CALCULATING LEVELS OF PROTECTION - IS IT ALWAYS APPROPRIATE TO USE WORLD REFERENCE PRICES BASED ON CURRENT TRADING STATUS

Protection measures such as the nominal protection coefficient (NPC), the effective protection coefficient (EPC), the producer subsidy equiv alent (PSE), and the consumer subsidy equivalent (CSE) are conventiona lly calculated using world reference prices based on current trading s tatus. Under certain conditions, the conventional approach can lead to incorrect estimation of the degree and sometimes even the direction o f protection. This paper spells out the conditions under which use of world reference prices based on current trading status is incorrect an d presents data for wheat in Pakistan to illustrate how failure to con sider these conditions can lead to misleading policy recommendations.