GVCs and Trade Reforms

The global value chain (GVC) breaks down production across borders. Businesses in different countries perform stages of making a product or service, then trade them. Countries can join GVCs by importing materials for export of final products (backward participation) or exporting parts for further processing elsewhere (forward participation). Bangladesh thrives in backward GVCs for apparel, making it the worlds second-largest exporter whereas Vietnam excels in forward GVCs for smartphones, assembling parts from other countries.Pakistan lags in both backward and forward linkages. While SMEs worldwide participate well in GVCs, Pakistans low R and D and high trade barriers hinder this channel. Our backward participation is low (5.8%) while forward participation is a bit better (34.4%), see Table 1. However, our exports are mostly low-value goods. Export industry in the country is dependent on local natural fiber, yarn and fabric materials to integrate into the apparel GVC (see Figure 1), and high import tariffs (11% to 16%) do not allow the industry to use cheaper raw material from international market followed