Swiss Formula
Encyclopedia
The Swiss Formula is a mathematical formula designed to cut and harmonize tariff
rates in international trade
. Several countries are pushing for its use in World Trade Organization
trade negotiations. It was first introduced by the Swiss Delegation to the WTO during the current round of trade negotiations at the WTO, the Doha Development Round or more simply the Doha Round. Something similar was used in the Tokyo Round.
The aim was to provide a mechanism where maximum tariffs could be agreed, and where existing low tariff countries would make a commitment to some further reduction.
where
So for example, a value A of 25% might be negotiated. If a very high tariff country has a rate Told of 6000% then its Tnew rate would be about 24.9%, almost the maximum of 25%. Somewhere with an existing tariff Told of 64% would move to a Tnew rate of about 18%, rather lower than the maximum; one with a rate Told of 12% would move to a Tnew rate of about 8.1%, substantially lower than the maximum. A very low tariff country with a rate Told of 2.3% would move to a Tnew rate of about 2.1%.
Mathematically, the Swiss formula has these characteristics:
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
rates in international trade
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
. Several countries are pushing for its use in World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
trade negotiations. It was first introduced by the Swiss Delegation to the WTO during the current round of trade negotiations at the WTO, the Doha Development Round or more simply the Doha Round. Something similar was used in the Tokyo Round.
The aim was to provide a mechanism where maximum tariffs could be agreed, and where existing low tariff countries would make a commitment to some further reduction.
Details
The formula is of the formwhere
- A is both the maximum tariff which is agreed to apply anywhere and a common coefficient to determine tariff reductions in each country;
- Told is the existing tariff rate for a particular country; and
- Tnew is the implied future tariff rate for that country.
So for example, a value A of 25% might be negotiated. If a very high tariff country has a rate Told of 6000% then its Tnew rate would be about 24.9%, almost the maximum of 25%. Somewhere with an existing tariff Told of 64% would move to a Tnew rate of about 18%, rather lower than the maximum; one with a rate Told of 12% would move to a Tnew rate of about 8.1%, substantially lower than the maximum. A very low tariff country with a rate Told of 2.3% would move to a Tnew rate of about 2.1%.
Mathematically, the Swiss formula has these characteristics:
- As Told tends to infinity, Tnew tends to A, the agreed maximum tariff
- As Told tends to 0, Tnew tends to Told i.e. no change in tariffs as it is already low