While textile and garment (T&G) sector has been a prominent driver of trade led growth in South Asia, the scope for intra-regional trade in T&G subsectors remains largely underutilized in the subregion. In recent years, the sustained growth of South Asia’s global T&G exports has been increasingly threatened by a number of exogenous factors such as shifting demand and supply patterns in the world market and endogenous factors such as eroding traditional competencies including low labor and material costs. By facilitating formation of regional value chains (RVCs) in the sector through greater intra-regional trade in T&G intermediates, South Asian countries can potentially lower production costs, enhance productivity, improve specialization, promote product differentiation, and thereby enhance their competencies in the markets for finished T&G products in both external and internal markers.
Employing an improvised methodology for assessing trade potential at a disaggregated level, this paper identifies a country-wise list of T&G intermediates and finished products with high scope for enhanced trade between South Asian countries. About 1722 potential products (at HS 6-digit level), including both inputs and outputs of the T&Gs industry, are identified with a combined scope for increasing intra-regional trade at least by US$ 1.9 billion. Furthermore, the paper finds that by sourcing low-cost inputs from with the region, South Asia can potentially save US$ 3.7 billion in textile machinery, US$ 2.7 million in raw fibers, US$ 2.4 million in yarn and US$ 2 million in fabric. It also identifies about 223 products with high trade potential, in which there is an aggregate supply capacity gap of about US$ 7.5 billion, requiring enhanced cross-border investment flows. The paper further discusses key policy reforms required for strengthening RVCs in the subregion, including tariff liberalization, pruning of sensitive lists under SAFTA, addressing non-tariff barriers (NTBs), implementing trade facilitation measures and promoting FDI in the T&G sector.