34 the first- or second-stage of processing (Table 1 1).46 The highest relative differential between the final and the first stage of processing was for Albania and the lowest for Croatia.<sup>47</sup>

**_Table_** _11: Tariff escalation in SEE-5 countries by industrial sector (2000)_

|||Alban|ia|B<br>He|osnia<br>rzego|and<br>vina|C|roat|ia|Ma|FYR<br>cedon|ia|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Good'scategory-stageofproduction'|1|2|3|1|2|3|1|2|<br>3|1|<br>2|3|
|0.Food&liveanimals|10|10|11|3|_5_|8|14|14|<br>18|22|18|28|
|1.Beverages&tobacco|3|-|15|15|-|14|20|-|22|16|-|55|
|2.Crudematerialsexl.foodand fuel|4|_5_|-|1|2|-|6|5|<br>-|6|6|-|
|3.Mineral, lubricants,fuelsandrelated<br>materials|8|12|8|1|0|1|_5_|8|9|4|3|7|
|4.Animalandvegetableoil,fatand<br>waxes|-|-|8|-|-|3|-|-|12|-|-|7|
|5.Chemicalandrelatedproducts,n.e.s|10|4|7|0|3|4|10|7|10|5|<br>6|12|
|<br>6.Manufacturedgoods|2|8|13|8|6|9|11|7|14|15|10|19|
|<br>7.Machinery andtransportequipment|-|-|4|-|-|6|-|-|9|-|-|12|
|<br>8.Miscellaneousmanufacturedarticles|2|11|11|10|10|10|20|15|16|15|24|23|
|TOTAL|6|8|10|5|4|7|12|9|14|12|11|20|

1/ According to WTO classification: 1: raw materials; 2: intermediate products; 3: final products. Source: Own calculations based on national MEN tariff schedules.

At the level of single-digit SITC sectors the differences become more pronounced, albeit not dramatic. Eyeballing the data in Table 11 leads to two observations. First, each country has at least one sector with higher tariff protection of either intermediate or low processed products. For instance, Croatia offers higher protection to low processed products than to final products of the miscellaneous manufacture sector (SITC. 6). So does Bosnia and Herzegovina but to beverages and tobacco, and Albania to producers of chemicals and related products (SITC. 5). Second, while the levels of tariff protection across sectors differ widely, sector patterns are quite similar.

One may thus conclude that the structures of tariffs in SEE-5 will not magnify the effects that discriminatory liberalization of tariffs might have because of high rates of effective protection. While we have no data on the rates of effective protection, the closer the structure of tariffs is to uniformity the lower is their deviation from actual tariff rates. When the rate is uniform, its value equals the rate of effective protection. As we have seen, SEE-5 structures of tariffs are mostly relatively uniform without any discernible deliberate tariff escalation.<sup>48</sup> This suggests that rates of effective protection are not significantly larger than applied tariff rates and will not significantly contribute to trade diversion.

46 The classification of different stages of production was calculated according to the WTO classification used in Trade Policy Reviews.

47 Tariff escalation has not been computed for FRY owing to unavailability of tariff schedule in electronic form.

48 Tariff escalation, closely related to the concept of effective protection, occurs if duty rates on raw materials and intermediate inputs are set lower than rates on processed commodities. It reveals the extent to which a government accords preference to activities at down-stream stages of production. With a uniform rate, there is no tariff escalation.