How to Get a Bigger Pie of the EU Garment Market, Lessons from Japan and the Path Forward

How to Get a Bigger Pie of the EU Garment Market, Lessons from Japan and the Path Forward

The story of India’s garment exports to Japan serves as a cautionary tale, a stark reminder that tariff reductions alone are not a magic bullet for export growth. When the India-Japan Free Trade Agreement (FTA) came into force on August 1, 2011, Japan eliminated its 10 per cent duty on apparel from day one, at India’s specific request. This raised hopes of a sharp, immediate surge in Indian garment exports to one of the world’s largest garment-importing economies. That surge never came. In 2011, Japan imported about $327 million worth of garments and made-ups from India. By 2024, that figure had fallen to around $302 million, leaving India with a minuscule 1.1 per cent share of Japan’s total garment imports. The problem was not the tariff; the problem was readiness. Many Indian suppliers were simply unable to meet Japan’s demanding standards on quality, process discipline, and the capacity for consistent, large-scale production. The tariff barrier had fallen, but the capability gap remained.

This lesson is particularly urgent now as India looks to the European Union (EU), a market of even greater significance. The EU is a cornerstone of India’s textile and apparel export strategy. In the fiscal year 2025, India exported a total of $37 billion worth of textiles, garments, and made-ups globally. Of this, the EU accounted for $7.3 billion, or 19.8 per cent. For garments specifically, the EU’s importance is even more pronounced, absorbing 28.4 per cent ($4.6 billion) of India’s exports in this segment. The recently concluded India-EU FTA offers zero-tariff access, but as the Japan experience demonstrates, this is merely a necessary condition, not a sufficient one. To truly capitalize on this opportunity and get a bigger slice of the EU garment market, India must embark on a comprehensive transformation across firm-level capabilities and government-level policies.

The first and most fundamental requirement is at the firm level: meeting the stringent compliance standards of the EU market. Exporters to the EU know that producing a good-quality garment alone is not enough. European buyers require factories that follow strict, auditable processes and comply with a complex web of regulations. These include EU textile labelling rules, the rigorous REACH chemical regulations that restrict hazardous substances, emerging sustainability and traceability requirements, and buyer-mandated certifications such as ISO, SA8000 (social accountability), GOTS/GRS (organic and recycled content), and OEKO-TEX® (harmful substance testing). Meeting these requirements through audits, testing, traceability systems, REX registration, and worker training typically costs between ₹10 and ₹30 lakh in the first year. While larger, organised exporters can absorb these costs, they remain a significant barrier for smaller units, effectively locking them out of the most lucrative markets.

Beyond compliance, Indian factories must upgrade to become fast-fashion-industry (FFI) compliant. The global garment industry now operates on the principles of fast fashion: rapid turnaround, small batch sizes, and extreme responsiveness to trends. Most global sourcing now occurs within this framework. India currently has about 1,200 FFI-compliant factories, concentrated mainly in cotton textiles, with far fewer in the synthetics sector. Nearly 80 per cent of Indian exporters still miss critical efficiency benchmarks such as Standard Allowed Minutes (SAM), a measure of labour productivity, which limits their scale and speed. Expanding FFI-compliant capacity, especially in synthetics, is critical to winning orders from major global buyers like Walmart, Zara, H&M, Gap, and online giants Amazon and Zalando.

This leads to a second critical firm-level shift: moving from a cotton-centric mindset to embracing the global dominance of synthetics. Synthetic and winter-wear products—such as sportswear, athleisure, fast fashion, and cool-weather clothing—now make up nearly 70 per cent of global garment demand. India largely missed this monumental shift by staying focused on cotton, leaving its vast design talent underutilized outside the spring-summer season. The consequence is stark: while China exported about $113 billion worth of garments last year, Bangladesh $51 billion, and Vietnam $39 billion, India’s garment exports languished at only around $16 billion. The limited focus on synthetics and winter-wear is a primary reason for this gap.

The government has recently taken a crucial step by removing a major constraint: it abolished Quality Control Orders (QCOs) on more than 20 key synthetic inputs such as polyester and viscose fibres and yarns. This has reduced costs and improved access to global raw materials. With zero-tariff access under the FTA, the industry must now aggressively expand into synthetic, blended, and winter-wear segments to achieve meaningful export growth.

The third firm-level imperative is to move beyond contract manufacturing and build brand power. Even India’s largest garment exporters, including billion-dollar firms, operate primarily as low-margin suppliers to global brands. This model limits profits, reduces bargaining power, and forces firms into constant, cut-throat price competition. It is time for India’s leading garment makers to move up the value chain by building their own designs, brands, and retail identities. By investing in in-house design teams, trend analysis, fast sampling, and small-batch production capabilities, firms can earn higher margins and reduce their dependence on a few large buyers. Setting up design studios in Europe to co-create collections and respond quickly to local trends can further strengthen competitiveness. In the modern global market, competition on design and speed—not tariffs alone—is the key to long-term success.

At the government level, significant groundwork has been laid. Over the past year, the government has fixed key weaknesses by removing QCOs on major synthetic inputs, easing labour rules to allow factory expansion and year-round operations, and correcting the inverted GST structure. These reforms finally give India’s synthetic garment industry a real shot at global competitiveness. However, to fully leverage the India-EU FTA opportunity, additional focused action is needed.

First, the government must strengthen the weaving and processing sector, widely considered the weakest links in the entire textile value chain. India is a major exporter of yarn but accounts for only 6 per cent of the global fabric market. Its weaving and processing units remain small, informal, and technologically outdated. To convert its yarn strength into true global fabric competitiveness, India must invest in large, modern, integrated weaving and processing parks. China’s textile revolution began with this very step.

Second, the government should stop incentivising the export of fibre and yarn. Current export rebates inadvertently push India to ship raw materials abroad at lower prices, starving domestic garment makers of affordable, high-quality inputs. To build a robust garment export industry, India should prioritize value-added exports, not the export of raw materials.

Third, India must overhaul cumbersome import procedures. The advance authorisation scheme allows exporters to import inputs duty-free, but its rigid rules—requiring precise matching of fabric type, shade, and consumption—make it extremely cumbersome. Bangladesh solved this problem years ago by adopting a value-based import entitlement system, allowing firms to import inputs up to a fixed share of their export value, regardless of specific product details. India should adopt a similar, more flexible approach.

Finally, the government should extend the Rebate Scheme for Garments and Made-ups (RoSCTL) for at least five years. This scheme provides crucial stability and confidence for long-term investment. Exporters need predictable policy support to plan capacity expansion, technology upgrades, and new product lines aligned with global demand.

The action plan outlined above applies not only to boosting India’s garment exports to the EU but to all labour-intensive exports to developed markets. For decades, India has debated the need to upgrade its garment and other labour-intensive sectors. Yet, on the ground, India continues to lose market share to smaller, later-entrant competitors like Vietnam and Bangladesh—countries that have moved faster with clearer strategies, superior compliance readiness, and more efficient supply chains. If India is to finally reclaim its rightful position in global trade, there may never be a better time to seize the opportunity. The FTA provides the platform; now, India must build the capability.

Questions and Answers

Q1: What lesson does the India-Japan FTA experience hold for India’s current strategy to boost exports to the EU?

A1: The India-Japan FTA lesson is that tariff cuts alone do not guarantee export growth. Japan eliminated its 10% garment duty for India in 2011, but Indian exports to Japan actually fell over the next decade. The core problem was “readiness”—Indian suppliers could not meet Japan’s demanding standards on quality, process discipline, and consistent, large-scale production.

Q2: What are the key firm-level requirements for Indian garment exporters to succeed in the EU market?

A2: The key firm-level requirements are:

1. Meeting EU compliance standards (REACH chemical regulations, sustainability requirements, and certifications like ISO, SA8000, GOTS).

2. Becoming Fast-Fashion Industry (FFI) compliant to meet speed and efficiency benchmarks.

3. Shifting focus from cotton to synthetics, which account for 70% of global demand.

4. Building brand power by investing in design and moving beyond low-margin contract manufacturing.

Q3: What is the significance of the government’s decision to abolish Quality Control Orders (QCOs) on synthetic inputs?

A3: The removal of QCOs on over 20 key synthetic inputs (like polyester and viscose fibres and yarns) is a major step. It reduces costs and improves access to global raw materials. This, combined with zero-tariff access under the FTA, finally gives India’s synthetic garment industry a “real shot” at global competitiveness after years of being constrained.

Q4: What are the key government-level actions recommended to fully leverage the India-EU FTA opportunity?

A4: The key government-level actions are:

1. Strengthen weaving and processing by investing in large, modern, integrated parks.

2. Stop incentivising raw material exports (fibre and yarn) to ensure affordable inputs for domestic garment makers.

3. Overhaul advance authorisation rules to adopt a flexible, value-based import entitlement system like Bangladesh.

4. Extend the RoSCTL scheme for at least five years to provide policy stability for long-term investment.

Q5: Why does the article argue that India must act now, and what is the competitive threat?

A5: The article argues that India has “discussed for decades” about upgrading its garment sector but has consistently lost market share to smaller, later-entrant competitors like Vietnam and Bangladesh. These countries have moved faster with clearer strategies, better compliance readiness, and more efficient supply chains. With the FTA now in place, there “may never be a better time to seize the opportunity” before these competitors capture even more of the EU market.