WORLD TRADE  
ORGANIZATION  TN/MA/W/13/Add.2 
17 October 2005 
 (05-4739) 
Negotiating Group on Market Access Original:   English 
 
 
MARKET ACCESS FOR NON-AGRICULTURAL PRODUCTS 
 
The NAMA Package  
 
Communication from Mexico 
 
Addendum  
 
 
 The following communication, dated 14 October 2005,  is being circulated at the request of the 
Delegation of Mexico. 
 
_______________ 
 
 1. The negotiations of the NAMA negotiating group ha ve made it clear that a “one-size-fits-all” 
approach may not be appropriate for all Members.
1 While a number of proposals have been presented, 
there are a number of considerations to take into account and consensus can only be possible if 
Members are in a position to take an informed d ecision based on a complete picture of the overall 
outcome of these negotiations. 
2. In Mexico’s opinion, it is important to esta blish a methodology which combines flexibility for 
developing country Members without affecting a balanced outcome, and particularly, to provide with 
equitable results to all developing countries. 
3. In this respect, it might be useful to count w ith a complete package of possibilities to deal 
both with unbound tariffs and the application of the formula in a manner that provides developing 
country Members policy space for sensitive products , while achieving a degree of ambition to be 
established during the negotiation. 
• The first element  of this package  would be the application of a simple-Swiss formula for 
tariff reduction with some in-built flexibilities to it. The coefficients of this formula would be 
bound to the other elements of the package.2 
 
• The second element  of the package would be to establish a non-linear mark-up approach for 
unbound tariffs, combining simplicity with precisi on and flexibility. In this sense, we recall 
Mexico’s proposal in document TN/MA/W13/Add.1.  
 
• As a third element , those Members willing to bind all their tariff lines, and that require 
additional protection for high applied tariffs, th at are currently unbound, may depart from the 
                                                      
1 A number of concerns have been expressed rega rding the need for flexibilities, and an important 
number of examples have been discussed in different proposals (TN/MA/W/54, TN/MA/W/60, Job(05)/86, Job(05)/150, among others). 
2 See TN/MA/W/50. TN/MA/W/13/Add.2 
Page 2  
 non-linear markup approach in some instances. In  that case, this additional flexibility would 
be balanced by applying a reduced mark-up in the remaining tariff lines to be bound. 
 This tailor-made package should give developing- country Members sufficient policy space for some 
products, thus responding to each Member’s individual needs and constraints.  I. THE SWISS FORMULA AND PARAGRAPH 8 
4. In general terms, Mexico would propose to a pproach the flexibilities contained in paragraph 8 
in the same manner as suggested in document TN/MA/W/50, i.e., to establish a mechanism by which 
additional flexibilities be matched with additi onal commitments either in terms of the β coefficient of 
reduction or the implementation period. The objective is that the overall results are equitable to all 
developing countries , both to those using the paragraph 8 fl exibilities and to tho se that may choose 
not to take advantage of them and apply the Swis s formula across the board to all industrial products 
favored by a slightly higher coefficient. 
5. As has been made abundantly clear, a negotiati on on the appropriate combination of ambition 
and flexibilities is an extremely difficult task. It  may, therefore, be preferable to establish objective 
criteria , by which flexibilities be automatically matc hed by an equivalent level of additional 
ambition. 
6. As established in paragraph 8,  Members would benefit from keeping a number of tariff lines 
unaffected by the reduction formula (hereafter refe rred to as “sensitive products”). Alternatively, 
Members could choose to apply “less than formula cu ts”. In those cases, all other tariff lines would 
have to be recalculated for purposes of maintaining the final result.  
7. For illustrative purposes, consider a simple case wh ere the trade of a Member is covered by 
five tariff lines. Assume that after applying the Sw iss formula, we obtain a final tariff of 30% so 
obtained for all five tariff lines; and therefore the average tariff for the Member is 30% (as shown by 
the discontinuous line in figure 1). A more flexible  approach (shown by the solid line) would allow 
this Member to exercise its flexib ility by maintaining the tariff for product 3 (a particularly sensitive 
product) tariff at a base rate of 38% . Afterwards, that Member would lo wer the other tariffs in such a 
way that keeping the base rate for product 3 (given by  area A in figure 1) is equal to the sum of the 
further reductions in the tariffs of products 1,2,4 and 5 (given by areas B and C). In this case, the 
average tariff form the flexible approach woul d remain the same as the average tariff resulting from 
the simple implementation of the Swiss formula. In this case the tariff rate for goods 1,2,4 and 5 
would need to be set at 28, as  
 
  
3053030303030
52828382828=++++=++++ 
 
  TN/MA/W/13/Add.2 
 Page 3 
 
 
 Figure 1 
Average Tariff rates  
 
2025303540
012345 Swiss Formula Flexible ApproachA
BCt1(x)
x
 
 
 
Thus we would be building the flexibilities of the July framework into the Swiss formula, allowing a 
number of tariff lines to deviate from it, and loweri ng all other tariffs proportionately to keep the 
average tariff constant.  8. A Member can choose a set of sensitive products P, where the tariff would not be reduced, 
and therefore would remain at the base rate. In th at case, a modified version of the Swiss formula 
would be applicable for all other products in the same proportion. 
A. 
AN EXAMPLE  
9. Consider a Member’s tariff schedule, such as the one summarized in table1. 
10. In the first column we have the number of tari ff lines, for each tariff rate in column 2. This 
means that, for example, there are 23 lines which are duty free, 52 lines with a 10% tariff rate, etc. In 
this example, the majority of the pro ducts are subject to a 35% tariff rate. 
11. The third column shows the tariffs that woul d be obtained by applying the Swiss formula 
given by equation (IV.1) to all lines, reducing the average tariff of the Member from 34.9% to 14.5% 
as indicated in the bottom of the table.  
12. Assuming that 5% of all tariff lines are set aside  as sensitive products with a final tariff rate 
equal to the base rate of 35%, we apply th e modified formula to all other tariff lines. 
13. Finally, figure 2 shows the diffe rent tariff levels for each category, obtained with the Swiss 
formula and with the flexible approach that leaves 5% of the lines at their initial level.  
   TN/MA/W/13/Add.2 
Page 4  
 Table 1 
 
Number of Tariff 
Lines Initial Tariff Final Tariff 
  Swiss Formula (B=2 5) Flexible Approach 
 (%) (SWISS) (FLEX) 
  
23 0 0.0 0.0 
52 10 7.1 6.6 
51 20 11.1 10.3 
138 25 12.5 11.6 
23 30 13.6 12.6 
9629 35 14.6 13.5 
18 36 14.8 13.7 
2 37 14.9 13.8 
105 40 15.4 14.2 
16 45 16.1 14.9 
173 50 16.7 15.4 
538* 35 14.6 35.0 
    
Average Tariff  34.9 14.5 14.5 
    
* 538 tariff lines, or 5% of the tota l, were selected as sensitive products.  
  
II. BUILDING FLEXIBILITIES INTO THE RATIONAL FORMULA FOR SETTING 
BASE RATES FOR UNBOUND LINES 
14. As mentioned above, the second element of the package would be to establish a non-linear 
mark-up approach for unbound tariffs, in the understanding that all tariff lines would be 
ultimately bound . Document TN/MA/W13/Add.1 is particularly relevant to that effect. 
15. However, there might be cases where Members require additional flexibility to that provided 
for in a non-linear mark-up approach (third element) . In that case, they might want to choose to set 
aside a subset of all currently- unbound products where the bound equiva lent tariff will be higher than 
the level obtained by applying the rational formula.  Such markup should not be higher than 1.5 times 
the applied rate. 
16. For all other products, the bound equivalent w ill be proportionately lower than the level 
obtained by the non-linear mark-up formula. These pr oducts should, in any case, not represent more 
than 5% of tariff lines and 5% of the value of imports.  
B. 
AN EXAMPLE  
17. Consider a Member with 20 unbound tariff lines (1- 20) with applied rates in a range from 0 to 
95%, as shown in column B of table 1. The imports  for each tariff line are shown in column C. In 
column D (and in the solid line of figure 1), we show the bound equivalent tariff from applying the equation for the non-linear markup.   TN/MA/W/13/Add.2 
 Page 5 
 
 
  
18. Suppose that this country Member strongly prefers to bind its tariff for good 17 at a level that 
is 1.5 times the applied rate. This is shown in co lumn E. Applying the rational formula to all tariff 
lines except good 17, with an adjusted α coefficient of 314.5, maintains the average tariff of this 
Member, at the same level as column D.  
 
Table 1 
 
Tariff 
Line Applied 
Tariff Imports Bound 1 Bound 2 
(A) (B) (C) (D) (E)
    
1 0 1918.2 15.0 11.0
2 5 2044.9 17.9 14.4
3 10 1790.4 21.3 18.2
4 15 1376.4 25.0 22.3
5 20 1516.8 29.0 26.6
6 25 1975.2 33.2 31.0
7 30 1575.9 37.5 35.5
8 35 1565.3 41.9 40.1
9 40 1648.6 46.4 44.7
10 45 1708.8 51.0 49.4
11 50 1231.5 55.6 54.1
12 55 1594.7 60.3 58.9
13 60 940.7 65.0 63.7
14 65 1135.0 69.7 68.5
15 70 1351.5 74.5 73.3
16 75 1369.0 79.3 78.1
17 80 564.3 84.1 120.0
18 85 1247.0 88.9 87.9
19 90 301.1 93.8 92.7
20 95 1147.7 98.6 97.6
   
Average 
Tariff 47.5 54.4 54.4
     
 TN/MA/W/13/Add.2 
Page 6  
  
 
Figure 1 
Applied and bound e quivalent tariffs. 
 
020406080100120140
13579 1 1 1 3 1 5 1 7 1 9Applied
Bound 1
Bound 2
 
 
The software used to make these calculations is accessible at the WTO webpage on the Members, at 
the website http://members.wto.org/members/3(WTO Resources/Market Access - Negotiations on 
Non-Agricultural Products) section. The data to run simulations on some real Members’ schedules is 
available on request from the Secretariat. For refere ntial purposes, all mathematical formulations are 
contained in the Annex to this document. 
 
III. CONCLUSION 
19. This package addresses the potentia l needs for policy space expressed in the application of the 
Swiss formula, as well as in the context of binding tariff lines which are currently unbound for those that will bind all their tariff lines. Mexico belie ves that this proposal c onstitutes a compromise 
between both offensive and defensive interests dur ing the negotiations, without affecting any other 
Member. 
 
                                                     
 
3 Once in the Member’s site, access the following links: WTO Resources/Market Access - Negotiations 
on Non-Agricultural Products.  TN/MA/W/13/Add.2 
 Page 7 
 
 
 ANNEX 
 
MATHEMATICAL BACKGROUND  
 
1. The Tariff reduction formula  
To start with, let’s consider the Sw iss tariff-reduction formula with a single B coefficient, defined for 
all developing countries4:  
BxtxtBxt+=)()()(
00
1      ( A . I . 1 )  
 
Where )(0xt  and )(1xt  are the base rate and the final tariff rate, for good x. Formula (A.I.1) would 
apply to all tariff lines in the absence of flexib ilities. In accordance with the flexibilities from the 
paragraph 8 of Annex B to the July Fram ework, a developing Member can choose  
 
(i) To leave out of the tariff-reduction form ula (A.I.1) a number of products not 
exceeding 5% of tariff lines and 5% of the total value of its imports, or  
(ii) To apply “less then formula cuts”5 to a number of products not exceeding 10% of 
tariff lines and 10% of the total value of its imports.  
Let’s call P5% the subset of products wher e flexibilities are requested by the Member if that Member 
chooses option (i) above, and P10%  the subset of products where flexibilities are requested by the 
Member if that Member chooses option (ii) above. It  can be argued that the Member will always use 
the full extent of the flexibilities available. Therefore, it would be  reasonable to think about these 
subsets as representing around 5% of tariff lines (a nd/or imports) and 10% of tariff lines (and/or 
imports), respectively.  For all specially treated products belonging to these predefined subsets, the 
final tariff, resulting from the negotia tion, would be equal to the base ra te, if option (i) is chosen, or 
equal to the average between the base rate and the rate that would result from applying formula 
(A.I.1)6, if option (ii) is chosen. Therefore, we have  
For all products x in P5%, in the case where option (i) above is chosen: 
)( )(0 1 xtxt=       (A.I.2.i) 
 
For all products x in P10%, in the case where option (ii) above is chosen:  
⎥⎦⎤
⎢⎣⎡
++ =BxtxBtxt xt)()()(21)(
00
0 1     (A.I.2.ii) 
 
   
                                                     
 
4 Except those referred to in paragraph 6.9 of the July framework.  
5 If a Member opts for option (ii), it must apply tariff cuts at least one half as large as full formula cuts 
to the products where flexibilities are defined. For the purposes of this illustration, we will assume that the 
Member always applies tariff cuts one half as large as full formula cuts. This implies that the Member will 
always use its flexibilities to their full extent.  
6 This average value results from the interpretation of  “less than formula cuts” as one half, or 50% of 
the full cuts given by the formula (see previous footnote). TN/MA/W/13/Add.2 
Page 8  
 In accordance with the approach proposed to integrate the flexibilities in a formula, we would reduce 
the tariffs of all other products (where flexibilities don’t apply), be yond the Swiss formula (A.I.1).The 
additional reduction defined for these products would be γ percent for all of them. Therefore, the 
formula that applies to all products not in the subset P5% (or P10% if option (ii) is the case):  
 
BxtxtBxt+−=)()()1()(
00
1γ     ( A . I . 3 )  
 
The average tariff, after taking into account the fl exibilities required by the Member, and applying the 
additional reduction of γ to all other products; must be equal to the average tariff that would result 
from applying the original Swiss fo rmula (A.I.1) with a coefficient B, to all the products without 
flexibilities. This ensures that, regardless of the pr oducts to which the flexibilities are applied and the 
modality chosen (case (i) or (ii)), the final outcome of the negotiation will be the same in terms of the 
average tariff, and consequently, in terms of le vel of ambition. Mathematically, this condition 
translates into:   
for the case where option (i) is chosen: 
⎥
⎦⎤
⎢
⎣⎡
+−+ =+= ∑∑ ∑
∉ ∈%5 %5)()()1()(1
)()( 1
00
0
00
1
Px Px x BxtxBtxtnBxtxBt
ntγ (A.I.4.i) 
 
  for the case where option (ii) is chosen:  
 
⎥
⎦⎤
⎢
⎣⎡
+−+⎥⎦⎤
⎢⎣⎡
++ =+= ∑ ∑ ∑
∉ ∈%10 %10)()()1(
)()()(21 1
)()( 1
00
00
0
00
1
Px Px x BxtxBt
BxtxBtxtnBxtxBt
ntγ (A.I.4.ii) 
 
Where 1t is the average tariff rate from applying the or iginal Swiss formula without flexibilities, with 
a coefficient B, to all products. To obtain γ we only need to know for which products the Member 
has applied the flexibilities.  
 
Solving the above equations for γ: 
 
for the case where option (i) is chosen: 
    
∑∑
∉∈
+⎥⎦⎤
⎢⎣⎡
+−
=
%5%5
)()()()()(
0000
0
PxPx
BxtxBtBxtxBtxt
γ     (A.I.5.i) 
 
and for the case where option (ii) is chosen: 
    
∑∑
∉∈
+⎥⎦⎤
⎢⎣⎡
+−
=
%10%10
)()(2)()()(
0000
0
PxPx
BxtxBtBxtxBtxt
γ     (A.I.5.ii) 
  TN/MA/W/13/Add.2 
 Page 9 
 
 
  
The numerators of these ratios correspond to the sum of  the tariff increases that result from applying 
the flexibilities in the selected products. It is a me asure of how much higher would the average tariff 
of the Member be as a result of flexibilities, in and the absence of a compensation for all other 
products. Dividing this value by the sum of the tariffs  for all other products tells us the further relative 
drop in all these product’s tariffs that would be need ed to maintain the average tariff of the Member 
constant.   
Note that, if the same products were set aside for flexibilities in cases (i) and (ii), γ in would be 
exactly one half in case (ii), compared to the corr esponding level in case (i). This is because, in case 
(ii), the tariff increases that result from the flexib ilities are exactly one half of the corresponding tariff 
increases in case (i) (because the formula cut is applied halfway from the base rate in case (ii) , vs. not 
at all in case (i)). In general, however, the Memb er would select twice as many products for 
flexibilities in case (ii), so that the corresponding γ would tend to be very close in the “5%” case and 
in the “10%, less than formula cuts” case.   
 
Once we know the level of γ, we may want to know what alternative level of B in the Swiss 
Formula would be “equivalent” to a pplying equation (A.I.3) to all the other products (the ones without 
flexibilities). Let’s call this B’. This would be useful to the exte nt that it allows the Members to 
quantify the additional ambition for these products in  terms of a further decrease in the parameter B, 
and consequently negotiate a level of B, knowing that, after requesting the flexibilities, the actual 
tariff reduction over all other prod ucts will be determined by a B’, which can be confidently 
estimated.   
If we set the average tariff for the products where no flexibilities apply (referred-to previously as “all 
other products”):   
    
∑ ∑
∉ ∉ +=+−
Px Px xtBxtB
xtBxBt
)(')('
)()()1(
00
00γ   (A.I.6) 
 
For simplicity, we refer to the subset P as meaning either P5% in case (i) or P10%  in case (ii). This 
simplification does not change the mathematical results as far as B’ is concerned. B’ cannot be solved 
in a straightforward manner, as it enters (A.I.6) in  a very non-linear way. A numerical algorithm could 
easily return the value of B’ . For the purposes of this exercise,  however, we offer an approximate 
solution based on a first order Taylor expansion of th e right hand side of e quation (A.I.6), around the 
original B, that is:  
 
()∑ ∑ ∑
∉ ∉ ∉ ++−⎥⎦⎤
⎢⎣⎡
++≈+−
Px Px Px xtBxBtBBxtBxtBxt
xtBxBt
)()('))( ())( )((
)()()1(
00
2
00 0
00γ (A.I.7) 
 
The right hand side is now a linear equation in B’, that we can solve for an approximate value… 
 
   ()
()∑∑
∉∉
++− −
≈
PxPx
xtBxtxtBxtB xBt
B
2
02
02
002 2
0
)()()()( )()1(
'γ γ
    (A.I.8) TN/MA/W/13/Add.2 
Page 10  
  
2. The Rational Approach for Unbound Tariffs 
As indicated in document TN/MA/W13/Add.1, Mexico proposed that unbound tariff lines be subject 
to a non-linear mark-up, which favored unbound produc ts with lower unbound rates, through the use 
of the following “rational” formula, which combines simplicity with precision and flexibility
7:  
   βα
+=−)()( )(
00 1xtxtxt      (A.II.1) 
 
Where:  )(1xt :  the base rate tariff for good x’s 
)(0xt :  the corresponding initial applied rate 
α and β are positive constant parameters that can be specified in the course of the 
negotiation 
 A Member can choose to set aside a subset Q of all unbound products, not exceeding 5% of all 
unbound tariff lines and 5% of the total value of impor ts under such tariff lines.  For the products in 
subset Q, the bound equivalent tariff will be higher than  the level obtained by applying the rational 
formula (A.II.1), by a markup that cannot exceed 50% of the applied tariff rate 
)(0xt8. 
 
Therefore, we have:    For all unbound products in subset Q
9;  
 
 2)()()(0
0 1xtxtxt =−      (A.II.2) 
 
 For all other unbound products, we will define a markup that is smaller than the one defined 
by the rational formula (A.II.1). We will do this  by applying a rational formula with a lower 
α parameter we will call 'α: 
 
 βα
+=−)(')()(
00 1xtxtxt     (A.II.3) 
 
In the same way as with the a pproach followed in integrating flexibilities into the tariff-reduction 
formula, the average bound tariff for all unbound g oods , from applying formulae (A.II.2) to the 
products selected for flexibilities and (A.II.3) to all other products, will be to be the same as if the 
rational formula (A.II.1)  with a coefficient α had been applied to all unbound applied tariffs, that is:  
 
 ∑ ∑ ∑
∉ ∈ ++⎥⎦⎤
⎢⎣⎡=+Qx Qx x xt nxt
n xt n βα
βα
)(' 1
2)(3 1
)(1
00
0  (A.II.4) 
                                                      
7 In document TN/MA/W/13/Add.1, we have shown that this formula is continuous, increasing in the 
applied tariff and yields a nonnega tive, decreasing tariff increase (t 1-t0) as long as αβ≥ . 
8 Again, a reasonable assumption can be made that the Members will use their available flexibilities to 
the full extent and therefore the markup is always equal to 50 % of the applied tariff.      
9 In cases with low applied tariffs, this markup w ill be smaller than if we had applied the original 
rational formula. It is not rational for Members to select flexibilities in this region of their tariff schedules, given 
by 
28)(2
0αββ++−<xt .  TN/MA/W/13/Add.2 
 Page 11 
 
 
  
From the above equation, we can obtain 'α as  
 
 
∑∑
∉∈
+⎥⎦⎤
⎢⎣⎡
+−
−=
QxQx
xtxtxt
ββα
αα
)(1)( 2)(
'
000
   (A.II.5) 
 
The new level of α is obtained by subtracting from α the ratio between the sum of the additional 
increases in the markup (by how much the average base tariff increases), becau se of the flexibilities; 
divided between the sum of levels of th e markup for all other product (multiplied by α, which gives 
us by how much the level of α must further decrease to keep the av erage base tariff rate constant for 
all unbound products).  
 
__________