What does it stipulate exactly?
I’ve read somewhere that’s it’s one of the few theoretical arguments against Free Trade; but i don’t understand it.
Can anyone proffer insights?
I’m not aware that it’s been used as an argument against free trade.
The idea of effective protection simply says that in order to see how much the car industry is protected you have to look at the entire tariff structure, not just the (nominal) rate on cars. Trade barriers on other things increase the cost of inputs in car making. Max Corden has been the big pusher of this idea.
So it’s perfectly possible for an industry with a significant tariff to be more exposed to international competition than it would be under free trade if its inputs also face high tariffs.
Corden’s measure of effective protection has been much criticised, but the general point is valid: if you want to know who’s making off with the loot, looking at the published rates of tariffs (or binding quotas or whatever) isn’t going to tell you the story.