic benefits of such trade partners in supporting the EU’s vision of achieving a circular and sustainable global textiles sector, this article provides recommendations to the EU textiles policy community. It first evaluates potential changes in textile trade flows between the EU and its trade partners due to the new strategy over the short, medium and long term as well as the consequences for non-EU value chain actors. It then considers how future policy can be designed to mitigate the challenges and amplify the opportunities for trading partners within a circular textiles value chain, particularly highlighting the potential to develop more inclusive and synergistic trade relations between the EU and the Global South.

For a detailed overview of the socio-economic impacts of the EU Sustainable and Circular Textiles Strategy on Bangladesh, see the full report.

If successful, the EU strategy, expected to take effect in Q2 2025, will alter the structure of global textiles value chains. To evaluate its potential impact on Bangladesh’s RMG exports and the prospective import of post-consumer textile waste from the EU, we ran a scenario analysis across short-, medium- and long-term horizons.

In the short term, as brands begin shifting their sourcing towards recycled fibres and new recycling facilities are established, Bangladesh’s exports of pre-consumer textile waste (e.g. Jhut) to countries like India are expected to decline slightly due to growing domestic demand. Meanwhile, trade volumes of RMG are likely to remain stable, sustained by the inertia of traditional business models and consumer preferences for affordable garments, particularly fast fashion.

During this phase, the rising demand for garments containing recycled content will necessitate efforts to formalize the Jhut sector. Formalization will be critical to reducing competition for waste resources while supporting workers to transition from informal, precarious jobs to more secure employment. However, challenges such as inadequate infrastructure and restrictive policy – particularly bans on importing post-consumer textiles, which could supply raw materials for recycling –are likely to persist, limiting the sector’s capacity to fully align with circular production demands.

The medium term is expected to see significant progress in domestic recycling infrastructure, driving a more pronounced reduction in Jhut exports to countries like India and to the EU. This shift is expected to be offset by an increase in exports of higher quality garments made from recycled Jhut, supported by advanced fibre-to-fibre recycling facilities. Recycling Jhut domestically could reduce annual cotton imports by 15 per cent and save $500 million.

At the same time, Bangladesh’s RMG exports may encounter challenges due to evolving EU trade policies. These policies emphasize circular design, requiring garments to meet high standards of repairability, durability and recyclability. Furthermore, market access may be restricted by tariffs on linear RMG products and non-tariff barriers, such as the EU’s ESPR traceability requirements. These barriers pose significant difficulties for smaller producers struggling to adopt sustainable practices.

Despite these challenges, exports of garments made from recycled textile waste could generate an additional $4–$5 billion annually. To capitalize on this opportunity, Bangladesh could at this point consider lifting its import ban on post-consumer textile waste to align with the EU’s circular economy goals and diversify its raw material sources. However, competition for secondary raw materials and policy shifts, such as those under the EU’s Waste Framework Directive, may pose additional challenges.

In the long term, Bangladesh’s RMG exports may plateau as the ESPR requirements, mandating recycled content in new textiles entering the EU market, take effect. By this time, garment-to-garment recycling technology and practices for both cotton and polyester are expected to mature, becoming standard practice in production facilities. Additionally, as the ESPR requirements evolve and the EU scales its recycling and repair infrastructure, along with shifting consumer habits within the EU, the absolute volume of high-grade used textile exports from the EU to Bangladesh may decline, which will instead be reutilized within the EU.

If the EU were to achieve its objectives in collaboration with Bangladesh, the fast-fashion model in the EU could give way to more circular and sustainable alternatives. Emerging business models – such as on-demand manufacturing, rental, second-hand markets, and repair services – are likely to begin replacing traditional linear RMG approaches. To adapt, significant investment in chemical recycling capacity will be essential to process post-consumer textiles effectively, especially as Bangladesh will also face increasingly heightened competition from other established destinations for textile waste.

Below is a summary of recommendations for EU policymakers on steps that could be taken to ensure the EU strategy delivers on the domestic policy objectives while also supporting a just and equitable transition in export-dependent countries.

The EU’s upcoming ESPR implementation plan should include provisions to support trading partners in adapting to new standards. For textile-producing nations, this includes assistance in adapting to stricter product standards, enhancing value chain transparency and meeting traceability requirements. Tailored support, extending beyond Bangladesh to countries like Cambodia, India and Vietnam, can bridge technical and regulatory gaps to supplier compliance. These measures would ease adaptation processes, supporting a global shift towards sustainable textile and garment products.

Trade agreements between the EU and Bangladesh must support global circular textile practices. Strengthened provisions in areas such as intellectual property rights and technology transfer could unlock trade benefits, including tariff waivers on garments containing recycled materials, further incentivizing circular practices within Bangladesh.

The EU should facilitate investments in textile production upgrades. Leveraging European development finance institutions (e.g. KfW) and local development banks can enable tailored credit lines for energy-efficient machinery and recycled content shifts, driving progress in the shift towards circularity. Micro-loans targeting small businesses that utilize Jhut resources should also be considered to ensure inclusion for those typically excluded from traditional financing. Additionally, public funding and grants aimed at supporting workers in informal textile waste management could further enhance sustainability.

Technical support for a phased implementation of the ESPR, particularly the DPP, should be a priority. Initial capacity-building should focus on digital skills and data management for manufacturers and suppliers, ensuring capacity to document key product details. Training in digital tools and data integration will support seamless interoperability across supply chains. As DPPs expand to include end-of-life data, equipping waste managers with digital knowledge of accurate disposal, potential reuse and recycling data input is essential.

The EU must ensure policy certainty across member states. Clear guidance on reporting and data requirements is vital to facilitate long-term business planning and private sector investment. Comprehensive guidance notes and trade flow projections from EU institutions, such as the European Commission, would support informed decisions by RMG producers.

Continued EU support for sustainability in Bangladesh’s RMG sector, as the interim government rebuilds, is essential. Strengthening institutions such as the Ministry of Textiles with technical assistance for policy development will aid in enforcing circular economy practices. Establishing public–private partnerships can further drive innovation and ensure compliance in circular production.

The EU should collaborate with stakeholders to formalize the Jhut sector while ensuring job protection. European brands must reinforce their commitment to labour rights and compliance, supporting suppliers with long-term partnerships, flexible agreements and financial aid to navigate political challenges, ensuring business continuity and worker protection.

Circular textile trade scenarios between the EU and Ghana

Circular textile trade scenarios between the EU and Bangladesh

Socioeconomic Impacts of European Union Circular Textiles Policies on Trading Partners

Textile Trade Flow and Employment Baseline Analysis: Ghana

Textile Trade Flow and Employment Baseline Analysis: Bangladesh

This study is an output of the ‘Exploring the impact of EU textile policies on trading partner countries: Focus on Bangladesh and Ghana’ project, co-funded by Laudes Foundation and BMZ and co-led by Chatham House, Circle Economy Foundation and the European Environmental Bureau, in partnership with The Or Foundation (Ghana) and BUILD (Bangladesh).

We gratefully acknowledge funding for this project from Laudes Foundation and the German Federal Ministry for Economic Cooperation and Development (BMZ) and supported by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. Views and opinions expressed are those of the author(s) only and do not necessarily reflect those of the funders.

​​​​​The findings and recommendations from our research are derived from a desk-based literature review combined with interviews and an in-person workshop series conducted in July 2024. This involved a range of key textiles stakeholders spanning second-hand resellers, second-hand upcyclers, second-hand market association leaders and second-hand clothing head porters responsible for moving garments. The workshop series was led by The Or Foundation in Ghana and took place alongside bilateral conversations with senior officials within the Ghanaian government. The Or Foundation is an NGO working at the intersection of fashion development, environmental justice and education; it runs an array of programmes within the Kantamanto second-hand clothing market in Accra, Ghana, through which significant experience and subject matter expertise has been gained that has aided in the preparation of this report.