A Measure on the Effective Rate of Protection in Taiwan and Its Major Trading Partners
Date Issued
2010
Date
2010
Author(s)
Lee, Jen-Yiu
Abstract
Taiwan has become a member of the World Trade Organization since January 1, 2002. It has to eliminate trade barrier gradually. This will lead to the adjustment on the production structure and trade patterns. It also leads to a change on the demand of production factors. These will have a further impact on the change of the value added. Based on the specific factors theory and considering the immobility of the capital among industrial sectors in short run, this study will apply the Global Trade Analysis Project model to simulate the policies of the tariff reduction in Taiwan and its major trading partners such as China, U.S., EU, and Japan, to measure the impact on the effective protection rate of the trade liberalization in Taiwan and its main trade partners, and to examine the effective protection rate for the important industrial sectors at the same time to compare its nominal protection rate and effective protection rate.
This study use three different protection rates such as nominal tariff rate, traditional effective rate of protection, and effective rate of protection in general equilibrium to analyze the comparison. To avoid extreme bias on the calculation of the traditional effective rate of protection, and effective rate of protection in general equilibrium, it has considered the impacts of the nontraded intermediate inputs particularly.
The empirical results indicated that the highly protected sectors for Taiwan and China are the motor vehicles and parts, and the beverages and tobacco products on the nominal term. But the effective rate of protection on the motor vehicles and parts in Taiwan is much higher than that in China while the effective rate of protection on the beverages and tobacco products in Taiwan is not as high as that in China.
For the U.S., sugar, dairy products, and leather products have nominal tariff rate of more than 10%. But the effective rates of protection in general equilibrium term on sugar, dairy products, meat of cattle, sheep, goats, and horse, and leather products are higher than other sectors.
For the EU, the product sectors on the nominal tariff rate more than 10% are sugar, processed rice, paddy rice, and meat of cattle, sheep, goats, and hors. It is also shown that even if the nominal tariff rate is very low, it still has advantageous to protect the industry with very high effective tariff .
Agricultural tariff structure in Japan is quite similar with Taiwan. With a quite high of the nominal tariff rate on the partial agricultural products in both countries, therefore, Japan also has a quite high effective rate of protection in general equilibrium.
Subjects
Specific Factors Theory
Nontraded Intermediate Input
Global Trade Analysis Project
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