functions on the grounds that we are dealing with very finely disaggregated trade data for which relatively high elasticities of substitution might be expected.

While the analysis in the earlier sections of this paper was undertaken for agriculture and for industrial products separately, in line with the negotiations at WTO, this approach would not be satisfactory for our welfare analysis. Second-best effects associated with reducing one set of tariffs, while leaving another set unchanged, might overwhelm the welfare effects of interest to us—those associated with different degrees of progressiveness in the reduction of high tariffs<sup>7</sup> . Finally, the goal of this section is primarily illustration. Therefore, we repeated the analysis using the extended Swiss formulas to reduce all tariffs in each sample country.

The tariff schedules of USA, and the European Union have been analyzed for the case of a 50 percent reduction in simple average tariffs. These results are presented in Table 5 for the three different values of the _b_ parameter identified in the earlier tables. The gains are, as might be expected, very small, given the very low levels of the _ad valorem_ tariffs included in the database. As might also be expected, the gains from reform for the United States rise as the tariff reduction formulas are made more strongly tops-down. However, the differences between the gains with different degrees of flexibility are quite small. A similar pattern emerges for the European Union. In both cases, moving from the standard Swiss formula to a Swiss formula with a flexibility parameter of 1.5 causes only a very small reduction in the welfare gains from liberalization.

What do these results suggest? The results are of course very partial, reflecting only the efficiency gains from own-country liberalization. Further, they are based on tariff information that excludes the effects of specific, compound and mixed tariffs, and other charges such as antidumping duties. However, they are based on very widely dispersed real-world tariff data collected at a fine level of disaggregation, and probably do have some relevance for inferences about national and global efficiency gains from trade reform. We would draw the following conclusion. Whether and how we add flexibility is second order, and should not be a roadblock to achieving a reduction in the average. This means that the selection of which formula to choose, at least among the tops-down options spanned by the flexible Swiss formula, is nowhere near as important as the more basic issue of simply selecting and imposing a targeted reduction in the average<sup>8</sup> . It may be better to simply focus on achieving large reductions in average tariffs, even if the price is acceptance of an approach, such as a pure proportional cut, that allows some tariffs to remain relatively high. This result may, of course, not be acceptable, in particular if such approaches are found not to achieve needed reductions some of the key tariff peaks restricting global market access, and particularly market access by developing countries.

> 7 The importance of this problem can readily be overstated. At least at the level of aggregation used in a CGE model, Hertel and Martin (2001) found that these second-best welfare impacts were very small in a prospective new round of WTO negotiations.

> 8 Of course, if escalation-increasing approaches such as the Uruguay Round approach are considered, it may well be important to consider more than the resulting reduction in the average.

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