implicitly taxing others. Differential treatment of sectors via tariffs and subsidies is a form of industrial policy, and a benefit of a study of protection rates and subsidies is that it helps make explicit at least the contours of such a policy. This type of evidence aids in examining whether or not the set of policies now in place conforms to the current objectives of the government. The study examines effective rates of protection, capturing the effects of tariffs following trade reforms and identifying those activities (industries) that are still subject to (or still enjoy) significant degrees of border protection and direct subsidies (and where possible NTBs). There is the possibility that some activities have negative value added, when valued at border prices and in the absence of subsidies, which could merit special attention for policy makers.

This study has three objectives. First, it examines recent effective rates of protection across the Egyptian economy. These ERPs are calculated first using formal, applied tariffs, and, where possible, using estimates of the ad valorem price wedge introduced by NTBs. Second, it incorporates energy subsidies into ERP estimates at the aggregated sectoral level. Third, it compares today’s ERPs due to applied tariffs for several disaggregated industries with those of a decade ago when trade reforms began.

This report is structured in the following way: The next section discusses in general terms the effective rate of protection (ERPs) as a policy indicator, the previous information that we have regarding ERPs in Egypt, and data sources for estimating current ERPs, including the component related to NTBs. The third section reviews the formula by which we implement numerically the effective protection approach, first incorporating the adjustments due to tariffs (and the tariff equivalent of NTBs) and net output subsidies. Section 3.b. demonstrates how we incorporate subsidies to energy inputs and estimate their relative impact on total ERPs. Section 4 discusses specific data issues and the level of disaggregation possible.

Section 5 discusses briefly the methods used to estimate the ad valorem tariff equivalent of NTBs. The estimates for selected industries were estimated by Dr. Khaled Hanafy, and his approach is detailed in Annex 3. Section 6 presents the results of the ERP calculations using 2009 Egyptian applied tariffs at a fairly disaggregated industrial level making use of cost structure information for selected industries available from a previous study done a decade ago. We then compare our results to those of the previous study that used 1998/1999 applied tariff levels. We also present for some industries the ERPs for 2009 including NTB price-wedge estimates where available.

But these disaggregated cost data do not adjust for energy subsidies and so Section 7 presents the applied nominal tariffs and the levels and dispersion of ERPs for 23 industrial sectors where energy input cost shares for the five fuel sources mentioned above are available from a recent input-output matrix of the Egyptian economy. These ERPs adjust for tariffs, output subsidies and energy subsidies. In addition, the ERPs are also estimated adding the estimated tariff equivalent for NTBs. In presenting the results, non-tradables and food and agriculture are underlined, and one is led to conjecture to what degree energy subsidies could be considered partial compensation for the implicit taxes on the sectors from tariffs on tradable inputs. In addition to discussing these results, we identify some differences with those of Lederman (2007), who also used an approach based on input-output coefficients but with less information on the participation of energy inputs in sectors’ cost structures. Section 8 concludes with a discussion of the policy implications of the results.

2