A Consolidated Product Identification Approach for Trade Agreements: An Application for the Indonesia–Sri Lanka Trade

Abstract

Regional integration through reciprocal tariff cuts faces challenges when countries share similar production structures. The offensive list approach, which relies on identifying products with the largest opportunity cost, fails to address this challenge. This study employs a consolidated product identification approach that expands a country’s product list for negotiations to maximise trade and strategic industrial policy goals. We employed this approach for the Indonesia–Sri Lanka trade. A partial equilibrium model is used to estimate the trade gains from eliminating tariffs under different scenarios. The offensive list identifies 149 products in Sri Lanka’s export basket at the Harmonised System 6-digit level and 66 products in Indonesia’s export basket. After incorporating products with higher export growth and those of industrial policy interest that are subject to positive tariffs in Indonesia, we produced a list of 687 products for Sri Lanka. These include 16 electric vehicle-related products, 39 electronic products and 140 green tradable products. JEL Classifications: F13, F15, F17, C68, O53