What is an effective tariff? Effective tariff assessment

1. Introduction

With the rapid development of deep-processing product production in developed countries and fierce competition in the international market, the protection theory that only uses (nominal) tax rates for final products is insufficient because it does not pay attention to the impact of taxing intermediate inputs on final products. The effective tariff theory studies the nominal tax rate structure used for both final and intermediate products, and pays attention to the impact of the tariff structure on the net value added in the processing and production of such products.

By calculating the effective tariff rate (effective protection rate), we can study which products should be protected and how to determine the tariff rate, and measure the distribution ratio of protection and benefits obtained by products at different processing levels due to the nominal protection rate, which can guide the structure of protective tariffs.

The effective tariff protection rate refers to the percentage of the incremental value added of a processed product under the tariff structure to its value added under free trade conditions.

2. Expression

The effective protection rate (Z) for a certain product is expressed as:

Z = (value added of domestic processing minus value added of processing under free trade conditions) / value added of processing under free trade conditions * 100%

If the effective protection rate is expressed by the nominal tax rate, the formula is:

Z=(tn-Σai*ti)/(1-Σai)

Where tn is the nominal tax rate on finished products, ti is the nominal tax rate on inputs, ai is the proportion of inputs in finished products, and Σai is the sum of the proportions of various inputs in the product.

It can be seen that the higher the tax rate of the final product, or the lower the tax rate of the intermediate input, the higher the effective protection rate. If tn>ti, then Z>tn; if tn=ti, then Z=tn; if tn

The tariff rate structure provides a theoretical basis, and in international tariff reduction negotiations, provides a strategic basis for reducing tariffs on primary products more, while not reducing tariffs on final products too much. Through effective tariffs, some industries with higher effective protection rates can attract the country's previously depressed economic resources, affecting the country's resource allocation.

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