countries. With that in mind, a single indicator of the trade-distorting and welfare-reducing effects of price and trade policies was developed in the 1990s for the World Bank, by Anderson and Neary (1994). Their trade restrictiveness index (TRI) requires somewhat more computation than just the NRP, but it provides a much more accurate indication of the effects on trade and welfare than can be guessed from NRP, ERP or PSE/CSE estimates. It suggests that a more satisfactory approach to measuring trade restrictiveness is to find the uniform tariff for the two goods that would be equivalent -- in the sense of yielding the same domestic welfare loss -- to the actual tariffs applied. This welfare-equivalent uniform tariff takes into account that tariffs on relatively elastic goods are more trade -restrictive than tariffs on relatively inelastic goods. The only additional pieces of information required to calculate this simplest of TRIs in addition to the NRP, or PSE and CSE, are the price elasticities of domestic demand and supply or the excess demand elasticity for each good.<sup>14</sup> Like partial and general equilibrium modelling, the TRI is more likely to become a supplement to rather than a substitute for the NRP or PSE/CSE and ERP calculations, as its estimation may involve relatively little additional work and it still has the virtue of being a single indicator that can be described in plain words.

The phasing down of bound tariffs since the first GATT round of multilateral trade negotiations, from above 40 per cent to less than 4 per cent for imports of manufactures by OECD countries over the past 55 years (Irwin 1995), has reduced dramatically their relative importance over time. Applied tariffs have fallen even more than the rates bound in GATT/WTO schedules. Non-tariff trade barriers (NTBs), on the other hand, have been slower to eradicate, and new NTBs are being added or threatened each year (Laird and Yeats 1990; Baldwin 1991; Laird 1997). Particularly difficult to measure are technical product or process standards when products are heterogeneous, because domestic-to-border price comparisons are inadequate when there are not ‘like’ products to compare (see Maskus and Wilson 2003). Barriers to services trade are even more difficult to measure, although progress is being made (Findlay and Warren 2000; Stern 2002).

Distortions to exchange rates also affect the domestic price of tradables relative to nontradables (Corden 1981; Sjaastad and Clements 1982). Drawing on a World Bank multicountry study of distortions to agricultural incentives, Krueger, Valdes and Schiff (1988) were able to show that for their sample of 18 developing countries, overvalued exchange rates have been far more significant anti-agricultural and anti-trade instruments than tariffs, import quotas, import licensing and other direct forms of assistance or taxation of farm products combined. Even in Sub-Saharan Africa where direct taxation of agricultural exports had been huge (averaging 23 per cent in the 1960-84 period), the indirect discrimination against farming because of overvalued exchange rates was even larger, at 29 per cent on average for the studied countries of that region. In total those taxation and foreign exchange policies meant that farmers in that poor continent received less than half the gross earnings of their exports – a huge rate of taxation by any standard.

# **_Measuring the cost of protection_**

The cost of protection, or more generally of industry assistance/taxation, refers to the losses imposed by all policy-induced distortions affecting directly the tradables-producing sectors of the economy. Those distortionary measures could be not only trade taxes or subsidies but also production or consumption taxes or subsidies on products, on intermediate inputs, or on factors of production.<sup>15</sup> The cost is usually measured against free markets,

> 14 Anderson and Neary (1994) have gone further in showing how it is possible to generate more complex TRIs, including general equilibrium versions, that are increasingly more satisfactory in terms of their theoretical basis and internal consistency.

> 15 A comprehensive taxonomy is provided in Bhagwati (1971).

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