Proposed Methodology for Strategic Trade Policy to Achieve High Value Added Exports: A Case of Pakistan’s Textile Sector

This paper proposes a new methodology through which a list of specific intermediate inputs can be generated for a strategic reduction in tariff rates to climb up the export value chain. This methodology can be extended across all the manufacturing sectors in countries where the technology is constrained and the economy relies on great chunk of imported goods. We argue that by reducing the tariffs on selective range of inputs; low priced, high quality intermediate inputs can be made available to the local manufacturer that will lead to better quality exports of the final product. We take a conservative approach to propose a sequence of tariff reduction on intermediate inputs based upon its importance ranging from a scale of being extremely important to less important, ultimately to promote high value added exports. We do so, by comparing the average quality of each respective intermediate input available to the local manufacturer with the quality of the same intermediate input imported from abroad to strategically propose the final list of intermediate inputs that should be considered for tariff reduction (at HS-6 Digit Code). Next, a cross country comparison of tariff rates between Pakistan, India and Sri Lanka is done to show where the potential of tariff reductions exist for Pakistan. Finally, this list at HS-6 digit code is extended at HS-8 digit code to further precisely identify the inputs. We present the case of Pakistan’s textile sector, and apply this methodology as an illustration to identify a list of intermediate inputs for strategic reductions in tariffs.