India-UAE CEPA: obvious squeeze on China’s textile and apparel exports

India and UAE has signed the historic Comprehensive Economic Partnership Agreement (CEPA) aimed at boosting the merchandise trade between the two countries to US$ 100 billion over next five years. The UAE is India's third-largest trading partner and second-largest export destination. Both countries are now each other's most important trading partners. The CEPA can create 1 million jobs in India's labor-intensive industries, such as textiles and manufacturing. According to the Apparel Export Promotion Council, Indian apparel accounts for 43 percent of the UAE's total apparel imports. Under the new agreement, import duties on apparel will be reduced by 5 percentage points. In addition, the trade agreement between India and Australia and U.K. are also under negotiation.

1. The agreements will stimulate Indian textile and apparel exports

In 2021, Indian textile and apparel export value reached $41.45 billion, up 39.6% from previous year, hitting a multi-year high.

Textile and apparel exports to UAE increased by 29.1% from 2020 to $2.68 billion, a new high since 2018, taking a share of 6.5% in its total exports, down 0.5 percentage point year on year. The CEPA will stimulate the textile and apparel exports to UAE and the proportion may also increase.

Meanwhile, the export to Australia was $600 million in 2021, up 31.9% year on year, accounting for 1.5% in its total exports, down 0.1 percentage point year on year. Exports to U.K. were $1.96 billion, up 22.1% year on year, taking a share of 4.7%, down 0.7 percentage point.

In general, the textile and apparel exports of India to UAE, Australia and U.K. totaled $5.24 billion in 2021, up 26.7% from 2020, taking a share of 12.6%. If India could sign agreements with Australia and U.K. successively, the textile and apparel exports will be supported apparently.

2. Indian textile and apparel exports continue to squeeze China

As China controlled the pandemic well first in 2020, its textile and apparel exports witnessed a growth of 33.7%. With the downstream demand recovery, Indian textile and apparel exports surged by 39.6% in 2021, while the growth rate of China reduced to 8.3%. Affected by the ban on Xinjiang cotton, and the global political and economic trade relation change, Indian textile and apparel exports continue to squeeze China, and with the agreements of India with UAE, Australia and U.K., its textile and apparel exports are likely to rise further.

In fact, in 2021, China’s textile and apparel exports to UAE, Australia and U.K. have declined by 4.2% to $21.68 billion, while Indian textile and apparel exports to the three countries increased by 26.7% to $5.24 billion. The market shares of China have been squeezed.

In 2021, China’s textile and apparel exports to U.K. reduced by 28.2% to $9.22 billion, and the proportion declined from 4.3% to 2.9%. Though the exports to UAE and Australia saw certain growth, with the agreements with India, the exports of textile and apparel face great challenges.

Overall, the India-UAE CEPA and the trade agreements negotiation between India and Australia and U.K. are obviously favorable for Indian textile and apparel exports, and its market shares will increase further, squeezing the shares of China further. Later, China may face great challenges.