Formula approaches for market access negotiations

Abstract

In this paper, we first consider the potential advantages of formula approaches in terms of their ability to generate large reductions in protection and to improve market access (not coincidentally making people better off as well). The fact that they can be used to achieve top-down reductions in tariffs is seen as particularly important in achieving this objective. We then examine the key features of the market access landscape that will affect the choice of approaches to negotiations. These features include the large dispersion of average tariffs amongst the active participants in the negotiations, and the large gaps between applied and bound tariff rates in many countries and sectors. Our review of potential approaches to tariff reduction covers a range of formulas that has been proposed. The Swiss formula approach used in the Tokyo Round is seen as particularly desirable because of its ability to introduce a tariff rate ceiling, and to bring about larger reductions in the highest tariff rates. Unfortunately, it appears likely to be too restrictive to apply it with the same coefficient used in the Tokyo Round, particularly because of the large dispersion in the average and dispersion of initial tariff rates, and the presence of binding overhang in many countries.