the cut in the top tier of the formula, except for products already in the top tier, which will be cut by an additional 8 percentage points.

Several groups of developing countries are allowed smaller tariff reductions. Least Developed Countries are not required to make any reductions. Small and Vulnerable Economies (SVEs)<sup>9</sup> can make reductions 10% smaller in each band than other developing members, or may make an average-cut of 24%. Recently-acceded members (RAMs) are allowed to: make cuts reduced by 5 percentage points in the first two bands and 10 percentage points otherwise. A group of very recently acceded members (VRAMs) and transition economies is not required to make any cuts.

All countries are permitted to make smaller cuts on “sensitive” products subject to a limit on the number of sensitive products, and provisions for increases in market access under Tariff-Rate-Quotas (TRQs). Industrial countries can classify [4-6]% of tariff lines as sensitive. If the formula cut is reduced by 2/3, then TRQ access must be increased by [46]% of domestic consumption. Developing countries have the right to one third more sensitive products than developed countries.

Developing countries will be able to self-designate a set of special products guided by indicators and to make smaller-than-formula cuts on these products. The number of these products is to be negotiated between 8 and 20% of agricultural tariff lines. Either forty% or no Special Products would be subject to zero cuts with the remainder cut by an average of 15% with a minimum cut of 12% and a maximum of 20%.

The approach used to assess the implications of the draft Modalities for weighted average applied tariffs is set out in Annex Table 2, derived from Laborde, Martin and van der Mensbrugghe (2008) using the MAcMapHS6v2 database that incorporates _ad valorem_ equivalents of specific tariffs. A key feature of the analysis is that sensitive products are selected taking into account both the political support for their protection, as indicated by the share of the good in domestic expenditures, and the level of the tariff imposed, rather than by assuming the highest tariffs (which are frequently on very minor products, or not subject to cutting because of binding overhang) are selected.

The TRQ increases associated with sensitive product designation in the industrial countries were incorporated only indirectly. It seems likely that most industrial country members will opt for a reduction of two-thirds of the formula since the penalty in terms of higher TRQ expansion for making smaller cuts is relatively small<sup>10</sup> . To account for the potential liberalization resulting from TRQ expansion, the two-thirds reduction in the tariff cut was treated as a one-third reduction from the formula cut.

The estimated cuts in weighted average applied tariffs resulting from Implementation of the Modalities are given in Annex Table 3 for selected major groups of traders. The

> 9 Defined in general as countries with less than 0.1% of world trade, with some countries such as Congo, Côte d’Ivoire and Nigeria treated on the same basis in agriculture.

> 10 If a one third reduction from the formula is chosen, the TRQ expansion increases by 1 percentage point from [4-6]% of domestic consumption.

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