The U.K. Tariff and Protection

Abstract

Traditionally the protective effect of tariff has been regarded as that part which causes a direct increase in the price of the product imported, thus distorting the relative prices of factors engaged in its production in favour of the tariff imposing country. It is thought for example that the tariff rate of 30% on a car affords the car industry approximately that much protection. However, in recent years, the theory and empirical investigation of tariff have been concerned not only with its explicit rate but also with its 'implicit' effectiveness as a protective measure for home industry. The input-output system enables us to trace the effect of traffic on the protection of industry in a more general equilibrium setting. Here the tariff imposed on products, some of/which are used as inputs to other products, is taken into consideration when the final protective effect of tariff on the latter products is calculated. This approach of general equilibrium analysis has great merit over that of traditional, partial equilibrium analysis since many of the 'hidden' effects of tariff are revealed. Several works, on both the theoretical and empirical level, have been done in recent years. A study of the effective rates of tariff protection of British industry has been made by B. Balassa as a part of his inter country comparison between EEC, UK, USA, Sweden and Japan. He has used the input coefficients of the lowest tariff countries, Netherlands and Belgium as good approximates for all countries, on the assumption of technical conditions being the same in all countries concerned. Although his results present an interesting aspect of the British tariff structure, his results could be improved by applying more relevant coefficients and tariff data. This paper will be only concerned with an investigation into the effective rates of tariff protection of British industry in 1966. In the next section a theoretical aspect of effective rate of tariff protection will be discussed. The results will be given in the third section together with some qualifications and interpretations.