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A widely-held view in the lead-up to the abolition of the Multi-fiber Arrangement (MFA) quotas in 2005 was that, in a quota-free global market, large low cost countries (in particular China and India) and countries in proximity to the major markets (such as Mexico, Turkey and countries in the European periphery) would crowd out export performance of the other developing countries. The post-MFA world apparel trade has, however, brought in many surprises: a number of 'predicted losers' have maintained or increased their market shares, while some 'predicted gainers' have performed poorly. This paper aims to broaden our understanding of the determinants of these inter-country differences through a case study of the export-oriented apparel industry in Sri Lanka. The evidence suggests that apparel is a bundle of differentiated products, not a homogenous commodity as commonly assumed by the trade flow modelers, and individual exporting countries have room for carving out a niche in specific products. Sri Lankan apparel industry has managed to maintain growth dynamism through specialization in fashion-basic products, in particular intimate apparel (lingerie) and upmarket casualwear.

Whilst unilateral liberalization of FDI policy regimes in South Asia have made significant headway and contributed to increased FDI inflows, as a region South Asia’s success in attracting FDI, compared to other more successful trading blocs remains limited. Notably, intra-regional investment volumes remain minuscule in comparison to the already dismal level of intra-regional trade. Despite a lapse of over a decade after the implementation of SAFTA, the recent past has witnessed renewed interest in a regional investment agreement in SAARC. This article evaluates how useful a regional investment framework would be for the SAARC. The article argues that whilst a regional investment framework is critical in spurring both intra- and extra-regional FDI, it is by no means the only determinant in attracting FDI. As the experience in ASEAN suggests, in addition to a regional framework, at the country level, each SAARC member state must strive to undertake broad-based reforms to improve their individual country investment climate if they aspire to attract greater volumes of both intra- and extra-regional FDI to support its trade expansion. The article also goes on to draw lessons and best practice from the ASEAN Investment Agreement in going about designing and implementing a Regional Investment Agreement in SAARC.