# **4. A Discussion of Energy Subsidies and Tariff Data Sources and Implications for the Level of Disaggregation**

_Energy subsidies rates for calculating ERPs from the I-O matrix: sources._ For this present study the subsidy rates for the various energy sources are derived from the “best-guess” estimates of Abouleinein, El-Laithy and Kheir-El-Din (2009) of the percentage adjustments that would have to be made to observed prices to reach per-unit actual domestic costs (presented in the fourth column of their Table 4, p. 16). These percentage increases – and their translation into the ad valorem subsidy rates used in the above formula (the Si) – are shown in Table 3. In fact these energy subsidy estimates match the fuel energy sectors available in the input-output matrix of 2006/2007.<sup>8</sup> _Applied (formal) tariff levels for selected industries, products and intermediate inputs._ The 2009 tariff levels from the WTO used in the present calculations of the ERPs for the selected sectors, plus those used by Nathan Associates and Al Iskandarani from the late 1990s, are presented in Annex Table 1. Note that the sectors are ISIC codes (rev. 3), while the activities are from the US SIC, as used in the Nathan study. And so, the final column of the Annex Table 1 includes notes and references to the correspondences, which this present study uses, between products (and inputs) and the HS 6-digit tariff schedule as found in the WTO Integrated Database for Egypt.

One alternative for selecting tariff levels for industries is to simply average over the lines associated with some aggregate activity, such as textiles or agriculture. In fact this is what is done in the following section at the HS 2-digit level when assessing protection of industrial groups in the 23-sector input-output table for Egypt (see also Lederman, 2005). Instead of averaging many tariff lines across the 2-digit level, however, in the case of the specific industries available, we have differentiated activities according to the level of processing and delved into tariffs at the 4 and 6-digit level.

This disaggregation is important because the degree of tariff escalation in Egypt emerges clearly on observing how the formal tariff levels increase with the level of processing. For example in cotton textiles (HS2 56s), the raw cotton enters at a zero tariff, but carded cotton and any processing to threads, enters at 5 percent. For woven cotton materials, the tariff jumps to 10 percent; and for articles of clothing (HS2 61s), that is, final products, the tariff jumps to 30 percent. The dispersion around the 2-digit level averages is much higher than those around the average for a particular 4-digit level grouping of products. In fact, Egyptian tariffs tend to be uniform at any particular 4- digit level group, and it is very difficult to encounter more than one-line tariffs at the 6- digit level.

After considerable examination, we conclude that the 4-digit (and sometimes 6-digit) levels are more appropriate to capture more homogeneous groups. The degree to which product processing is associated with higher tariffs is well observed at the 4-digit level.

> 8 There appear to be no statistically constructed IO tables since 1992, and all available tables are updates.

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