Free trade agreements are often presented as stepping stone to trade liberalisation. In practice, their economic effects depend less on negotiated tariff schedules than on how governments deploy domestic policy instruments once agreements take effect. This paper shows how formal tariff liberalisation can be systematically offset through instrument substitution, generating persistent monopoly rents and eroding downstream export competitiveness, using the case of Viscose Staple Fibre (VSF), a critical input in modern apparel production, under the ASEAN–India Free Trade Agreement. Combining firmlevel sales data with international trade prices, we estimate that between 2010 and 2024 this policy regime generated US$2.5–3.1 billion in monopoly rents. Downstream manufacturers bore the cost, as India’s share of global exports of VSF-based yarn and garments declined over the same period. The VSF episode illustrates how governments can comply formally with trade agreements while reproducing protection through domestic policy instruments, with predictable distributional consequences along global value chains.