উত্তরঃ
A nominal tariff is the published tariff rate on a final good, whereas an effective tariff (or effective rate of protection) measures the actual protection afforded to the domestic value-adding process, taking into account tariffs on both final goods and intermediate inputs.
The distinction between nominal and effective tariffs is crucial for understanding the true impact of a country's trade policy. While a nominal tariff is simply the stated percentage charge on an imported final product, the effective tariff provides a more nuanced view by considering the entire tariff structure that affects the domestic production process.
The difference between an nominal tariff and an effective tariff lies in their scope:
- A nominal tariff is the simple, declared ad valorem (percentage) tariff rate applied to the value of the imported final good. For example, if a country imposes a 10% tariff on imported shoes, 10% is the nominal tariff.
- An effective tariff (or Effective Rate of Protection - ERP) goes deeper. It measures the percentage by which the entire tariff structure (tariffs on final products and tariffs on imported intermediate inputs) increases the domestic value added per unit of output compared to what it would be under free trade. It reflects the net protection provided to the domestic processing industry that transforms inputs into final goods.
The usefulness of the concept of effective protection is significant for several reasons:
- It provides a more accurate measure of the actual incentive or disincentive for domestic production, as nominal tariffs alone can be misleading.
- It helps policymakers understand how tariffs affect resource allocation. A high ERP encourages resources to flow into specific industries, even if they are inefficient, potentially leading to misallocation.
- It can reveal situations where a low nominal tariff on a final good might actually provide very high protection if tariffs on imported inputs are zero or very low (meaning domestic producers get cheap inputs but are protected on the final product). Conversely, a high nominal tariff on a final good might offer little effective protection if tariffs on inputs are also high, raising domestic production costs.
- It allows for a more comprehensive analysis of the impact of trade policies on a nation's industrial structure and competitiveness.
The rate of effective protection is measured using a formula that compares the value added under the tariff regime with the value added under free trade. The basic formula is:
\( ERP = \frac{v' - v}{v} \)
Where:
- \( v' \) is the value added per unit of output at protected (domestic) prices. This includes the effect of tariffs on both final goods and intermediate inputs.
- \( v \) is the value added per unit of output at world market (free trade) prices.
A more detailed formula, often used in calculations, is:
\( ERP = \frac{t - \sum a_i t_i}{1 - \sum a_i} \)
Where:
- \( t \) is the nominal tariff rate on the final product.
- \( t_i \) is the nominal tariff rate on the i-th imported intermediate input.
- \( a_i \) is the share of the i-th imported intermediate input in the free-trade value of the final product. In simpler terms, \( a_i \) represents the cost of the input as a proportion of the final product's cost at world prices, without tariffs.
An ERP greater than the nominal tariff suggests that the domestic processing industry is highly protected, while an ERP less than the nominal tariff suggests less actual protection. A negative ERP indicates that the tariff structure actually penalizes domestic production, making it cheaper to import the final good than to produce it domestically.
