WORLD TRADE
ORGANIZATIONTN/MA/S/3/Rev.2
11 April 2003
(03-1988)
Negotiating Group on Market Access
FORMULA APPROACHES TO TARIFF NEGOTIATIONS
Note by the Secretariat1
Revision
I. INTRODUCTION
1. With the aim of simplifying and unifying the documentation issued by the Secretariat
regarding the use and impact of formulae for tari ff negotiations, this document combines a revised
version of the theoretical foundations of formul ae approaches, TN/MA/S/3/Rev.1, with an updated
and revised version of the document TN/MA/S/3/ Rev.1/Add.1, which illustrates, where possible,
various proposals for formula reductions which were submitted by Members up to end March 2003. A
hypothetical tariff profile has been used to illustrate the properties of the theoretical formulae and the
specific formulae proposed by Members.  
II. FORMULA APPROACHES – SOME GENERAL CONSIDERATIONS
2. Two types of formula can be used in negotiations.  The first is one that reduces the applicable
tariff rates by the same percentage, regardless of the initial tariff rate.  These are called tariff
independent  formulae.  The second type of formula is called tariff dependent , since the percentage
reduction in tariff rates depends on the initial tariff rate subject to negotiations.  It includes the so-
called harmonisation formulae which have the effect of reducing the dispersion of the applicable tariff
rates.
3. To assess how these two types of formulae reduce different tariff rates a hypothetical tariff
profile is used for a numerical analysis.  It shows how a range of initial tariff rates is reduced usingdifferent formulae and different specifications. Some key descriptive statistics of the old and new
tariff profiles are also provided in the numerical analysis. These are the tariff average, maximum,
standard deviation, coefficient of variation and escalation ratio. The standard deviation is a measure of
absolute dispersion of the tariff profile.  It is dependent on the average level of the tariffs. The
coefficient of variation is a measure of relative dispersion.  It is defined as the standard deviationdivided by the average and usually presented in percent, i.e. multiplied by 100.  It is not affected by
the average levels of tariffs.  Tariff escalation is measured in this note as an arbitrary ratio of two
tariff lines in the lower and upper spectrum of the tariff profile.
                                                     
1 This document has been prepared under the Secretariat's own responsibility and is not intended to
prejudice the positions of any Members and to their rights and obligations under the WTO.TN/MA/S/3/Rev.2
Page 2
A. TARIFF INDEPENDENT FORMULAE
4. The defining feature of independent formulae is that they are not dependent, in any way, on
the initial tariff rate.  What is important is simply the rate of reduction.  For example, the most
commonly cited independent formula is the one used for the Kennedy Round where “an across the
board cut of 50 per cent would be used as a working hypothesis for the determination of the general
rate of linear reduction”.2
5. Assume that the initial tariff rate prior to negotiations is given by t0 and the final tariff rate
resulting from the negotiations is t1.  The expression which relates the two tariff rates, where c is a
constant parameter, would be:
0 1 tct ×=
6. The final tariff rate would necessarily depend upon both the parameter c and the initial tariff
rate.  The rate of reduction (R = 1 - c), however, is independent of the tariff rate depending only on
the parameter c.  The original tariff rate is not a determinant of the rate of reduction.  All tariff rateswill be reduced by the same percentage.
7. To assess how this particular formula operates consider our hypothetical tariff profile
assuming different values for c (0.1, 0.25 and 0.5). Table 1 presents the original tariff profile and the
resulting profile for the three different values of c. It shows that the formula results in a reduction in
the overall average and maximum tariff rates and in the standard deviation. There is no impact on thecoefficient of variation and on our pre-defined tariff escalation ratio. The latter result arises since all
tariff rates are cut by the same proportion, which does not change ratios between different tariff rates.
The reduction in the standard deviation is solely due to the reduction in the tariff averages.
8. Among the formulae proposed so far only the Indian proposal (see paragraphs 30 and 31)
makes use of this type of formula.  In order to address peaks a supplementary reduction is includedwhich makes the final reduction dependent on the initial tariff rates in all those cases where there are
‘national peaks', i.e. tariff rates more  than three times the national average.
B. T
ARIFF DEPENDENT FORMULAE
9. In contrast to the previous section where the rate of reduction is independent of the initial
tariff rate, there is a whole class of formulae that are a function of the initial tariff.  The basic elementof these formulae is that they aim to have higher reductions for higher tariff rates.  Hence, they are
commonly called ‘harmonising’ formulae, since the overall dispersion of the tariff profile is reduced.
10. Tariff dependent formulae can be linear, or non-linear.  It should be noted that during the
Tokyo Round Switzerland proposed a specific f unctional form of the non-linear formula. This
formula is now commonly known as the Swiss formula.  It is explained below.
1. Linear reduction formulae
11. An example of a basic linear formula is a generalisation of the tariff independent formula by
adding an intercept:
0 1 tcat ×+=
                                                     
2 Hoda, A. (2001), Tariff Negotiations and Renegotiations under the GATT and WTO: Procedures and
Practices, Cambridge: Cambridge University Press, .page 31TN/MA/S/3/Rev.2
Page 3
12. There are two possible cases depending on the value of  a:
• a<0 : it implies that tariff rates below a certain threshold are reduced to zero and tariff rates
above that threshold are cut by an increasing percentage as the tariff rates increase.
• a>0 : under the assumption that an increase in tariff rates is out of question, it implies that
tariff rates below a certain threshold are not reduced at all, and that above that threshold tariff
rates are cut by an increasing percentage as the tariff rates increase.
13. Linear formulae that are tariff dependent and harmonising can be used in ‘tariff band’
approaches which propose different linear cuts for different ranges or intervals of the tariff profile.The European Communities’ proposal (see paragraphs 28 and 29) and the Korean proposal (see
paragraphs 35 to 41) could be classified in this category.
Table 1
Impact of linear cut on the hypothetical tariff profile for various coefficients
Final tariff rate after reduction Reduction in percent
Tariff lineInitial
tariff rate c=.90 c=.75 c=.5 c=.90 c=.75 c=.5
Line 1 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Line 2 2.5 2.3 1.9 1.3 10.0 25.0 50.0
Line 3 5.0 4.5 3.8 2.5 10.0 25.0 50.0
Line 4 7.5 6.8 5.6 3.8 10.0 25.0 50.0
Line 5 10.0 9.0 7.5 5.0 10.0 25.0 50.0
Line 6 12.5 11.3 9.4 6.3 10.0 25.0 50.0
Line 7 15.0 13.5 11.3 7.5 10.0 25.0 50.0
Line 8 17.5 15.8 13.1 8.8 10.0 25.0 50.0
Line 9 20.0 18.0 15.0 10.0 10.0 25.0 50.0
Line 10 22.5 20.3 16.9 11.3 10.0 25.0 50.0
Line 11 25.0 22.5 18.8 12.5 10.0 25.0 50.0
Line 12 27.5 24.8 20.6 13.8 10.0 25.0 50.0
Line 13 30.0 27.0 22.5 15.0 10.0 25.0 50.0
Line 14 32.5 29.3 24.4 16.3 10.0 25.0 50.0
Line 15 35.0 31.5 26.3 17.5 10.0 25.0 50.0
Line 16 37.5 33.8 28.1 18.8 10.0 25.0 50.0
Line 17 40.0 36.0 30.0 20.0 10.0 25.0 50.0
Line 18 42.5 38.3 31.9 21.3 10.0 25.0 50.0
Line 19 45.0 40.5 33.8 22.5 10.0 25.0 50.0
Line 20 47.5 42.8 35.6 23.8 10.0 25.0 50.0
Line 21 50.0 45.0 37.5 25.0 10.0 25.0 50.0
Line 22 52.5 47.3 39.4 26.3 10.0 25.0 50.0
Line 23 55.0 49.5 41.3 27.5 10.0 25.0 50.0
Line 24 57.5 51.8 43.1 28.8 10.0 25.0 50.0
Line 25 60.0 54.0 45.0 30.0 10.0 25.0 50.0
Average 30.0 27,0 22,5 15,0 9,6 24,0 48,0
Maximum 60.0 4,6 12,0
Std. Dev 18.4 16,6 13,8
Coeff. Var. 61.3 61,3 61,3
Escalation
(line13/line5)3.0 3,00 3,00TN/MA/S/3/Rev.2
Page 4
2. Non linear reduction formulae
14. There are any number of non-linear formulae imaginable, however, in practical terms only
one type of formula, the so called Swiss formula, has been used so far in tariff negotiations. It was
initially proposed during the Tokyo Round and adopted by some developed countries.  The
specification of the formula is as follows, where a is simply a coefficient.
00
1tatat+×=
15. The formula has the property of being a function of both the initial tariff and the coefficient a.
The coefficient can be negotiated.  The formula can be rearranged so that it that it can be compared
easily to the other formulae presented so far (see annex for the transformation). It shows that anincrease in the value of  a  reduces the rate of tariff reduction.
00
tatR+=
16. To illustrate how the value of the coefficient is  critical to the effectiveness of the formula to
reduce tariff rates, three values have been chosen for the numerical example: 5, 15 and 50.   An
increase in the value of the coefficient results in a smaller overall reduction of the key descriptive
statistics.  When a is equal to 5 the average is 3.9, the tariff escalation ratio is 1.3.  When a is equal to
15 the average increases to 8.8, but the escalation coefficient rises slightly to 1.5.  In the final casewhere a is equal to 50, there is still a significant cut in the overall average.  Furthermore, despite
tripling the value of parameter, the escalation coefficient rises to only 1.7. The results in Table 2
illustrate these points.
17. Overall the general impact of the Swiss formula is to widen the gap between the original and
final tariff rate as the original tariff rate increas es indicating that the cuts are greatest for the higher
tariff rates.  Figures 1 and 2 illustrate this point.
18. It can be shown graphically (Figures 1 and 2)  and analytically that the Swiss formula has
lower rates of percentage reduction than those generated by a tariff independent linear reduction in a
certain range of low tariff rates. This range extends from rates just above zero to a certain value which
is determined by the respective coefficients.
 t
1-Swiss  > t 1-linear   for  t0 < (a / c) - a
where c is the reduction coefficient from the linear formula and a is the Swiss formula coefficient.
19. For example, for c=0.9 and a=50 tariff rates up to 5.5 percent will be reduced less by the
Swiss formula than by the linear cut.  For other examples see Figure 2.
20. Among the proposals so far presented, the United States have adopted the Swiss formula (see
paragraphs 42 and 43) while China (see paragraphs 25 to 27) has proposed a variant of the Swiss
formula with properties very close to that of the original Swiss formula but with a Member specificcoefficient.TN/MA/S/3/Rev.2
Page 5
Table 2
Impact of Swiss formula on the hypothetical tariff profile for various coefficients
Final tariff rate after reduction Reduction in percent
Tariff lineInitial
Tariff rate a=5 a=15 a=50 a=5 a=15 a=50
Line 1 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Line 2 2.5 1.7 2.1 2.4 33.3 14.3 4.8
Line 3 5.0 2.5 3.8 4.6 50.0 25.0 9.1
Line 4 7.5 3.0 5.0 6.5 60.0 33.3 13.0
Line 5 10.0 3.3 6.0 8.3 66.7 40.0 16.7
Line 6 12.5 3.6 6.8 10.0 71.4 45.5 20.0
Line 7 15.0 3.8 7.5 11.5 75.0 50.0 23.1
Line 8 17.5 3.9 8.1 13.0 77.8 53.9 25.9
Line 9 20.0 4.0 8.6 14.3 80.0 57.1 28.6
Line 10 22.5 4.1 9.0 15.5 81.8 60.0 31.0
Line 11 25.0 4.2 9.4 16.7 83.3 62.5 33.3
Line 12 27.5 4.2 9.7 17.7 84.6 64.7 35.5
Line 13 30.0 4.3 10.0 18.8 85.7 66.7 37.5
Line 14 32.5 4.3 10.3 19.7 86.7 68.4 39.4
Line 15 35.0 4.4 10.5 20.6 87.5 70.0 41.2
Line 16 37.5 4.4 10.7 21.4 88.2 71.4 42.9
Line 17 40.0 4.4 10.9 22.2 88.9 72.7 44.4
Line 18 42.5 4.5 11.1 23.0 89.5 73.9 46.0
Line 19 45.0 4.5 11.3 23.7 90.0 75.0 47.4
Line 20 47.5 4.5 11.4 24.4 90.5 76.0 48.7
Line 21 50.0 4.6 11.5 25.0 90.9 76.9 50.0
Line 22 52.5 4.6 11.7 25.6 91.3 77.8 51.2
Line 23 55.0 4.6 11.8 26.2 91.7 78.6 52.4
Line 24 57.5 4.6 11.9 26.7 92.0 79.3 53.5
Line 25 60.0 4.6 12.0 27.3 92.3 80.0 54.6
Average 30.0 3,9 8,8 17,00 77,2 58,9 34,0
Maximum 60.0 4,6 12,0 27,3
Std. Dev 18.4 1,1 3,3 8,1
Coeff. Var. 61.3 28,1 36,8 47,7
Escalation
(line13/line5)3.0 1,3 1,7 2,3TN/MA/S/3/Rev.2
Page 6
Figure 1: Comparison of linear cut and Swiss formula
05101520253035404550
0.0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0 32.5 35.0 37.5 40.0 42.5 45.0 47.5 50.0 52.5 55.0 57.5 60.0
Initial tariff rateFinal tariff rateto=t1
c=0.9
c=0.75
c=0.5
a=5
a=15
a=50
Figure 2:   Reductions in percent for linear cut and Swiss formula
0%10%20%30%40%50%60%70%80%90%100%
0.0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0 32.5 35.0 37.5 40.0 42.5 45.0 47.5 50.0 52.5 55.0 57.5 60.0
Initial tariff rateReduction in percenta=5
a=15
a=50
c=0.5
c=0.75
c=0.9TN/MA/S/3/Rev.2
Page 7
III. FORMULA PROPOSALS BY MEMBERS
1. Methodology
21. The aim of this section is to better understand the various proposals for modalities that
include a formula approach for tariff negotiations.  It confines itself to illustrating the properties of
several formulae using a hypothetical tariff profile and with numerical examples presented in tables
and graphs.  It complements the document TN/MA/6/Rev.1 entitled "Overview of ProposalsSubmitted". It does not address the specifics of the various proposals such as the base period,
implementation, product coverage, treatment of non-ad valorem duties and their application by
Members.  Nor does it present all the formula proposals listed in document TN/MA/6/Rev.1 because
not all of them include a clearly defined functional form and explicitly specified parameters or
coefficients. Calculations to determine the ratio of reductions without such information are not
possible.
22. The same hypothetical tariff profile is used to evaluate the effect of implementing a specific
proposal. For the proposals that include the tariff average as a parameter, the average tariff of the
hypothetical tariff profile is used.  This means that the reductions calculated for the various initial
duty rates do not apply to real tariff profiles, where the average is lower or higher than the average of
the hypothetical tariff profile.  In these cases, where possible, the properties of the formula with
respect to the different profiles are discussed.
23. It should be noted that for presentation purposes, the notation for the formulae proposed by
Members has been standardised using the same notation as in the previous section, i.e. the original
tariff rate is denoted as t0 and the final rate as t1.  The text does not distinguish between bound and
applied rates, since the purpose of the document is to illustrate the use of different formula
methodologies.
24. Formulae that propose a reduction of the average weighted tariff have to be distinguished
from those that propose a methodology for a line-by-line reduction.  Following the classification made
in document TN/MA/6/Rev.1 regarding weighted tariff average reductions and line by line reductions,
they have been presented in different figures and tables.
2. Proposals
(a) China
3
25. The Chinese formula is specified as:
()()
()020
1t Ptt PB tt
aa
+ +× ×+=
where,
ta is the simple average of the base rates ( A in TN/MA/20).
P is a peak factor defined as the ratio of the tariff rate over the average rate ( t0/ ta)
B is an adjusting coefficient for the year of implementation. B=1 for 2015 or B=3 for 2010.
26. The formula is very similar to the Swiss formula but instead of a fixed coefficient, a variable
factor based on the simple average of the base rates ta, a peak factor and an additional parameter for
the year of implementation have been used.  The properties of the Chinese formula are similar to what
                                                     
3 TN/MA/W/20.TN/MA/S/3/Rev.2
Page 8
is known about the properties of the Swiss formula discussed in paragraph 16, such as higher cuts for
higher rates.  Furthermore it can be shown that for B=1 the formula reduces any initial tariff rate
below a maximum level which is the current average of the base rates.  This is equivalent to the effect
of the standard Swiss formula using the tariff average as coefficient.
27. The percentage cuts for any given tariff rate will depend on the tariff average of the Member
concerned. For the same tariff rate, Members with lower tariff averages will experience relativelyhigher reduction rates than Members with higher tariff averages.  Therefore, the overall result of
applying this formula will depend on the statistical properties of different Members' tariff profiles.
(b) European Communities
4
28. The European Communities’ proposal is within the class of linear tariff dependent formulae,
however, with an adjustment, which gives it the pr operties of a step-wise linear function. The formula
is applied across a set of tariff intervals and the tariff rate cuts depend upon the upper and lower
bound of the applicable interval.
29. The formula is specified as:
() /g250
/g251/g249
/g234
/g235/g233
−−× − + =L UL U
L L
B BB BBt Bt
0 01 1
0 0 1 1
where i
jB are the upper and lower bounds of the respective tariff intervals. The superscripted letters U
and L are, respectively, the upper and lower bounds of the interval. The intervals are defined as
follows:
Base Final
BL
0 BU
0 BL
1 BU
1
Interval 1 0 to less than     2 0 to       0
Interval 2 2 to                  15 1.6 to    7.5
Interval 3 15 to                  50 7.5 to     15
Interval 4 50 to more than 50 15 to     15
(c) India5
30. India proposes a simple linear cut on the individual bound tariff lines of each Member, with a
higher percentage cut for developed countries than for developing countries. In addition to the linear
cut, any tariff in excess of three times the national average tariff shall be reduced to no more than
three times the national average which results after applying the initial linear cut. The formula isspecified as:
Step (1)  t
1 = c × t0    where  c = (1- ( A×Y/100)) and
Step (2)  t1 ≤ 3 × ta1
where
A  is defined as 'less than full reciprocity' parameter with
A = 1  for developed countries and
                                                     
4 TN/MA/W/11/Add.1 and Add.2
5 TN/MA/W/10/Add.2; suggestions for the treatment of unbound lines are beyond the scope of this
document and have therefore not been included.TN/MA/S/3/Rev.2
Page 9
A = 0.67  for developing countries,
Y  is the reduction percentage (to be negotiated)
ta1  is the simple average tariff after applying the linear cut.
31. The following supplementary modalities are proposed for developing country Members:  (a)
The actual reductions of at least 15 percent of currently bound rates can differ from the ratescalculated under Step (1) under condition that the overall percentage reduction still meets the
reduction percentage resulting from Step (1).   (b) The flexibility in the application of the formula
shall also apply for Step (2).
(d) Japan
6
32. Japan proposes that each Member sets a target level of a trade-weighted tariff average
according to a formula and that each Member reduce its trade-weighted tariff average to that target
level.  Each Member will retain flexibility on ways to realize the target tariff level.  The formula isspecified as:
α++×=w
aw
a w
atAtAt
00
1
where, w
at0 is the weighted tariff average prior to the application of the formula and w
at1 is the
weighted average after the application of the formula.  A is a constant whose values varies as follows:
w
at0≤ 10%, A = 10
10% < w
at0 ≤ 20%, A = 20
20% < w
at0 ≤ 30%, A = 30
30% < w
at0, A = 40
33. The term α in this specification has been proposed as a constant equal to 0.3.
34. The formula applies to the reduction of the trade-weighted tariff average as opposed to a
reduction of the tariff rates on a line-by-line basis.  This means that the formula is used to determine
the end result, or the objective of the tariff negotiations.  A lower coefficient will yield a higher cut
and a higher coefficient a lower cut.
(e) Republic of Korea7
35. The objective of this proposal is to lower the weighted tariff average of Members by
40 percent.  This is achieved by applying a reduction formula that results in a higher reduction oftariff peaks.  The starting point is a 20 percent minimum reduction by tariff line, which is followed by
a further reduction aimed at harmonising the tariff profile.  Two criteria are used to distinguish which
tariff rates should be addressed and the applicable methodology.  These are twice the national average
and 25 percent.
36. For the case where tariff rates are above twice the national average but less than 25 percent,
the following formula is applicable which includes the initial 20 per cent reduction:
                                                     
6 TN/MA/W/15.
7 TN/MA/W/6/Add.1.TN/MA/S/3/Rev.2
Page 10
( ) ()()at t tt ×−× −×= 2 7.08.00 0 1
37. If the tariff rate is less than twice the national average, but still above 25 percent the following
formula is applicable which includes the initial 20 per cent reduction:
() ( ) () 25 7.0 8.00 0 1 − × − × = t t t
38. In cases where the tariff rate is above two times the simple national average and at the same
time above 25 percent, the final tariff rate shall be whichever is lower after the reduction.
39. The formula reduces higher tariff rates in a way that takes into account individual tariff
profiles since the cut is dependent on the tariff average.  This means tariff profiles that have duties
predominantly below 25 percent but above twice the national average will still be subject to further
tariff reductions.  Alternatively, profiles with duties predominantly above 25 percent, but with high
overall averages will still be subject to reductions since the 25 percent rule will apply.
40. The overall result of applying this formula will, therefore, depend on the statistical properties
of each Members' tariff profile.  It should be noted though that for all tariff profiles with an average of
above 12.5 percent the tariff rate reductions in percentage are identical for a given tariff rate because
the 25 percent rule applies in all cases where twice the national average is greater than 25 percent.
41. The Korean proposal is similar to the Japanese proposal in that both seek a reduction of the
weighted tariff average.  However, the application of the Korean formula for the targeted reduction of
weighted tariff averages differs slightly from that of the Japanese proposal as illustrated in figure 8.
(f) United States8
42. The United States has proposed a modality, which includes the elimination of tariff rates at or
below 5 percent and the application of a Swiss formula on the tariff profile for all other tariff rates.
The proposed coefficient is 8, which converts the general Swiss formula into the following
specification:
00
188
ttt+×=
43. The general properties of this formula are described earlier in section II.B.2.  What is
important to note about the US proposal is the value of 8 for the coefficient.  This implies a maximum
tariff rate of 8 percent after tariff reductions for any tariff profile.
3. Tariff reduction simulations with hypothetical tariff profile
44. The reduction effects of the formulae presented above applied to a hypothetical tariff profile
are illustrated in tables 3 to 5 and figures 3 to 6.  The proposals using line by line reductions and those
targeting reductions of average weighted tariff rates are shown separately because they are not strictly
comparable in their implications.
45. Table 3 shows, based on the hypothetical tariff profile, the base rates before and after
application of the various line by line formulae.  For those formulae that use the tariff average as
parameter the average of the hypothetical tariff profile has been used, i.e. ta=30. Descriptive statistics
before and after reduction highlight the overall effects of the application of the various proposals on
                                                     
8 TN/MA/W/18.TN/MA/S/3/Rev.2
Page 11
the hypothetical tariff profile.  For those formulae that include the tariff average as a parameter the
hypothetical calculations are only indicative and require the following qualifications:
46. The application of the Chinese proposal to tariff profiles with lower/higher tariff averages
would, for a given tariff rate, result in a higher/lo wer cut than that shown in the tables and figures.
47. In the case of the Korean proposal for line by line cuts, tariff profiles with a tariff average
below 12.5 percent would be subject to higher cuts than those shown in the examples given in thetables and figures.  In addition, the application of the 40 per cent reduction of trade weighted tariff
averages may require additional cuts than those indicated in the hypothetical example (tables 1 and 2
and figures 1 and 2). Likewise, the line by line cut included in the Korean formula may result in a
reduction in the trade weighted tariff average which could be higher than the 40 percent reduction
indicated in the hypothetical example (table 5 and figures 5 and 6).
48. The reduction rate used for the Indian formula, by way of example,  is the same one presented
in their proposal.  Depending on the actual tariff average of the Member concerned, rates above threetime the national would be capped at that rate.
49. Table 4 illustrates how the application of the formulae results in different percentage
reductions for the different tariff rates and indicates also the reduction of the simple average of the
hypothetical tariff profile. Table 5 illustrates the same point for the formulae for reductions of
weighted tariff averages.
4. General Observations
50. Formulae by their very nature are technical.  Nevertheless, it is extremely important to
understand their properties in the context of their application to the tariff profiles of Members.  In this
regard, despite the diversity of innovative proposals on the use of formulae as a modality for market
access negotiations, some general observations can be made:
• All proposals reduce higher rates by proportionately more than lower rates.  Some proposals
include continuous increases in reduction rates, others provide for threshold levels after whichhigher reduction rates apply. This is accomplished through different specifications.
• All proposals have similar effects at higher levels of tariffs, although with different absolute
impacts due to different parameters.
• Some proposals take into account the diversity of the Members profiles via an explicit provision
in the functional design of the formula for the current level of base rates.
• The treatment of the lower tariff rates differs significantly amongst the proposals.TN/MA/S/3/Rev.2
Page 12
Table 3
Impact on tariff rates of various line by line formula proposals on the hypothetical tariff profile
Tariff line Initial
tariff rateChina
ta=30,  B=1China
ta=30, B=3European
CommunitiesIndia a
50%India b
33%Korea
ta=30USA
Line 1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Line 2 2.5 2.3 2.3 1.8 1.3 1.7 2.0 0.0
Line 3 5.0 4.3 4.4 3.0 2.5 3.4 4.0 0.0
Line 4 7.5 6.0 6.1 4.1 3.8 5.0 6.0 3.9
Line 5 10.0 7.6 7.7 5.2 5.0 6.7 8.0 4.4
Line 6 12.5 8.9 9.2 6.4 6.3 8.4 10.0 4.9
Line 7 15.0 10.1 10.4 7.5 7.5 10.1 12.0 5.2
Line 8 17.5 11.2 11.6 8.0 8.8 11.7 14.0 5.5
Line 9 20.0 12.2 12.7 8.6 10.0 13.4 16.0 5.7
Line 10 22.5 13.0 13.7 9.1 11.3 15.1 18.0 5.9
Line 11 25.0 13.8 14.6 9.6 12.5 16.8 20.0 6.1
Line 12 27.5 14.6 15.4 10.2 13.8 18.4 20.3 6.2
Line 13 30.0 15.2 16.2 10.7 15.0 20.1 20.5 6.3
Line 14 32.5 15.9 17.0 11.2 16.3 21.8 20.8 6.4
Line 15 35.0 16.4 17.7 11.8 17.5 23.5 21.0 6.5
Line 16 37.5 17.0 18.3 12.3 18.8 25.1 21.3 6.6
Line 17 40.0 17.5 18.9 12.9 20.0 26.8 21.5 6.7
Line 18 42.5 17.9 19.5 13.4 21.3 28.5 21.8 6.7
Line 19 45.0 18.3 20.1 13.9 22.5 30.2 22.0 6.8
Line 20 47.5 18.8 20.6 14.5 23.8 31.8 22.3 6.8
Line 21 50.0 19.1 21.1 15.0 25.0 33.5 22.5 6.9
Line 22 52.5 19.5 21.6 15.0 26.3 35.2 22.8 6.9
Line 23 55.0 19.8 22.1 15.0 27.5 36.9 23.0 7.0
Line 24 57.5 20.1 22.5 15.0 28.8 38.5 23.3 7.0
Line 25 60.0 20.4 23.0 15.0 30.0 40.2 23.5 7.1
Average 30.0 13.6 14.7 10.0 15.0 20.1 16.7 5.4
Maximum 60.0 20.4 23.0 15 30 40.2 23.5 7.1
Std. Dev 18.4 5.9 6.7 4.5 9.2 12.3 7.4 2.2
Coeff. Var. 61.3 43.5 45.5 45.4 61.2 61.3 44.6 40.7
Escalation
(line13/line5)3.0 2.0 2.1 2.1 3.0 3.0 2.6 1.4
Notes:
a Applicable to developed countries.
b Applicable to developing countries.TN/MA/S/3/Rev.2
Page 13
Table 4
Percentage reduction arising from the application of various line by line formula proposals
Tariff line Initial
tariff rateChina
ta=30,
B=1China
ta=30,
B=3European
CommunitiesIndia a
50%India b
33%Korea
ta=30USA
Line 1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Line 2 2.5 7.5 6.9 26.9 50.0 33.0 20.0 100.0
Line 3 5.0 13.9 12.9 40.8 50.0 33.0 20.0 100.0
Line 4 7.5 19.5 18.1 45.4 50.0 33.0 20.0 48.4
Line 5 10.0 24.4 22.7 47.7 50.0 33.0 20.0 55.6
Line 6 12.5 28.7 26.8 49.1 50.0 33.0 20.0 61.0
Line 7 15.0 32.6 30.4 50.0 50.0 33.0 20.0 65.2
Line 8 17.5 36.1 33.6 54.1 50.0 33.0 20.0 68.6
Line 9 20.0 39.2 36.6 57.1 50.0 33.0 20.0 71.4
Line 10 22.5 42.0 39.2 59.5 50.0 33.0 20.0 73.8
Line 11 25.0 44.6 41.6 61.4 50.0 33.0 20.0 75.8
Line 12 27.5 47.0 43.9 63.0 50.0 33.0 26.4 77.5
Line 13 30.0 49.2 45.9 64.3 50.0 33.0 31.7 78.9
Line 14 32.5 51.2 47.8 65.4 50.0 33.0 36.2 80.2
Line 15 35.0 53.0 49.5 66.3 50.0 33.0 40.0 81.4
Line 16 37.5 54.8 51.1 67.1 50.0 33.0 43.3 82.4
Line 17 40.0 56.3 52.6 67.9 50.0 33.0 46.3 83.3
Line 18 42.5 57.8 54.0 68.5 50.0 33.0 48.8 84.2
Line 19 45.0 59.2 55.3 69.0 50.0 33.0 51.1 84.9
Line 20 47.5 60.5 56.6 69.5 50.0 33.0 53.2 85.6
Line 21 50.0 61.7 57.7 70.0 50.0 33.0 55.0 86.2
Line 22 52.5 62.9 58.8 71.4 50.0 33.0 56.7 86.8
Line 23 55.0 64.0 59.8 72.7 50.0 33.0 58.2 87.3
Line 24 57.5 65.0 60.8 73.9 50.0 33.0 59.6 87.8
Line 25 60.0 66.0 61.7 75.0 50.0 33.0 60.8 88.2
Average 30.0 43.9 41.0 42.3 48.0 31.7 34.7 75.8
Notes:
a Applicable to developed countries.b Applicable to developing countries.TN/MA/S/3/Rev.2
Page 14
Table 5
Applying different formulae to hypothetical weighted tariff averages
(Initial and final tariff rate and reductions by case in percent)
Initial Weighted average rates after
reductionReductions in percent
Hypothetical
cases weighted
averageJapan Korea
cut 40%Linear
cut 50%Japan Korea
cut 40%Linear
cut 50%
Case 1 0.0 0.3 0.0 0.0 n.a 0.0 0.0
Case 2 2.5 2.3 1.5 1.3 8.0 40.0 50.0
Case 3 5.0 3.6 3.0 2.5 27.3 40.0 50.0
Case 4 7.5 4.6 4.5 3.8 38.9 40.0 50.0
Case 5 10.0 5.3 6.0 5.0 47.0 40.0 50.0
Case 6 12.5 8.0 7.5 6.3 36.1 40.0 50.0
Case 7 15.0 8.9 9.0 7.5 40.9 40.0 50.0
Case 8 17.5 9.6 10.5 8.8 45.0 40.0 50.0
Case 9 20.0 10.3 12.0 10.0 48.5 40.0 50.0
Case 10 22.5 13.2 13.5 11.3 41.5 40.0 50.0
Case 11 25.0 13.9 15.0 12.5 44.3 40.0 50.0
Case 12 27.5 14.6 16.5 13.8 46.7 40.0 50.0
Case 13 30.0 15.3 18.0 15.0 49.0 40.0 50.0
Case 14 32.5 18.2 19.5 16.3 43.9 40.0 50.0
Case 15 35.0 19.0 21.0 17.5 45.8 40.0 50.0
Case 16 37.5 19.7 22.5 18.8 47.6 40.0 50.0
Case 17 40.0 20.3 24.0 20.0 49.3 40.0 50.0
Case 18 42.5 20.9 25.5 21.3 50.8 40.0 50.0
Case 19 45.0 21.5 27.0 22.5 52.3 40.0 50.0
Case 20 47.5 22.0 28.5 23.8 53.7 40.0 50.0
Case 21 50.0 22.5 30.0 25.0 55.0 40.0 50.0
Case 22 52.5 23.0 31.5 26.3 56.2 40.0 50.0
Case 23 55.0 23.5 33.0 27.5 57.3 40.0 50.0
Case 24 57.5 23.9 34.5 28.8 58.5 40.0 50.0
Case 25 60.0 24.3 36.0 30.0 59.5 40.0 50.0TN/MA/S/3/Rev.2
Page 15Figure 3: Comparison of formula proposals for line by line reductions 
0102030
0 5 10 15 20 25 30 35 40 45 50 55 60Initial Tariff RateFinal Tariff Rateto=t1
India 33
India 50
Korea
China B=3
China B=1
EC
USTN/MA/S/3/Rev.2
Page 16
Figure 4: Reductions in percent of initial tariff rates
0%20%40%60%80%100%
0 1 02 03 04 05 06 07 0
Initial Tariff RateR
e
du
c
t
i
on
 i
n
 
p
e
r
 
ce
n
tUS
EC
China B=1
China B=3
Korea
India 50
India 33TN/MA/S/3/Rev.2
Page 17Figure 5: Comparison of formula proposals for weighted tariff average reductions
051015202530
0 5 10 15 20 25 30 35 40 45 50 55 60Initial Weighted Tariff Average Final Weighted Tariff Averageto=t1
Korea
Linear 50%
JapanTN/MA/S/3/Rev.2
Page 18
Figure 6: Reductions in percent of initial  weighted tariff averages
0%10%20%30%40%50%60%70%80%90%100%
0 5 10 15 20 25 30 35 40 45 50 55 60Initial Weighted Tariff Average Final Weighted Tariff AverageJapan
Linear 50%
KoreaTN/MA/S/3/Rev.2
Page 19
ANNEX  TARIFF REDUCTIONS AND THE SWISS FORMULA
Let t 1 be the final tariff, t 0 the initial tariff.  The Swiss Formula is given as:
00
1taatt+= A.1
The difference between the new tariff and the old tariff is:
()
()
()
()
()
()02
002
0 0 000 0 00
00
0 1
tattatat attatat atttaattt
+−=+− −=++ −=−/g247/g247
/g248/g246
/g231/g231
/g232/g230
+=−
A.2
The rate of reduction is given as:
100
00 1⋅−=tttR A.3
Substituting A.2 into A.3 gives us:
()
()
()
()
100100100
00002
0002
0
⋅+=⋅+−=⋅+−
=
tatttatttat
R
A.4
__________