WTO E-LEARNING
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Introduction to Market Access in Trade in
Goods in the WTO
OBJECTIVES

Get acquainted with the notion of market access in the WTO;

Get an overview of the disciplines related to tariffs;

Get an overview of the disciplines related to non-tariff measures.
My Course series
12
I.
INTRODUCTION
Market access for goods in the WTO stands for the totality of government-imposed conditions under which a
product may enter a country under non-discriminatory conditions. It is often, but not exclusively, determined
by border measures, such as tariffs, tariff rate quotas (TRQs), and quantitative restrictions (QRs).
Most WTO Agreements have rules on market access that apply to both, agricultural products
(defined in Annex 1 of the Agreement on Agriculture) and to non-agricultural products (all other products).
As you certainly imagine, there is a wide variety of measures which influence market access for goods. The
two main categories of barriers to market access for goods are:
(1) Tariffs; and,
(2) Non-tariff barriers (NTBs).
The progressive reduction of tariff and NTBs, together with non-discrimination and transparency,
constitute one of the main objectives of the WTO. The aim of multilateral trade negotiations has been to
make market access more liberal, as well as more predictable.
We will first examine the main issues relating to tariff barriers. We will start by presenting tariff and tariff
schedules. We will, then, study how tariff barriers are dealt within the GATT/WTO framework, by introducing
the outcome of the Uruguay Round on tariff negotiations (reductions of tariffs and tariff ''bindings'') and
elaborating the relevant WTO rules on tariffs (in particular Article II of the GATT 1994 - Schedules of
Concessions).
We will, finally, explain some of the main issues surrounding the concept of NTBs, with a focus on QRs.
The Committee on Market Access, established by the General Council in January 1995, is the WTO Body in
charge of monitoring market access related issues for goods.
2
II.
IN BRIEF: TRADE IN GOODS: MARKET ACCESS
Market access for goods in the WTO stands for the totality of government-imposed conditions (tariff and
non-tariff measures) under which a good may enter into a Member.
Most WTO Agreements have rules on
market access that apply to both, agricultural products (defined in Annex 1 of the Agreement on Agriculture)
and to non-agricultural products (all other products)1.
The Agreement on Agriculture (explained below)
includes provisions on market access applicable only to agricultural products.
II.A. TARIFF BARRIERS
Under the WTO, tariffs are regarded as the most common and widely used barriers to market access for goods.
The WTO does not prohibit the use of tariffs. However, Members recognise that tariffs often constitute serious
obstacles to trade. Tariffs are subject to negotiations, which have led to successive reductions of tariffs. Tariff
negotiations should be conducted on a reciprocal and mutually advantageous basis, whereas developing
country and LDC Members are not required to make full reciprocal concessions as made by developed country
Members. Nevertheless, the concessions granted by a Member must be extended on a MFN basis, that is, to
all WTO Members immediately and unconditionally.
Members had also agreed to bind their tariffs at reduced levels and to record such tariff bindings in their
Schedules of concessions, which represent their legal commitments on tariffs under the WTO (Article II of the
GATT 1994).
WTO Members may apply a tariff which is lower than the bound level, however they cannot
exceed the bound levels specified in their Schedules of concessions. Therefore, the applied tariff of a particular
product (as reflected in a Members' national tariff schedule) can be different – lower — than the bound tariff
rate for that product as specified in the Members' WTO Schedule of concessions.
A negotiated tariff binding may become too onerous to maintain over time due to changing circumstances.
WTO Members are allowed to modify the concessions in their Schedules by using the renegotiation procedures
outlined in the GATT 1994, provided that they compensate those Members holding special rights.
The value of tariff concessions is also protected through the operation of other GATT provisions – including
Article III of the GATT 1994 (national treatment on internal taxation and regulation) and the other multilateral
Agreements on trade in goods included in Annex 1A of the Agreement Establishing the WTO (explained below).
II.B.
NON TARIFF BARRIERS (NTB)
Besides tariffs, various forms of non-tariff measures may constitute obstacles to market access for goods.
There is no agreed definition of what constitutes a NTB. They include, in principle, all measures other than
tariffs used to protect a domestic industry.
1 These include manufacturing products, fuels and mining products, fish and fish products, and forestry
products.
3
II.B.1. QUANTITATIVE RESTRICTIONS (QRS)
A QR is one of the best-known NTBs. Quantitative restrictions impose specific limits on the quantity or value of
goods that can be imported (or exported) during a given period. Whereas tariffs are allowed as long as they
do not exceed the scheduled bound levels and are applied on an MFN basis, Members are in general prohibited
to apply QRs.
The general prohibition of QRs reflects the preference for tariffs over QRs among forms of
border protection. While QRs impose absolute limits on imports, tariffs do not. Article XI:1 of the GATT 1994,
which provides the general elimination of quantitative restrictions, refers to restrictions made effective through
quotas, imports or export licenses or other measues.
The list of measures included in Article XI is not
exhaustive. It is important to distinguish between QRs and tariff-rate-quotas (TRQs), which are permitted. 2
Despite the general rule prohibiting QRs, there are some specific exceptions which allow the imposition of QRs
in certain circumstances and subject to certain conditions.
In such cases, QRs must be applied on a
non-discriminatory basis, according to Article XIII of the GATT 1994. This requirement applies equally to the
allocation of TRQs.
II.B.2. OTHER NTBS
In addition to QRs, NTBs (e.g. lack of transparency in trade regulation, unfair and arbitrary application of trade
regulations, customs formalities, technical barriers to trade and arbitrary practices of customs valuations) can
also restrict or impede market access of goods. Most of these NTBs are presented in the box below.
Several WTO provisions are aimed at eliminating or minimizing the trade effect of non-tariff measures.
In
those cases where non-tariff measures are based on a legitimate goal (e.g. measures on food safety – sanitary
and phytosanitary measures (SPS) - or technical standards), Members need to follow specific provisions to
ensure their compatibility with WTO rules.
In general, the disciplines on NTBs are set out in various WTO
Agreements contained in Annex 1A of the Agreement Establishing the WTO (multilateral Agreements on trade
in goods).
2 A TRQ is a tariff system under which lower-tariff rates are applied to imports within an specified quantity
(''In-Quota Rate'') while higher-tariff rates are applied to imports beyond the specified quantity (''Out-of-Quota
Rate''). Contrary to QRs, TRQ do not prohibit the importation of products once the quota has been filled (one
can continue to import the product, although at a higher tariff rate).
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Agreement
Objective
Agreement on the Application of Sanitary
Restricts the use of SPS measures for the purpose of trade
and Phytosanitary Measures (SPS)
protection. It is a separate Agreement covering the basic rules
on food safety, as well as animal and plant health protection.
The SPS Agreement explicitly recognizes the right of Members to
take measures necessary to protect human, animal and plant life
or health, as long as such measures are based on science and do
not unjustifiably discriminate between Members.
Agreement on Technical Barriers to Trade
Recognizes Members’ rights to adopt technical regulations and
(TBT)
standards, as long as these do not constitute unnecessary
barriers to trade. and do not discriminate against products from
other Members. The TBT Agreement covers technical regulations
not covered by the SPS Agreement.
Article VII of the GATT & Agreement on
Aim for a fair, uniform and neutral system for the valuation of
Customs Valuation
goods for customs purposes — a system that conforms to
commercial realities and outlaws the use of arbitrary or fictitious
customs values.
Agreement on Import Licensing
Aims to simplify and bring transparency to, import licensing
Procedures
procedures, to ensure their fair and equitable application and
administration, and to prevent procedures applied for granting
import licences having, in themselves, restrictive or distortive
effects on imports.
Agreement on Rules of Origin
Aims at long-term harmonization of rules of origin (criteria used
to define where a product was made). It ensures that such rules
do not have restricting, distorting or disruptive effects on
international
trade
and
that
they
are
administered
in
a
consistent, impartial and reasonable manner.
Article VIII of the GATT on Customs Fees
Concerns various forms of fees or charges and formalities
and Formalities
imposed on or in connexion with importation (or exportation),
associated with the services rendered at the border. It aims to
prevent such fees and formalities from impeding market access
in the form of non-tariff barriers and to reduce costs of
transactions for importers and exporters.
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In July 2004, WTO Members formally agreed to launch negotiations on trade facilitation, which should be
completed under the overall DDA timeline. Negotiations on trade facilitation are directed to clarify and improve
some of the provisions on non-tariff barriers contained in the GATT 1994 (freedom of transit, customs fees and
formalities and publication of trade regulations).
These negotiations are widely seen as a necessary
complement to broader liberalization efforts. The negotiations also aim at enhancing trade-related technical
assistance and capacity building on trade facilitation to enable developing countries and LDC Members to fully
participate in and benefit from the negotiations. Moreover, the results of the negotiations shall take fully into
account the principle of special and differential treatment for developing country and LDC Members.
Negotiations on the reduction of tariffs in agriculture and non-agricultural market access (NAMA) are part of
the mandates in the current Doha Round of negotiations. As set out in the Doha Ministerial Declaration, the
current negotiations on NAMA aim "to reduce or as appropriate eliminate tariffs, including the reduction or
elimination of tariff peaks, high tariffs, and tariff escalation as well as NTBs in particular on products of export
interest for developing countries". The negotiations shall take fully into account the special needs and interests
of developing and LDC Members, including through less than full reciprocity in reduction commitments.
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III.
AGRICULTURE
While the volume of world agricultural exports has substantially increased over recent decades, its rate of
growth has lagged behind that of manufactures, resulting in a steady decline in agriculture's share in world
merchandise trade.
Among the agricultural goods traded internationally, food products make up almost 80
per cent. The other main category of agricultural products is raw materials. Since the mid-1980s, trade in
processed and other high value agricultural products has been expanding much faster than trade in the basic
primary products such as cereals.
Agricultural trade remains an important part of overall economic activity in many WTO Members. Furthermore,
agriculture plays an important role in the development of many Members. For a large number of developing
countries and LDCs, agriculture makes a significant contribution to their economies, including to gross domestic
production, export revenue and employment, as well as to rural development and livelihood security.
The Agreement on Agriculture allows governments to support their rural economies, but preferably through
policies that are less "trade-distorting".
A measures is considered to cause "distortions" when it shifts the
market price of a product above or below what it would be if the product was traded in a competition market.
The three "pillars" to which the rules and commitments as set out in the Agreement on Agriculture apply are:
(i) market access; (ii) domestic support; and, (iii) export competition.
The Agreement covers "agricultural
products" as defined in Annex 1 of the Agreement. It allowed some flexibility in the way commitments were
implemented by developing countries, which did not have to cut their subsidies or lower their tariffs as much
as developed countries, and had extra time to implement their obligations. Least-Developed Countries were
exempted from such reduction commitments.
The three Pillars under the Agreement on Agriculture
1. Market Access: trade restrictions confronting imports of agricultural products (tariff and NTBs).
2. Domestic Support: subsidies and other programmes in favour of agricultural producers, including those
that raise or guarantee farmgate prices and farmers' incomes.
3.
Export Competition: include export subsidies and other methods used to make exports of agricultural
products artificially competitive.
The market access rule for agricultural products is "tariffs only". Before the Uruguay Round, some agricultural
imports were restricted by non-tariff border measures which were mainly in the form of quantitative import
restrictions or import quotas. All these non-tariff measures were to be either removed or to be replaced by
tariffs, reflecting substantially the same level of protection.
Members committed to set tariff bindings to
agricultural products and assumed reduction commitments on tariffs. Each WTO Member has a "Schedule" of
tariff concessions covering all agricultural products. Besides tariffs, the Agreement allows the application of
TRQs (explained above). The rules on market access for goods also allow the imposition of a special safeguard
for agricultural products, subject to certain requirements. This mechanism is available only for those Members
that reserved the right to use it and complied with some conditions. It is different from the general safeguard
provided in Article XIX of the GATT 1994 and the Agreement on Safeguards (explained below). 3
3 Contrary to the special safeguard for agricultural products, the general safeguard applies to all products and
is subject to different conditions.
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Under the Agreement on Agriculture, all domestic support in favour of agricultural producers is subject to rules.
The Agreement distinguishes between two categories of domestic support: (i) support with no, or minimal,
distortive effect on trade, not subject to reduction commitments; and, (ii) trade-distorting support, subject to
limits/''bindings'' and reduction commitments (often referred to as "Amber Box" measures). The first category
(support with no, or minimal, distortive effect on trade) includes: 1. green box measures (government service
programmes such as research, disease control and food safety - as long as some criteria are met by each
measure concerned); 2. blue box measures (certain direct payments to farmers under production limiting
programmes); 3. measures of assistance adopted by developing countries; and, 4. domestic support that is de
minimis.
All domestic support measures considered to distort production and trade, with the exceptions
mentioned above, fall into the "Amber Box". Domestic support measures falling into the "Amber Box" should
not exceed the commitment levels specified in Members' Schedules and were subject to reduction
commitments specified in Members' Schedules.
Export subsidies are presumed to have trade-distorting effects since they allow exporters benefited with such
subsidies to sell below the cost of production and thus, reduce world prices; undercutting unsubsidised
exporters in other countries.
The Agreement on Agriculture allows the use of export subsidies only in two
situations: (i) if a Member has reserved the right to use export subsides in their respective Schedules, subject
to the limits and reduction commitments specified in the Schedule; or, (ii) if developing countries provide
export subsidies consistent with the special and differential treatment provisions. In all other cases, the use of
export subsidies for agricultural products is prohibited.
Agricultural products are also subject to other WTO Agreements.
However, according to Article 21 of the
Agreement on Agriculture, the provisions of the GATT 1994 and of other multilateral Agreements on trade in
goods (Annex 1A) shall apply subject to the provisions of the Agreement on Agriculture.
In addition,
Article 3.1
export
of
the
Agreement
on
Subsidies
and
Countervailing
Measures
prohibits
and
import-substitution subsidies except as provided in the Agreement on Agriculture.
Members agreed to initiate negotiations for continuing the reform process in agricultural trade one year before
the end of the implementation period, i.e. by the end of 1999. These talks have now been incorporated into
the broader negotiating agenda set at the 2001 Ministerial Conference in Doha, Qatar.
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IV.
TARIFF BARRIERS
IV.A. WHAT IS A TARIFF?
What is a Tariff?
A tariff is a financial charge in the form of a tax, imposed on goods transported from one customs area to
another (often from one country to another).
Tariffs, also referred to as "customs duties", are the most commonly used and visible measures that determine
market access for goods. Although tariffs on imports are the most common, there are also countries that apply
tariffs on exports. Historically, the main interest of the GATT and the WTO has been on import tariffs and are
the ones described in this section.
Import tariffs give a price advantage to similarly produced local goods and provide revenue for governments,
as the entry of the good is conditional upon the payment of the custom duty. There are several ways in which
tariffs can be classified.
Following the manner in which tariffs are calculated, they can be specific,
ad valorem, mixed, compound or "technical".
Tariff/duty type
Description
Example
Specific
Calculated based on a unit of measure such as
US$ 5 per kilogramme
the weight, volume, etc. of the goods.
Ad valorem
Mixed
Calculated as a percentage of the value of the
7% (so the duty on a car worth
goods.
US$ 7,000 would be US$ 490)
Calculated as an alternative between an ad
7% or US$ 5 per kilogramme
valorem duty and a specific duty.
whichever is less
7%, but not more than US$ 5 per
kilogramme
Compound
Calculated as an ad valorem duty to which an
7% plus US$ 5 per kilogramme
specific duty is added or, less frequently,
subtracted.
"Technical" / other
Some
duties
(sometimes
referred
to
as
"technical" duties) are calculated based on
specific contents, the duties payable by its
components or by making reference to the
duties applicable to certain related items.
US$ 0.55/kg on the manganese
content
US$ 0.48 each plus 4.6% on the
case plus 3.5% on the battery
Difference between tariffs and other charges that may be levied at the Border
It is important to note the difference between tariffs and other charges that may be levied at the border on
imports:
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
A tariff is not an ''internal tax'' (e.g. value added tax).
The latter is mainly regulated by
Article III:2 of the GATT 1994 on National Treatment;

a tariff is not a ''fee'' or ''charge'' associated with an import service. The latter are mainly regulated
by Article VIII of the GATT 1994 on Fees and Formalities connected with Importation and
Exportation;

a tariff is not an "other duty and charge" in the sense of the second sentence of Article II(1)(b) of
the GATT 1994, which includes those taxes levied on imports in addition to the customs duties; and,

a tariff is not an "antidumping" or "countervailing duty".
IV.A.1. THE EFFECT OF A TARIFF
As explained above, tariffs are sometimes used by governments to protect their domestic industries from the
competition of imports (as a barrier to market access) or to collect revenue. However, tariffs may also impose
costs on countries applying them. What are the economic effects of tariffs?
The imposition of import tariffs increases the domestic price of the imported good. This usually brings gains
for domestic producers of the good as well as the government, but also losses for consumers (who will buy less
of the product since the price is higher) and for other domestic producers who use that good as an input. In
economic theory, this is called the welfare effect of a tariff.
The following graph explains, from an economic perspective, the effect of tariffs on small importing countries.
As we will see, the net welfare effect of the tariff is negative for the importing country because the losses
incurred by consumers cannot be fully offset by the gains of the domestic producers and the government.
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THE WELFARE EFFECT OF AN IMPORT TARIFF ON A SMALL IMPORTING COUNTRY
Price
D
Pt
S
A
Po
0
So
C
B
S1
Tariff
Tarif
f
D
D1
Do
Quantity
The graph illustrates the welfare effect of a tariff on a small importing country unable to affect world prices.
Without a tariff, consumers in the importing country would buy Do at the price Po. Domestic producers
would supply So and the rest (Do - So) would be imported from other countries.
With a tariff, consumers in the importing country would buy D1 (since the tariff would lead to a higher price
(Pt), the quantity demanded would be lower than Do) at price Pt (Po plus the tariff). Domestic producers
would supply S1 (since the price they can get thanks to the tariff is higher, they will produce more than So)
and the remaining quantity (D1 – S1) (which would consequently be lower than Do - So) would be
imported from other countries.

Consumers lose: Area A+B+C+D [consumers have to pay more due to the increase of both the
price of the imports and the price of domestic substitute products]

Producers gain: Area A [part of the consumer loss is captured by domestic producers who gain
from the increase of their sale prices]

Government gain: Area C [part of the consumer loss is captured by domestic government as the
increase of revenues from the tariff]
BUT What about the loss represented by Area B+D ?
Net national loss as a result of the tariff: Area B+D
No one captures the parts of consumers’ loss represented by area B+D, which are normally called
deadweight loss. Thus, for the country the net welfare effect of the tariff is negative.
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IV.B. TARIFF SCHEDULES
What is a Tariff Schedule?
The term "tariff schedule" is commonly used to refer to the combination of structured lists of products
description and their corresponding customs duties.
Since tariffs and products vary greatly, it is necessary to classify the imported products in order to know what
tariff level applies. These tariff systems depend on product descriptions contained in a classification system to
ascertain the level of applicable tariff to each product. The combination of these structured lists of products
description and their corresponding customs duties are normally referred as a "tariff schedule".
Most tariff schedules (including national tariff schedules and the WTO Schedules - explained later on) are based
on the Harmonized Commodity Description and Coding System (Harmonized System (HS)) – see box
below. Appendix 1 provides an example of a national tariff schedule.
What is the Harmonized System (HS)?
The HS was established through the International Convention on the Harmonized Commodity Description and
Coding System, which entered into force on 1 January 1988.
Organization (WCO).
It is administered by the World Customs
The HS constitutes an international classification system which provides for the
systematic and uniform classification of goods.
The HS coding system defines product categories, providing standard codes up to six digits for identifying
products.
Beyond that, countries can introduce national distinctions for charging differentiated duties,
collecting statistics and other purposes. The broadest categories are Chapters identified by two digits (e.g.
Chapter 04 is dairy products, eggs and other edible animal products).
These are then sub-divided into
"Headings, identified by four digits, and "subheadings", identified by six digits. In this system, the higher the
number of digits, the more detailed the category (e.g. 0403 is a group of products derived from milk, 0403.10
is yoghurt, 0403.10.11 could be a tariff line at the national level to classify low-fat yoghurt, etc).
There was no obligation under the GATT, nor is there now under the WTO, for Members to adopt the
HS or to implement subsequent amendments of the HS in their Schedules of concessions. The only
obligation for WTO Members is to keep the authentic texts of their WTO Schedules of concessions up to date
and their national tariffs in conformity with such Schedules. This is important because it would otherwise be
very difficult for traders to compare the duty being charged by the Member in practice with the corresponding
concession in its WTO Schedule.
Nevertheless, most of the WTO Members have used the HS to describe their concessions in their
corresponding Schedule of concessions on goods (see box below). The HS has also been used as the
basis for tariff negotiations. Having a common nomenclature provides a similar description of the goods
which ensures that any given good in different national jurisdictions will fall within the same tariff sub-heading
(i.e. the same tariff classification), making it easier to establish and compare concessions across countries.
Therefore, all the issues related to the HS have a direct impact on the WTO Schedules.
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TO KNOW MORE ABOUT THE HARMONIZED SYSTEM...
As of 16 August 2007 there were 85 WTO Members (counting the EU-27 as one) which were contracting
parties to the HS Convention and practically all the remaining 39 WTO Members apply it de facto (i.e. in
spite of not being parties to it).
The HS is subject to periodic review by the Harmonized System Committee of the WCO every four or five
years and has been amended four times in 1992, 1996, 2002 and 2007 respectively. All of these have lead
to Members having to reflect those changes into their Schedules of concessions (often referred to as
"transposition").
The WTO General Council established new procedures in 2001 for the introduction of
HS2002 changes in the Schedule of concessions (WT/L/407) and in 2006 for the introduction of HS2007
changes (WT/L/673).
IV.C. WTO NEGOTIATIONS ON TARIFFS
The WTO does not prohibit the use of tariffs.
However, there is the recognition that they often constitute
serious obstacles to trade and, hence, that negotiations on a reciprocal and mutually advantageous basis are of
great importance to the expansion of international trade.
It is for this reason that Article XXVIIIbis (1) of the GATT 1994, which contains the original mandate in this
regard provided in the GATT 1947, calls for tariff negotiations to take place from time to time, with a view to
achieving a substantial reduction of the general level of tariffs and other charges on imports and exports and in
particular the reduction of high tariffs. This Article also provides that these negotiations should take place with
due regard to the objectives of the WTO and taking into account the varying needs of individual Members.
Tariff negotiations in the GATT/WTO are normally directed towards the reduction of tariffs or the
inclusion of new "bindings" in a Member's Schedule.
In practice, most tariff negotiations have taken place in the context of negotiating rounds, which were
launched by the GATT Contracting Parties or, more recently, by the WTO Membership (i.e. the Doha
Development Agenda (DDA)).
Tariff negotiations have also taken place in the context of plurilateral
negotiations, such as the 1996 Agreement on Information Technology (ITA), as well as the negotiations for
accession to the WTO.
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Principles on Tariff Negotiations
Tariff negotiations are based on the following principles:
RECIPROCITY AND MUTUAL ADVANTAGE
Article XXVIIIbis of the GATT 1994 provides for reciprocity and mutual advantage with regard to tariff
negotiations. According to this principle, where a Member requests another Member to reduce its tariffs on
certain products, it must also be prepared to reduce its own tariffs on products of export interest to the other
Members.
However, the "reciprocity and mutual advantage" principle does not apply in the same manner to negotiations
between developed and developing Members.
For example, Article XXXVI:8 of the GATT codifies in the
multilateral trading system (MTS) the concept of "non-reciprocity" in trade negotiations between developed
and developing and least-developed country (LDC) Members. According to it, developed Members should not
expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other
barriers to the trade of developing Members.
This has permitted these developing Members to undertake
lower levels of binding and higher overall tariff protection. Another example is the "Decision on Differential
and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries" (the ''Enabling
Clause''), which provides that developed Members shall not seek, neither shall developing Members be
required to make concessions that are inconsistent with the latter's development, financial and trade needs.
More recently, the Doha Ministerial Declaration provides negotiations shall take fully into account the special
needs and interests of developing and LDC Members, including through less than full reciprocity in reduction
commitments (Doha Declaration, para. 16).
MFN TREATMENT
According to the MFN treatment obligation set out in Article I:1 of the GATT 1994, any tariff reduction a
Member grants to any country must be extended to all WTO Members immediately and unconditionally.
PREDICTABILITY ON TARIFF CONCESSIONS – TARIFF BINDINGS
Predictable access to markets for goods and services is an essential principle of the WTO and it is fulfilled
through various provisions, and in particular Article II of the GATT 1994.
This Article provides that each
Member shall accord to the commerce of the other Members treatment no less favourable than that provided
for in the appropriate Part of its Schedule of concessions. As it will be seen in the next section, the "bindings"
or "bound duties" are one of the most important elements to be found in these Schedules. The bindings are
sometimes accompanied by terms, conditions or qualifications that also determine the market access
conditions which are applicable in that market.
Since any modification to a WTO Schedule requires full
consensus, the bindings are not easily changed. Therefore, security and predictability are achieved through
the inclusion of a Members' commitments (the bindings in particular) in legal instruments (i.e. the Schedules)
which are not easily changed.
If somebody wants to know what are the special conditions applicable to a
certain product in a certain Member, that Member's Schedule is often the best place to start.
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IV.C.1. WHAT IS A "BOUND TARIFF"?
What is a Bound Tariff?
A "bound tariff" is a tariff for which there is a legal commitment not to raise it above a certain
level. The bound level of the tariff is the maximum level of customs duty to be levied on products imported
into a Member.
Members.
Once a rate of duty is bound, it may not be raised without compensating the affected
The tariff concessions or "bindings" of each WTO Member are set out in that particular WTO
Member's Schedule of concessions on goods.
Abiding by the binding levels of tariff concessions is one of the basic principles under the MTS.
"Tariff
Bindings'' prevent governments from undoing the liberalization that has been achieved through negotiations
and ensure minimum market access conditions amongst WTO Members. The tariff concessions or "bindings" of
each WTO Member are set out in that particular WTO Member's Schedule of concessions on goods.
As mentioned above, the "bound levels" are often agreed upon during tariff negotiations, which can be
carried out bilaterally or can be determined by "target levels" that are to be met by "tariff cuts" (these
concepts will be explained in the next Section). Acceding countries also have to negotiate their Schedule of
concessions in the market access negotiations that take place during the accession process.
A country can change its bindings, but only after negotiating with its trading partners and
compensating them for loss of trade according to Article XXVIII of the GATT 1994 (we will explain the
procedure for the modification of Schedules later on).
IV.C.2. DIFFERENCE BETWEEN "BOUND TARIFF" AND "APPLIED TARIFF"
As we saw above, ''bound tariffs'', as specified in Members' WTO Schedules of concessions, act as ceilings on
the tariffs that Members can impose.
Members cannot apply a tariff which is higher than the bound levels
specified in their Schedule of concessions, as they would otherwise be in breach of Article II(1)(b) of the GATT
1994. However, Members "may" apply a tariff which is lower than the bound level.
What is an Applied Tariff?
An applied tariff is the duty that is actually charged on imports on a Most Favoured Nation (MFN)
basis. Applied Tariffs, as specified in Members' national tariff schedules, can be below but not higher than
the bound tariffs specified in the WTO Members' Schedules of concessions.
Therefore, an ''applied tariff'' for a product can differ from the ''bound tariff'' for that product as long as the
''applied levels" are not higher than the ones indicated in the Schedule of concessions. For example, a Member
having a bound level of 50 per cent may impose any applied duty level it wishes according to its trading policy,
as long as it is not higher than 50 per cent.
The difference between "bound" and "applied" levels is often
referred to in the jargon as "binding overhang" or "water".
15
IV.C.3. A REVIEW OF PREVIOUS GATT NEGOTIATIONS ON TARIFFS
The GATT Contracting Parties organized eight rounds of trade negotiations from 1947 to 1994, which
culminated in the establishment of the WTO at the eighth negotiation round – the Uruguay Round (19861994). During the eight GATT rounds of trade negotiations, tariffs were progressively bound and
reduced, with more progress being made in the manufacturing sector than in agriculture.
Although tariffs have come down significantly in developed Members, many developing and LDC Members did
not make much use of the MTS to bind or reduce their tariffs.
This situation changed significantly in the
Uruguay Round. One significant outcome of the Uruguay Round on tariff negotiations was that many
developing Members significantly increased their binding coverage or "number" of bound tariffs.
Some of them also committed to reduce their bound levels.
The
Uruguay
Round
increased
number
of
bindings
percentages
of
tariffs
bound
before and after the 1986-94 talks
Before
After
Developed countries
78%
99%
Developing countries *
21%
73%
Transition economies
73%
98%
(These are percentages of tariff lines, so they are not weighted according to trade volume or value)
Source: The Results of the Uruguay Round of Multilateral Trade Negotiations: Market Access for Goods and
Services — Overview of the Results, Geneva, 1994.
* Results shown are for a sample of 21 developing countries.
Table 1:
The Uruguay Round increased number of bindings percentages of tariffs bound before and
after the 1986-94 talks
It is worth noting that NOT all goods have a bound tariff rate. Whether or not a tariff line is bound has
been the subject to trade negotiations amongst WTO Members. In agriculture, 100 per cent of products
have bound tariffs, although some of these continue to be very high.
WTO Members are nevertheless obliged to apply their tariffs to products imported from other WTO
Members on a non-discriminatory basis irrespective of whether the products are bound or unbound
(MFN principle).
IV.C.4. TECHNIQUES OF TARIFF NEGOTIATIONS
The history of the GATT is also the history of techniques of tariff negotiations. A variety of methods have been
used in negotiating tariff reductions. As mentioned above, Article XXVIIIbis of the GATT 1994 sets the broad
guidelines under which tariff negotiations should be undertaken. This Article notes that negotiations may be
carried out on a selective product-by-product basis or "by the application of such multilateral procedures as
may be accepted by the contracting parties concerned."
16
Negotiation history: industrial products
Round
Developed Countries
Developing Countries
From the GATT until the Dillon
request / offer
request / offer
Linear cut formula (50% cut), but
request / offer
Round (1947 - 1961)
Kennedy (1964 - 1967)
allowed less than formula cuts for
a few products and exceptions
Tokyo (1973 - 1979)
The ''Swiss formula'' was applied
request / offer
with different coefficients (14-16);
exceptions were allowed
Uruguay
Agreement
on
an
average
reduction of at least one-third (i.e.
(1986 - 1994)
(33.3%).
Some also participated
request / offer
ceiling bindings
in some sectoral agreements (zero
for zero and harmonization)
Table 2:
a.
Negotiation history: industrial products
BILATERAL ITEM-BY-ITEM/COUNTRY-BY-COUNTRY OR "REQUEST-OFFER"
TECHNIQUE
This is the oldest traditional negotiating technique, whereby submission of "request lists" (specified product
by product) is followed by "offer lists". This technique, sometimes referred to as "request-offer", required that
countries participating in the negotiation would request concessions in the products in which they
were likely to be the principal suppliers to the country from which the concession was being asked.
This was the only technique used in GATT negotiations until and including the Dillon Round (1961-1962).
However, it turned out to be extremely burdensome because of the involvement of thousands of specific
products in the negotiation. This approach is still being used for bilateral negotiations during a Round, and in
the process of accession of new WTO Members.
b.
"FORMULA" TECHNIQUE
The so-called "formula" approach involves tariff reductions which are calculated in a mathematical, as
opposed to an individually negotiated, manner.
This approach has been favoured since the 1960s, in
particular because it allows for simplified negotiations across a large number of countries. Although there are
many ways in which these could be classified, one could begin differentiating them by looking at whether or
not they are applied on a line-by-line basis.
A formula is said to be applied on a "line-by-line" basis when the final bound is determined as a function of the
existing binding of a product. A significant weakness of the ''linear technique'' is that it fails to narrow down the
disparity between peak tariffs and low tariffs. Has a 50 per cent cut of a 100 per cent tariff the same effect on
trade as a 50 per cent cut of a ten per cent tariff? Obviously NO. After the cut of the 100 per cent high tariff,
the tariff still remains high.
17
On the other hand, there are "tariff dependent" formulas, where the percentage reduction in tariff rates
depends on the initial tariff rate subject to negotiations.
It includes the so-called harmonization formulas
which have the effect of reducing the dispersion of the applicable tariff, one example of which is the "Swiss
formula" (see box below). By applying the harmonization formula, one could expect to bring the final tariffs
closer together by steeper cuts on higher tariffs. The Swiss formula is being used in the Doha Round of
Negotiations on tariff reductions for non-agricultural products.
''Swiss Formula''
Narrowing the gap between high and low tariffs is called harmonizing the tariffs, which is achieved through
reducing the "high" duties in a higher percentage than the "low" duties. The “Swiss formula” is a special kind
of harmonizing method. It is called "Swiss Formula" because it was proposed by Switzerland during the Tokyo
Round.
The ''Swiss formula''
Z=
A*X
(A+X)
X = initial tariff rate (also called base rate)
A = the coefficient, which is the only variable to be negotiated
Z = the resulting lower tariff rate which will constitute the new final bound tariff
A key feature of the formula is the ''coefficient'' (variable A), which determines the maximum final tariff rate.
How the Swiss formula coefficient defines the maximum final tariff?
From the formula, Z=AX/(A+X), as the initial tariff X rises to infinity, X/(A+X) approaches 1, resulting in
Z=Ax1.
DO YOU THINK IT IS COMPLICATED? IT IS NOT. LET’S SEE A PRACTICAL EXAMPLE
A coefficient of A = 20 applied to an initial tariff of 100% produces a final “bound” tariff of about 16.7%.
(20*100) / (20 + 100) = 2000 / 120 = 16.7%
If we apply the same coefficient (20) to an initial tariff of 10%, the final tariff will be 6.7%.
(20*10)/ (20 + 10) = 200 / 30 = 6.7%
Conclusion: the tariff line with the higher tariff has made a percentage cut of around 83.3%, while the tariff
line with the lower tariff has made a lower percentage cut of about 3.3%. There was an harmonization effect
since while the high duty of 100 was ten times the low duty of 10 (100 / 10 = 10), the new high duty is only
2.5 times the new low duty (16.7 / 6.7 = 2.5).
18
Formulas which are not applied on a line-by-line basis include approaches such as the average cuts (where a
Member could fulfil the agreed reduction by cutting very little the tariffs on some products and compensating
with higher cuts on others) and the target average techniques (where the agreement is to reduce the tariffs
"to" a new agreed average).
NOTE
There are many other approaches to tariff cutting formulas. See WTO document TN/MA/S/3/Rev.2
and TN/MA/S/13 prepared by the Secretariat.
Although many Members have proposed different formulas for tariff cuts, most proposals endorse the
harmonization approach which reduces higher rates by proportionately more than lower rates. As mentioned
above, the current Doha round negotiation on tariff reductions for both industrial products and
agricultural products is also based on the harmonization approach (Swiss Formula) for developed
and several developing Members.
IV.D. WTO SCHEDULES OF CONCESSIONS (GOODS)
What are the WTO Schedules of concessions?
For trade in goods, in general, the Schedules of concessions consist of a list of products for which a
"bound tariff" has been agreed by the Member concerned.
WTO negotiations produce general rules that apply to all Members and specific commitments made by
individual Members.
The specific commitments are listed in documents called "Schedules of concessions",
which reflect specific tariff concessions ("bound tariffs") and other commitments that each Member has given in
the context of trade negotiations, such as the Uruguay Round. These concessions are granted on a MFN
basis.
Article II:1(b) of the GATT requires a Member to refrain from imposing ordinary customs duties in excess of
those provided for in that Member's Schedule. This obligation is subject to the terms, conditions or
qualifications set forth in those Schedules.
The products listed in the Schedules are usually identified by a code and its description is usually based on the
HS (explained above). Each Member has its own Schedule identified by a unique roman number, except
for Members that are part of a customs union (e.g. European Union), that may have a Schedule together with
the other members of the union.
Appendix 2 provides an example of a Member's WTO Schedule of
concessions.
The Schedules have sections for "agricultural" and "other products" (see box below – Structure of a
Member's Schedule).
Agricultural products are defined in Annex 1 of the Agreement on Agriculture and
everything else are the "other products".
"Other products" are referred to as "non-agricultural"
products in the context of the Doha negotiations.
19
Difference between "Agricultural Products" and "Other Products"
"Agricultural Products"
"Other Products" or
"Non-Agricultural Products"
Defined in Annex 1 of the Agreement on Agriculture
The definition covers not only basic agricultural products
such as wheat, milk and live animals, but also the
They include manufacturing products, fuels and mining
products derived from them such as bread, butter and
products, fish and fish products, and forestry products.
meat, as well as all processed agricultural products (e.g.
chocolate and sausages).
You can find WTO Members' Schedules of Tariff Concessions in:
http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_e.htm
20
The Schedules of concessions are legal instruments which are annexed to the Marrakech Protocol to
the GATT 1994 and form an integral part of the legally binding commitments made by WTO
Members. In the case of countries that acceded to the organization after the establishment of the WTO, their
Schedules are part of their Protocols of Accession annexed to the GATT 1994.
Figure 1: WTO Schedule of concessions
*
ODC - "Other Duties and Charges (explained below)
** TRQ - Tariff-Rate Quotas (we will study TRQ later on, while explaining Non-Tariff Barriers)
TO KNOW MORE... CASE LAW ON WTO SCHEDULES OF CONCESSIONS
"In excess of" and type of duty
In Argentina – Textile and Apparel, Argentina applied a system of minimum "specific" import duties (known
as "DIEM") on textiles and apparel, which was different from the "ad valorem" bound rate duty (35%)
specified in Argentina's Schedule of concessions.
The Panel found that Argentina had acted inconsistently with Article II by virtue of applying a different type
of import duty than set out in its Schedule. The Appellate Body reversed the Panel's finding and concluded
that the application of a type of duty different from the type provided for in a Member's Schedule is
inconsistent with Article II:1(b), first sentence, of the GATT 1994 "to the extent that it results in ordinary
customs duties being levied in excess of those provided for in that Member's Schedule".
Accordingly, the Appellate Body found Argentina's measure was inconsistent with Article II:1(b) on the
ground that the possibility remains that there is a "break-even" price below which the ad valorem
equivalent of the customs duty collected is in excess of the bound ad valorem rate of 35 per cent"
(Argentina – Textile and Apparel, Appellate Body Report, paras. 48-55). In other words, they lost because
they were charging in practice more than their bound duty.
21
"Subject to the terms, conditions or qualifications set forth in those Schedules"
In EC – Bananas III, the European Union had included in its WTO Schedule a concessions which would allow
the EU to deviate from its obligations under Article XIII of the GATT 1994 (which requires tariff quotas to be
allocated on a non-discriminatory basis).
The Appellate Body held that Article II allows Members to incorporate into their Schedules acts yielding
rights under the General Agreement, but not acts diminishing its own obligations under that Agreement. In
other words, the inclusion of this concession in its Schedule does not permit the EU to act inconsistently
with the requirements of the GATT 1994 (EC – Bananas III , Appellate Body Report, paras. 154-158).
IV.D.1. MODIFICATION OF SCHEDULES
A negotiated tariff binding may become too onerous to maintain over time due to changing circumstances. In
such cases, a WTO Member is allowed to modify its tariff bindings.
If a Member wishes to modify a concession (e.g. impose a higher customs duty than the bound
rate) in its Schedule, it has the following two alternatives:

Request a ''waiver'' that will allow it to suspend the concerned tariff concession on a temporary
basis.
According to Article IX(3) of the Agreement Establishing the WTO, any WTO obligation
(including the level of the tariff concession) can be TEMPORARILY "waived" - where the Member has,
under exceptional circumstances, received specific authorization from WTO Membership;

Renegotiate its tariff concession in order to modify or withdraw it on a permanent basis
according to Article XXVIII of the GATT. Renegotiation of concessions is subject to compensation. It
is governed by the rules and provisions in Article XXVIII of the GATT 1994, including the Note Ad
Article XXVIII, the GATT 1994 Understanding on the Interpretation of Article XXVIII (explained
below), and the 1980 Procedures for Modification and Rectification of Schedules of Tariff Concessions.
RENEGOTIATION UNDER ARTICLE XXVIII OF THE GATT 1994
The renegotiation of any tariff concession requires compensating Members holding special rights ''in order to
maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade than
that provided for in this agreement prior to such negotiations'' (Article XXVIII:2 of the GATT). In other words,
to seek to increase a particular tariff binding, the requesting Member must negotiate with some of the
interested Members and agree on a compensation for them, which could consist in decreasing the tariff
binding(s) on another item or other items.
According to Article XXVIII, there are only a few Members entitled to participate in a renegotiation, referred to
in there as ''Members primarily concerned'', which include: (i) Members with "Initial Negotiating Rights'' (INR
Members); and, (ii) Members that have a ''Principal Supplying Interest'' (PSI Members). Members with a
''Substantial Interest'' (SI Members) are entitled to consultations.
22
Members with "initial
Members that have a "principal
Members with a ''substantial
negotiating rights'' (INR)
supplying interest" (PSI)
interest'' (SI)
Members Primarily concerned
Entitled to ''consultation''
Entitled to negotiate and seek compensation

Members
with
concession
whom
was
negotiated
in
manner
(See
a
explanation
the

initially
bilateral
above
"by

agreement

determined
CONTRACTING
with
precise
Based on "import shares" –
party
by
PARTIES
any
as
Member
having
larger share in the market of
such concession was initially
the applicant contracting party
negotiated..."
than a contracting party with
which
(Article XXVIII:1)
the
initially
concession
the
parties which have, or in the
absence
discriminatory
applicant
QRs
contracting
have, a significant share in
the
modify
party''
of
the
or
withdraw
the
concession (paragraph 1(7)
of
the
Ad
Note
to
practice
if
Article XXVIII)
Based on "export shares" exceptionally
determine

that a Member has a PSI ''if
the
market
contracting party seeking to
the
to Article XXVIII)
may
restrictions
reasonably be expected to
(Paragraph 1(4) of the Ad Note

discriminatory
affecting their exports could
of
by
of
quantitative
or
absence
It is, however,
cover only those contracting
would...have had such a share
in
the
intended to be construed to
was
negotiated
and
present
for
[Members].
''...a
contracting party with which
may
difficulties
to
have a PSI", which is defined
definition
accordingly
the
and
a
"The expression “substantial
interest” is not capable of a
"...with any other contracting
on
negotiation

principal suppliers:
request/offer)

There are criteria to determine
concession
in
question
Recognized
in
import share > 10% (See
TAR/M/16)
affects trade which constitutes
a
major
exports
part
of
of
such
the
total
contracting
party'' (Paragraph 1(5) of the
Ad Note to Article XXVIII &
paragraph
1
of
Understanding
the
on
Article XXVIII of the GATT)
Paragraph 3 of the Understanding on GATT Art XXVIII
In the determination of which Members have a ''PSI'' or ''substantial
interest'', only trade in the affected product which has taken place on a
MFN basis in a three year period shall be taken into consideration. In
other words, a ''PSI'' or substantial interest cannot be granted to
Members whose exports are benefiting from preferential treatment from
the Member requesting tariff modification.
23
What if there is no agreement?

The affected Member could ''withdraw'' similar concessions if
Withdraw of similar concessions on
no agreement is reached and the modification is nevertheless
a MFN basis if no agreement is
implemented by the applicant Member; (Article XXVIII:3(a)).
reached and the modification is

Withdrawal would have to be on an MFN basis.

But runs risk of similar modifications by other Members in
nevertheless implemented by the
applicant Member
(Article XXVIII:3(b)).
''retaliation'.'
Table 3:
What if there is no agreement?
Finally, one should distinguish the process of "modification" of tariff Schedules explained above from
the procedure of "rectification" of the Schedule. In this regard, the GATT Contracting Parties adopted a
decision on the “Procedures for Modification and Rectification of Schedules of Tariff Concessions” in 1980 which
provides that changes resulting from formal rectification could be certified by the Director-General if no
objection is raised by another Member within 3 months (L/4962). The expedited procedure is however subject
to the following conditions:

The rectification is limited to a purely formal character of Scheduled concessions, which do not alter
the scope of the concessions;

If objections are raised, Member could end up in Article XXVIII of the GATT renegotiations.
24
IV.E. OTHER PROVISIONS OF ARTICLE II OF THE GATT
AIMING TO PRESERVE THE VALUE OF TARIFF
CONCESSIONS
There are other provisions under GATT Article II that aim at preserving the value of tariff concessions.
For
example, the second sentence of Article II:1 (b) – explained below - allows Members to apply other duties and
charges, in addition to customs duties, subject to certain requirements. Article II:3 prohibits Members from
altering their methods of determining dutiable value or methods of converting currencies so as to impair the
value of tariff concessions and Article II:6 provides that currency revaluations should not undermine the value
of such concessions.
IV.E.1. OTHER DUTIES AND CHARGES (ODCS)
What are "Other Duties and Charges"?
Members may impose "other duties and charges", which include all taxes levied on imports in addition
to customs duties, subject to their inscription in the Schedule of concessions.
As explained before, the "bound rate" of customs duty indicated in the Schedule of concessions represents the
maximum customs duty that WTO Members have committed to levy on imports from other Members. Other
Duties and Charges (ODCs) may be imposed in addition to the "ordinary customs duty". However, for ODCs to
be permitted, they must be recorded in the Schedule and they must not exceed the level indicated therein.
The Understanding on the Interpretation of Article II.1(b) of the GATT, clarifies the types of duties and charges
that can be collected in addition to the "ordinary customs duties".
It states that "in order to ensure
transparency of the legal rights and obligations deriving from paragraph 1(b) of Article II, the nature and level
of any ''other duties or charges'' levied on bound tariff items, as referred to in that provision, shall be recorded
in the Schedules of concessions annexed to GATT 1994 against the tariff item to which they apply ...". Thus, if
ODCs were not recorded in a Member's Schedule but are nevertheless levied, they are inconsistent
with Article II:1 (b).
However, the inclusion of an ODC in a Member's Schedule of concessions does not
necessarily guarantee its consistency. WTO Members are free to challenge any ODC even though it has been
inscribed in a Member's Schedule.
Examples of "Other Duties and Charges" (ODCs)

Import surcharge, i.e. a duty imposed on an imported product in addition to the ordinary custom's
duties.

Security deposit to be made on the importation of goods.

"Excise tax" on luxury items"
25
EXERCISES
1.
What is the difference between a tariff and a tariff schedule?
2.
What is the difference between a "bound tariff" and an "applied tariff"?
3.
What are the basic principles and rules governing tariff negotiations?
4.
In Tristat's Schedule of Tariff Concessions, the bound duty for television set is ten per cent. Can Tristat
apply a tariff different from the 10 per cent listed in its Schedule?
5.
Is the "bound tariff" the only charge Tristat may levy on imported television set?
6.
What are the requirements for a Member who is seeking to renegotiate its tariff bindings?
26
ILLUSTRATION – TARIFF BARRIERS
SCENARIO
Imagine that Vanin, Medatia and Tristat are WTO Members. During a GATT/WTO negotiations round, Vanin
made a commitment to bind its tariff on trucks (tariff item HS 9101.29) at five per cent ad valorem.
In
addition to that, Vanin has not included in its Schedule of Tariff Concessions any other charges on trucks.
After the negotiation, Vanin reclassifies trucks to another tariff line (tariff item HS 9101.29.92) which applies a
MFN tariff rate of ten per cent ad valorem. In addition to the tariff, Vanin also applies a security deposit of two
per cent ad valorem for imported heavy trucks.
QUESTION
Tristat believes that Vanin's customs law violates its obligations under the WTO. Assume you are an expert on
WTO Law what would you advise Tristat to determine before initiating a dispute?
What would be your
arguments before a WTO panel?
PROPOSED ARGUMENTS
Vanin violates Article II:1(b) and the Understanding on the Interpretation of Article II.1(b) of the GATT 1994.
Schedule of Concessions (GATT 1994 - Article II)
According to Article II:1(b) first sentence, Members are required to apply a tariff not higher than the one
specified in their Schedules of concession (bound tariff). The application of a type of duty different from the
type provided for in a Member's Schedule is inconsistent with Article II:1(b), first sentence, of the GATT 1994 if
it results in ordinary customs duties being levied in excess of those provided for in that Member's Schedule.
Tristat might argue that the application of the new custom duty (ten per cent ad valorem) is inconsistent with
Article II:1(b) since it results in ordinary customs duties being levied in excess of those provided for in Vanin's
Schedule.
Other Duties and Charges (ODCs)
The Understanding on the Interpretation of GATT Article II.1(b) requires WTO Members to specify in their
Schedules of concession ODCs that they will be imposed in addition to customs duties. Thus, if ODCs were not
recorded in a Member's Schedule but are nevertheless levied, they are inconsistent with Article II:1 (b). In
this case, Vanin did not specify any ODCs in its Schedule.
However, in practice, Vanin applies a security
deposit of two per cent ad valorem for imported heavy trucks in addition to the tariff.
27
V.
NON-TARIFF BARRIERS (NTBS)
What is a Non-tariff Barrier (NTB)?
There is no agreed definition of what constitutes a NTB. However, NTBs include, in principle, all measures
other than tariffs used to protect a domestic industry.
Non-tariff barriers can also restrict or even impede market access of goods. They include:
(i) quantitative restrictions (such as quotas); and,
(ii) other non-tariff measures (including, lack of transparency in trade regulation, unfair and arbitrary
application of trade regulations, customs formalities, technical barriers to trade and arbitrary practice of
customs valuation).
It is worth noting that several provisions in the GATT and WTO Agreement aim at eliminating or, in those cases
where a non-trade concern can be legitimately pursued by Members, minimizing the trade effect of non-tariff
measures. In those cases where non-tariff measures are based on a legitimate goal (e.g. measures
to protect the environment, measures for sanitary or phytosanitary (SPS) reasons), Members need
to follow specific provisions to ensure their compatibility with WTO rules.
In this Module, we will only focus on QRs which are governed by Articles XI and XIII of the GATT 1994. In
addition, we will introduce tariff-rate quotas (which differ from QRs).
V.A. WHAT IS A QUANTITATIVE RESTRICTION (QR)?
What is a Quantitative Restriction (QR)?
A QR can be defined as a restriction on imports or exports enforced at the time or point of
importation, such as a prohibition or a quota.
There is no explicit definition of the term "quantitative restriction" in the WTO.
An implicit definition is
provided by Article XI:1 of the GATT 1994, which proscribes any prohibition or restriction other than duties,
taxes or other charges, whether made effective through quotas, import or export licences or other measures
on the importation of any product of the territory of any other contracting party or on the exportation or sale
for export of any product destined for the territory of any other contracting party.
The Council for Trade in Goods, in a 1996 Decision (G/L/59, Annex) provides an illustrative list of QRs. This
list includes: prohibition, prohibition except under defined conditions, global quota, global quota allocated by
country, bilateral quota (i.e. anything less than a global quota), automatic licensing, non-automatic licensing,
QRs made effective through state-trading operations, mixing regulation, minimum price triggering a QR, and
"voluntary" export restraint.
28
V.A.1.
GENERAL ELIMINATION OF QUANTITATIVE RESTRICTIONS
(QRS) (ARTICLE XI OF GATT 1994)
The general elimination of QRs is regulated by Article XI of the GATT (for trade in goods) and Article XVI of the
GATS (for trade in services).
According to Article XI:1 of GATT, QRs should NOT be maintained by WTO Members. In other words,
a WTO Member cannot, as a general rule, impose import or export prohibitions or restrictions in quantities or
value on the goods of another Member.
The only protective barriers that WTO Members can institute or
maintain are "duties, taxes or other charges" compatible with the GATT rules already discussed. Consequently,
QRs, whether "quotas, import or export charges or other measures", are a violation of the rule in Article XI:1.
This being said, there are exceptions to this rule in Article XI and other provisions of the GATT 1994.
V.A.2.
RATIONALE BEHIND THE GENERAL ELIMINATION OF
QUANTITATIVE RESTRICTIONS (QRS)
The general prohibition of QRs is a basic principle of the WTO. According to the Panel in Turkey – Textiles,
''the prohibition on the use of QRs forms one of the cornerstones of the GATT system'' (Turkey – Textiles,
Panel Report, para. 9.63)
The rationale behind the general prohibition of QRs under Article XI is to protect expectations of WTO
Members as to the competitive relationship between their products and those of the other
Members. Thus, as with the national treatment rule, Article XI is not only to protect current trade but also to
create the predictability needed to plan future trade (US – Taxes on Petroleum and Certain Imported
Substances, GATT Panel Report, para. 5.2.2).
Furthermore, combined with the non-discrimination principles, the general prohibition of QRs also serves to
preserve the value of tariff concessions.
Since QRs impose absolute limits on imports, the enhanced
market access resulting from the negotiation of tariff concessions and bindings will be easily undermined if
they are not prohibited.
The general prohibition of QRs reflects the preference for tariffs over QRs among forms of border
protection. The reason that tariffs are treated as the preferred form of protection over QRs is because QRs
impose absolute limits on imports while tariffs do not.
Quantitative restrictions tend to be more trade
distorting (not always allow the most efficient competitor to supply imports) and less transparent than
tariffs since the allocation of QRs can be problematic (Turkey – Textiles, Panel Report, para. 9.63).
29
Therefore, the prohibition on QRs provided in Article XI works to:

Protect expectations of WTO Members.

Preserve the value of tariff concessions.

Promote transparency.
The welfare effects of a quota on importing countries are illustrated below. The graph also explains why tariff
barriers are preferred as a policy tool of protection before QRs.
THE WELFARE EFFECTS OF AN IMPORT QUOTA ON A SMALL IMPORTING COUNTRY
Price
D
S
Pt
A
Po
0
B
So
C
S1
D1
Quota
Tariff
Tarif
f
D
Do
Quantity
Figure 2: The Welfare Effects of A Quota on Importing Countries
The graph illustrates the welfare effects of a quota on an importing country.
The effect of a quota of the size (S1 – D1) corresponds to the effect of a tariff (Po - Pt).
As with a tariff, Area B + D continues to represent the net loss caused by the quota. However, contrary to
a tariff, in the case of a quota the Area C does not represent revenue for the government.
Instead, it
represents the revenue for those holding a license to import (quota rent). The welfare effects of a
quota depend on how the importing government allocates the legal rights to import. The one that obtains
the quota licenses gets the gains represented by Area C.
30
TO KNOW MORE.. WHY TARIFFS ARE PREFERRED BY ECONOMISTS AS A POLICY
INSTRUMENT OF PROTECTION OVER QRS?

No government revenue: A tariff gives rise to government revenue whereas a quota gives rise to
rents (equivalent in amount) to the holders of import licenses.

Dynamic effects: With a tariff an increase in demand is met by an increase in imports whereas with
a quota an increase in demand increases the rents and the costs of the quota.

Costs of administration and compliance: In the presence of licensing systems, administration and
compliance costs can be very high. This is one more reason to prefer tariffs to import quotas.
Based on: Marc Bacchetta, Overview of the Economics of International Trade, Economic Research and Analysis,
WTO, Geneva, 2001.
V.B.
ARTICLE XI:1 OF THE GATT 1994
Article XI:1 of the GATT – General Elimination of Quantitative Restrictions (QRs)
1. No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through
quotas, import or export licences or other measures, shall be instituted or maintained by any contracting
party on the importation of any product of the territory of any other contracting party or on the exportation or
sale for export of any product destined for the territory of any other contracting party.
V.B.1. BROAD COVERAGE
Article XI does not limit to prohibit QRs.
The list of measures in Article XI:1 is not exhaustive.
Article XI:1 refers to restrictions ''made effective through quotas, imports or export licenses or
other measures''. In Japan - Trade in Semi-conductors, the Panel ruled that ''the wording of Article XI:1 is
comprehensive: It applies to all measures instituted or maintained by a Member prohibiting or restricting the
importation, exportation or sale for export of products other than measures that take the form of duties, taxes
or other charges" (Japan - Trade in Semi-conductors, GATT Panel Report, para. 104).
The GATT/WTO panels have consistently given a broad interpretation to measures covered by Article XI:1 so
that in principle, any quantitative restriction other than duties, taxes or other charges can fall into the scope of
Article XI:1.
V.B.2. COVERS DE JURE & DE FACTO RESTRICTIONS
Article XI:1 covers both de jure restrictions and de facto restrictions. A restriction is de jure when it is
clear from the wording of the legal instrument.
When a measure apparently not restrictive has in practice
similar effects as those noted in Article XI:1, it is said that it is de facto restrictive. In such case, the measure
might be prohibited under Article XI:1.
31
In Argentina - Hides and Leather, the European Union argued that Argentina's measure was inconsistent with
Article XI:1 by allowing the presence of domestic tanners' representatives in the customs inspection
procedures for hides destined for export operations, and thus, imposing de facto restrictions on exports of
hides. The Panel held that there can be no doubt that the disciplines of Article XI:1 extend to restrictions of a
de facto nature (Argentina - Hides and Leather, Panel Report, para. 11.17).
In the same case, the Panel found that although actual trade effects did not have to be proven in order to
establish a violation of Article XI:1, trade effects carried weight, as an evidentiary matter, for establishing the
existence of a de facto restriction (Argentina - Hides and Leather, Panel Report, paras. 11.20 – 11.21).
V.B.3. BORDER MEASURES VS. INTERNAL MEASURES
Despite the wide coverage of Article XI:1, one should however note that Article XI applies to "border
measures" as opposed to "internal measures", which are subject to Article III:4 (National Treatment –
Internal Regulation).
Nevertheless, according to the Ad Note to Article III of the GATT 1994 (National Treatment), a measure
''enforced or collected in the case of an imported product at the time or point of importation'' may be treated
as internal measures and thus, governed by Article III.
V.C.
WHAT ABOUT TARIFF-RATE QUOTAS (TRQS)?
What are a TRQs?
Tariff-rate quotas (or tariff quotas) are predetermined quantities of goods which can be imported at a
"preferential" (i.e. lower) rate of customs duty ("in quota tariff rate"). Once the TRQ has been filled, one can
continue to import the product without limitation but paying a higher tariff rate.
One must distinguish between quotas, which are generally prohibited, and TRQs which are
considered tariffs and allowed under certain circumstances. While the former consists of a limit on a
volume, the latter consists of two duties and a volume.
Tariff-rate quotas are predetermined quantities of
goods which can be imported at a "preferential" (i.e. lower) rate of customs duty ("in quota tariff rate"). Once
the TRQ has been filled, one can continue to import the product without limitation – so it is not a QR – but at a
higher tariff rate ("out-of-quota tariff rate").
In a TRQ, specific quantities of goods may be imported at
different tariff levels.
While several TRQ volumes are distributed on an MFN basis, the WTO Schedules of some Members include a
"quota allocation" element in some of them. The allocation of the TRQ should follow the disciplines in
Article XIII:5 of the GATT 1994 (introduced below), which provides that TRQs should be applied similarly
to products from all origins and allocations should respond as closely as possible to the expected markets share
that would have existed in the absence of TRQs (Article XIII:2 of the GATT 1994). In EC - Bananas III, the
Panel - in a finding not reviewed by the Appellate Body - held that the object and purpose of Article XIII:2 is to
minimize the impact of a TRQ regime on trade flows by attempting to approximate under such measures the
32
trade shares that would have occurred in the absence of the TRQ (EC – Bananas, Panel Report, para. 7.68).
The following diagram shows what a tariff-quota might look like:
Example: TRQ
Imports entering under the TRQ (up to 1,000 tons) are generally charged ten per cent. Imports entering
outside the TRQ are charged 80 per cent.
V.D. PROVISIONS THAT ALLOW DEROGATION FROM THE
GENERAL PROHIBITION OF QUANTITATIVE
RESTRICTIONS (QRS)
V.D.1.
EXCEPTIONS TO WTO RULES – INCLUDING THE GENERAL
PROHIBITION OF QRS
As with the non-discrimination rules, there are a number of provisions that allow WTO Members to derogate,
among other provisions, from the general prohibition of QRs as provided in Article XI:1 of the GATT 1994.

General exceptions;

security exceptions;

safeguard measures;

balance-of-payment (BOP) exceptions;

waivers; and,

regional integration exceptions.
33
V.D.2.
EXCEPTIONS TO THE GENERAL PROHIBITION OF QRS
The specific exceptions to the general prohibition against the use of QRs are:
1.
Prevent critical shortage of foodstuffs or other essential products (Article XI(2)(a) of the GATT 1994);
2.
Import and export prohibitions or restrictions necessary to the application of standards or regulations for
the classification, grading or marketing of commodities in international trade (Article XI(2)(b) of the
GATT 1994);
3.
Uphold import restrictions on agricultural and fisheries products (Article XI(2)(c) of the GATT 1994).
With respect to Article XI(2)(a), the drafters of the GATT 1994 realized that in specific circumstances
(shortages or surplus of goods domestically produced) one could derogate from the general prohibition of QRs
to prevent or deal with critical situations.
The exception contained in Article XI:2(c) created a quasi-general derogation for agricultural policies and
measures relating to fishery products, and constituted the essential provision which led to the "special
treatment" for agriculture before the Uruguay Round. However, the "agricultural exception" ended when the
WTO Agreement on Agriculture entered into force. The WTO Agreement on Agriculture superseded GATT 1994
Article XI:2(c). Article 4 of the Agreement on Agriculture provides, among other things, that quotas must be
transformed into tariffs (in a process called "tariffication"). Consequently, under the WTO Agreements, QRs
remain possible under this exception only on fishery products. Fish, and fish products are not covered by the
WTO Agreement on Agriculture.
V.E.
NON-DISCRIMINATORY ADMINISTRATION OF
QUANTITATIVE RESTRICTIONS (QRS) (ARTICLE XIII OF
THE GATT 1994)
Article XIII is basically a provision relating to the administration of restrictions authorized as exceptions to one
of the most basic GATT provisions - the general elimination of QRs contained in Article XI of the GATT 1994.
Accordingly, where authorized by the GATT, QRs must be imposed on a non-discriminatory basis. In
other words, the Member imposing the QRs is not allowed to favour any country over another. The Member is
expected to impose them across the board. The imported products at issue must be ''similarly'' restricted from
the different countries involved. As mentioned above, Article XIII also applies to TRQs (para. 5).
Article XIII:2 provides that in applying import restrictions to any product, Members shall aim at a distribution
of trade in such product approaching as closely as possible the shares which the various Members might be
expected to obtain in the absence of such restrictions. As mentioned earlier, in EC - Bananas III, the Panel, in
a finding not reviewed by the Appellate Body, held that the object and purpose of Article XIII:2 is to minimize
the impact of QRs on trade flows.
In this regard, Article XIII:2(d) allows Members to allocate tariff quota shares to specific supplier
countries. However, according to the chapeau of Article XIII:2, the allocation of quotas between exporting
Members must aim to ensure that QRs do not distort ordinary trade flows. To ensure this, the allocation of
quotas should correspond as closely as possible to the expected market shares that would have
existed in the absence of quotas.
34
Article XIII:2(d) further specifies the treatment that, in case a quota is allocated among specific supplier
countries, must be given to Members with "a substantial interest in supplying the product
concerned".
For those Members, the Member proposing to impose restrictions may seek agreement with
them as provided in Article XIII:2(d), first sentence. If that is not reasonably practicable, then it must assign
shares in the quota (or TRQ) to them on the basis of the criteria specified in Article XIII:2(d), second sentence.
Allocations of country-specific shares to Members not having a substantial interest in supplying the product
may be allowed but must meet the requirements of Article XIII:1 and the chapeau of Article XIII:2(d) (see
EC – Bananas III, Panel Report paras. 7.71-7.73).
NOTE
The administration of QRs and TRQs is also subject the WTO Agreement on Import Licensing Procedures.
35
CASE STUDY
CASE STUDY 1: EC – BANANAS III
(EC - Regime for the Importation, Sale and Distribution of Bananas) (DS27)
Parties
Complainants
Agreements
Timeline of the dispute
Ecuador,
GATT 1994: Arts. I,
Establishment
Guatemala,
III, X, XIII
Panel
GATS: Arts. II, XVII
Circulation of
Honduras,
Mexico,
United
European Union
8 May 1996
22 May 1997
Panel Report
States
Respondent
of
Agreement on Import
Circulation of
Licensing Procedures:
Report
Art. 1.3
Adoption
AB
9 September 1997
25 September 1997
Lomé Waiver
Table 4:
EC - Regime for the importation, sale and distribution of bananas
MEASURE AND PRODUCT AT ISSUE

Measures at issue: The European Union(1) regime for the importation, distribution and sale of
bananas, introduced on 1 July 1993 and established by EEC Council Reg. 404/93.

Products at issue: Bananas imported from third countries(2).
(1) European Communities (EC) – Regime for the Importation, Sale and Distribution of Bananas.
(2) Third countries are those countries other than (i) 12 African, Caribbean and Pacific ("ACP") countries who
have traditionally exported bananas to the EU; and, (ii) ACP countries that were not traditional suppliers of
the EU market.
36
Summary of the key findings of the Panel/Appellate Body
GATT 1994: Art. XIII
The Appellate Body upheld the Panel's finding that the allocation of tariff
(Non-Discriminatroy
quota shares to some Members not having a substantial interest in
Administration of
supplying bananas, but not to others, was inconsistent with Art. XIII:1.
Quantitative
The Appellate Body also agreed with the Panel that the BFA tariff quota
Restrictions)
reallocation rules(3), under which a portion of a tariff quota share not used
by one BFA country could be reallocated exclusively to other BFA countries,
were inconsistent with Articles XIII:1 and XIII:2 of the GATT 1994,
chapeau.
(3) The Framework Agreement on Bananas (BFA).
Lomé Waiver
The Appellate Body reversed the Panel's finding and found that the Lomé
Waiver does not apply to (i.e. exempt) violations of Articles XIII of the
ADMINISTRATION OF TARIFF-RATE QUOTAS
GATT 1994 given that the Waiver refers only to Art. I:1 of the GATT 1994
and that waivers must be narrowly interpreted and be subject to "strict
disciplines".
GATT 1994: Art. I (The
The Appellate Body upheld the Panel's finding that the activity function
MFN Principle)
rules, which applied only to licence allocation rules for imports from other
than traditional ACP countries, were inconsistent with Article I:1 of the
GATT 1994.
The Appellate Body also agreed with the Panel that the EU
export certificate requirement accorded an advantage to some Members
only, i.e. the BFA countries, in violation of Article I:1.
In an issue not
appealed to the Appellate Body, the Panel found that tariff preferences for
ACP countries were inconsistent with Article I:1, but that they were justified
by the Lomé Waiver.
GATT 1994: Art. III:4
The Appellate Body agreed with the Panel that the EU procedures and
(National Treatment -
requirements for the distribution of licences for importing bananas from
Internal Regulation)
non-traditional ACP suppliers were inconsistent with Article III:4 of the
GATT 1994.
GATT 1994: Art. X:3(a)
The
and Agreement on
Article X:3(a) of the GATT 1994 and Art. 1.3 of the Agreement on Import
Appellate
Body
reversed
the
Panel's
findings
of
violations
of
Import Licensing
Licensing Procedures, on the grounds that these provisions applied only to
Procedures: Art. 1.3
the administrative procedures for rules, not the rules themselves.
GATS: Arts. II (MFN)
The Appellate Body upheld the Panel's finding that the EU measures were
and XVII (National
inconsistent with Articles II and XVII of the GATS because they were
Treatment)
discriminatory, and clarified that the "aim and effect" of a measure is
irrelevant under Articles II and XVII of the GATS.
Table 5:
Summary of the key findings of the Panel/Appellate Body
37
ILLUSTRATION – QUANTITATIVE RESTRICTIONS (QRS)
SCENARIO
Suppose that Alba, Vanin and Tristat are WTO Members.
Alba is a traditional producer and exporter of
watches. In Vanin and Tristat, watch industries were established just two years ago. However, with rapid
innovation of technology, Vanin's and Tristat's watch industries have reduced their production costs quickly and
have become strong competitors in the world market.
In Alba, the average sale price of watches was US$ 250 per watch.
Even with Alba's importing tariff on
watches, Vanin and Tristat were able to sell their watches in Alba at an average of US$ 180 per watch. As a
consequence, Alba's watch producers were losing both local and international markets to Vanin's and Tristat's
watch producers.
Recently, Alba approved a Guide which provides that all watch importers are requested to submit information
of imported watches in regard to their material, price, amounts, resell prices as well as the supply and demand
forecasts. Due to the operation of the Guide, Alba's watch importers are suffering from extra costs (associated
with, among others, the employment of experts to gather and analyze the required information). As a result,
the number of watches imported from Vanin is reduced and in fact limited to 500,000 per year and 50,000 per
year for watches imported from Tristat.
QUESTION
Both Vanin and Tristat believe that Alba's Guide constitutes a restriction to imports. Assume you are an expert
on WTO Law, what would you advise Vanin and Tristat to argue before a WTO panel?
PROPOSED ANSWER
The argument could be as follow:
Alba's Guide is inconsistent with Article XI:1 of the GATT 1994, which requires Members to eliminate QRs in the
form of quotas, import or export licenses, or other measures.
The wording of Article XI:1 is comprehensive since it applies to all measures instituted or maintained by a
Member prohibiting or restricting the importation, exportation or sale for export of products other than
measures that take the form of duties, taxes or other charges (Japan - Trade in Semi-conductors). Moreover,
Article I:1 covers both de jure and de facto discrimination. Thus, Vanin and Tristat could argue that the Guide,
which makes prohibitive the importation of watches by requesting all watch importers to submit detailed
information regarding imported watches, constitutes a restriction covered by Article XI:1 of the GATT.
Thus, Vanin and Tristat can argue that the Guide is effectively restricting the importation of watches from
Vanin and Tristat.
38
V.F.
DOHA NEGOTIATIONS
Negotiations on the reduction of tariffs in agriculture and non-agricultural market access (NAMA) are part
of the mandates in the current Doha Round of negotiations.
V.F.1.
NEGOTIATIONS ON NON-AGRICULTURAL MARKET ACCESS
(NAMA)
As set out in the Doha Ministerial Declaration, the current negotiations on NAMA products aim "to reduce or
as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs,
and tariff escalation as well as NTBs in particular on products of export interest for developing
countries" (see box below). Product coverage shall be comprehensive and without a priori exclusions.
The negotiations shall take fully into account the special needs and interests of developing and LDC
Members, including through less than full reciprocity in reduction commitments, in accordance with
the relevant provisions of Article XXVIIIbis of GATT 1994 (Tariff Negotiations) and other relevant WTO
provisions on special and differential treatment (Doha Ministerial Declaration, para. 16).
In addition, Members agreed to launch negotiations aimed at ''the reduction or, as appropriate,
elimination of tariff and NTBs to environmental goods...'' (Doha Ministerial Declaration, para. 31.
In Hong Kong, Ministers reaffirmed the importance of special and differential treatment and less than full
reciprocity in reduction commitments. With regard to modalities for tariff reduction, they agreed to adopt a
Swiss formula with coefficients that satisfy the mandate in paragraph 16 of the Doha Ministerial Declaration.
Members also agreed that developed Members and developing Member in a position to do so will provide
duty-free quota-free market access for at least 97 per cent of products originating from LDCs (Hong Kong
Declaration, Annex F).
39
Non-Agricultural Market Access (NAMA) – Tariff Barriers
At Doha Ministerial, Ministers agreed to launch tariff-cutting negotiations on all non-agricultural products.
The aim is to reduce, or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks,
high tariffs, and tariff escalation, in particular on products of export interest to developing countries (Doha
Ministerial Declaration, para 16).
Tariff Peaks and High Tariffs
There is no agreed definition as to what constitutes a tariff peak or a high tariff, and there were lengthy,
unsuccessful discussions in this respect at the beginning of the Doha Round of negotiations. "National peaks"
refer to relatively high tariffs, usually defined as individual tariff rates that exceed three times the national
import-weighted average rate, while "international peaks" are commonly defined in absolute terms as those
tariffs at 15 per cent and above.
Both absolute and relative high levels of protection usually hint at
sensitivities in those products.
A tariff qualifying as a "national peak" in a country with a relatively low national average tariff might not be a
"national peak" in another country with a higher national average tariff. For example, in some developed
countries, applied tariff rates in excess of nine per cent often qualify as a national peak, whereas in a
developing country a tariff of 24 per cent may not qualify as a peak (because their average is much higher
than that of developed countries).
"Tariff Escalation" occurs when tariff levels increase with the degree of processing. It happens when higher
import duties are applied on semi-processed products than on raw materials, and higher still on finished
products.
This practice discourages the development of processing activity in the countries where raw
materials originate. An example is provided below.
Tariff Escalation
40
TO KNOW MORE... NON AGRICULTURAL MARKET ACCESS (NAMA) – NTBS
Non-Agricultural Market Access (NAMA) – NTBs
As explained above, the Doha Ministerial Declaration mandates also the reduction or as appropriate the
elimination of NTBs.
Discussions between 2002 – 2005 focused in the identification, categorization and
examination of the various NTBs through a notifications-based inventory. The majority of NTBs pertain to
TBT, measures related to Articles VIII and X of the GATT 1994 (now covered by negotiations on trade
facilitation) and SPS measures.
In Hong Kong, Ministers took note that Members were developing bilateral, vertical and horizontal
approaches to the NTB negotiations, and that some NTBs were being addressed in other fora including
other Negotiating Groups. Most importantly, they recognized the need for specific negotiating proposals
and encouraged participants to make such submissions as quickly as possible.
These proposals started
being submitted in 2006.
To know more about the Doha Round of negotiations on NAMA products, please refer to:
http://www.wto.org/english/tratop_e/markacc_e/markacc_negoti_e.htm
The negotiations take place in the Negotiating Group on Market Access (NGMA).
V.F.2.
NEGOTIATIONS ON AGRICULTURAL MARKET ACCESS
In Doha, Members also agreed to negotiations on further substantial reductions in tariffs for agricultural
products (Doha Ministerial Declaration, paras. 13-14).
EXERCISES
7.
Tristat applies a TRQ of 1 metric ton (MT) on paper. What does this mean?
41
APPENDIX 1: EXAMPLE OF A COUNTRY'S APPLIED TARIFF SCHEDULE
Source: United States International Trade Commission, Tariff Information Centre - Harmonized Tariff Schedule
of the United States 2008, SECTION XVI: MACHINERY AND MECHANICAL APPLIANCES; ELECTRICAL
EQUIPMENT; PARTS THEREOF; SOUND RECORDERS AND REPRODUCERS, TELEVISION IMAGE AND SOUND
RECORDERS AND REPRODUCERS, AND PARTS AND ACCESSORIES OF SUCH ARTICLES – Chapter 85 ''Electrical
machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound
recorders and reproducers, and parts and accessories of such articles''.
http://hotdocs.usitc.gov/docs/tata/hts/bychapter/0800c85.pdf, retrieved on 10 January 2008.
General Notes
The schedule has three sub-columns under the ''Rates of Duty'' which contain different tariff rates applicable
to imports from different origins. The "General" sub-column of column 1 sets forth the general or normal
trade relations (NTR) rates which apply to most countries. The "Special" sub-column of column 1 reflects
rates of duty under one or more special tariff treatment programs and countries specified in this column will
receive preferential tariff treatment (normally tariff free).
42
APPENDIX 2: EXAMPLE OF A WTO MEMBER'S SCHEDULE OF TARIFF
CONCESSIONS
This Schedule is authentic only in the English language
PART I – MOST-FAVOURED NATION TARIFF
SECTION II – Other Products
Tariff item
Description of
Base rate of
Bound rate of
Implementatio
number
products
duty (U/B)
duty
n period
INR
Other
duties and
charges
1
2
3
4
5
0301
LIVE FISH
0301.10
ornamental fish
US$10/Tonne (U)
US$5/Tonne (U)
1995/2004
Trout
100%
50%
1995
66% (U)
50% or US$90
1995/2004
6
7
5%
0301.9
0301.91
(Salmo trutta,
Salmo gairdneri,
Salmo clarki,
Salmo
aguabonita,
Salmo gilae)
0301.92
Eels (anguilla
US$5/kg
spp.)
0301.93
carp
66% (U)
50%
1995/2004
0301.99
other:
66% (U)
(U)
2000
43
General Notes
Column 1 (Tariff item number) & Column 2 (Description of products): Reflect the tariff code and product
description used by the Member.
It often refers to the International Convention on the HS which was
established under the auspices of the World Customs Organization (WCO) (former Customs Cooperation
Council) – explained above.
Column 3 (Base rate of duty): This column reflects the starting-point from which the tariff cuts takes place as
part of the Modalities for the negotiations. In the Uruguay Round, Members were also requested to indicate a
"B" (if the tariff line was previously bound), or an "U" if the tariff line was previously unbound. In case of the
latter, the level of the applied rate on 1 September 1986 was chosen as the base period.
Column 4 (Bound rate of duty): This column reflects the final bound rate that would be valid from the end of
the implementation period (if any – Column 5). The final bound level is valid from 1st January of the year
indicated in column 5 (if there are two years, from the latest one) and valid indefinitely until changed through
a new round of negotiations or a GATT Article XXVIII renegotiation.
Paragraph 2 of the Marrakesh
Protocol to the GATT 1994 provides that the reductions shall take place in equal annual reductions, unless
otherwise specified in the Schedule.
Column 5 (Implementation period): This column reflects the year "from" and "to" in which the tariff reduction
will take place. It refers 1st January of the year concerned.
Column 6 (Initial negotiating rights (INRs): Indicates the Members holding initial negotiating rights on the
concession, if any. Rights can be invoked in the context of GATT Art. XXVIII renegotiation of concessions.
Column 7 (ODCs): Inscribed in Members' Schedules according to the “Understanding on the Interpretation of
Art. II:1(b) of the GATT 1994". ODCs can be imposed in addition to the "ordinary customs duty".
44
VI.
SUMMARY
There is a wide variety of measures which influence market access for goods. The two main categories are
tariffs and NTBs.
Both tariffs and NTBs can constitute obstacles to international trade in goods.
The WTO
regulates both of these barriers.
TARIFFS
A tariff or "customs duty" is a financial charge in the form of a tax, imposed on goods transported from one
customs area to another, often from one country to another. Tariffs are the most common and widely used
barrier to market access for goods. The WTO does not prohibit the use of tariffs. However, there is the
obligation on Members to negotiate on tariff concessions and ''bindings''.
During the eight GATT
rounds of trade negotiations from 1947 to 1994, tariffs have been significantly reduced and most tariff lines
have been bound. Negotiations on the reduction of tariffs in agriculture and NAMA are part of the mandates in
the current Doha Round negotiation under the auspices of the WTO.
''Bound'' tariff rates are listed in Members' WTO Schedules of concessions. WTO Members are obliged
to adhere to the bound tariff rates in their Schedules. However, the applied tariff of a particular product (as
reflected in a Member's national tariff schedule) can be different from the bound tariff rate for that product as
specified in the Member's WTO Schedule of concessions. In other words, a WTO Member is free to apply any
tariff level, as long as it is not higher than the bound level recorded in its Schedule.
A negotiated tariff binding may become too onerous to maintain over time due to changing circumstances. In
such cases, a WTO Member is allowed to modify the concessions in its Schedule by using the
renegotiation procedures outlined in Article XXVIII of the GATT provided that the Member compensates
the Members holding special rights (principal supplier, INRs holder and Members with substantial interest).
"Other duties and charges" may be imposed in addition to the "ordinary customs duty". However, for ODCs
to be allowed, they MUST be registered in the Schedule and they must not exceed the level indicated therein.
Thus, if ODCs were not recorded in a Member's Schedule, but are nevertheless levied, they are inconsistent
with Article II:1 (b).
NON–TARIFF BARRIERS (QRS)
Non-tariff barriers can take various forms. These include, in principle, all measures other than tariffs used to
protect a domestic industry. Non-tariff barriers include QRs (such as quotas) and other NTBs (including lack of
transparency in trade regulation, SPS measures and TBT). In this Module, we focused on WTO rules on
QRs (Article XI), administration of QRs and tariff-rate quotas (Article XIII).
Quantitative restrictions are generally prohibited under the WTO because they tend to be less
transparent and more trade-distorting than tariffs. Thus, the only protective barriers that WTO Members can
institute or maintain are "duties, taxes or other charges" compatible with the GATT rules. The non-exhaustive
list of measures in Article XI:1 indicates that any measure having an effect similar to those noted in
Article XI:1 might be prohibited.
It should, however, be recalled that there are exceptions to this general
principle.
45
Where authorized by the GATT, QRs must however be imposed on a non-discriminatory basis in
accordance with Article XIII of the GATT.
In other words, the Member imposing the QRs is not allowed to
favour any country over another. The Member is expected to impose them across the board.
Contrary to QRs, Tariff-rate quotas (TRQs) are allowed.
TRQs constitute predetermined quantities of
goods which can be imported at a "preferential" rate of customs duty ("in quota tariff rate").
TRQs are
different from QRs in the sense of GATT Article XI because once the TRQ has been filled, one can continue to
import the product without limitation (although at a higher tariff rate - "out-of-quota tariff rate"). The rules on
the non-discriminatory administration set out in Article XIII apply to TRQs as well.
The current Doha Round Negotiations on NAMA aim to reduce or as appropriate eliminate tariffs as well as
NTBs in particular on products of export interest for developing countries.
46
PROPOSED ANSWERS
1.
A tariff or customs duty is a financial charge in the form of a tax, imposed on goods transported from one
customs to another (often from one country to another). Tariffs can also be imposed on exports. A tariff
schedule refers to the combination of a structured list of products description and their corresponding
customs duties. Most national tariff schedules reflect the structure in the HS.
2.
A bound level of the tariff is the maximum level of customs duty to be levied on products imported into a
Member. A bound tariff can differ from an applied tariff as a Member can apply a different (lower) tariff
than the one it committed to apply as a maximum.
Thus, Members can apply lower customs duties
("applied tariff level") but they cannot apply customs duty at a level higher than the one indicated in their
WTO Schedule of tariff concession (bound tariff level).
3.
(1) The principle of reciprocity and mutual advantage;
(2) the MFN Treatment obligation; and,
(3) predictability
The principle of reciprocity and mutual advantage requires that, where a Member requests another
Member to reduce its tariffs on certain products, it must also be prepared to reduce its own tariffs on
products of export interest to the Member to whom the request is made. However, the reciprocity and
mutual advantage principle does not apply in the same manner to negotiations between developed and
developing Members. For example, according Article XXXVI:8 of the GATT, developed Members should
not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs
and other barriers to the trade of developing Members.
The MFN principle requires that any tariff
reduction a Member grants to any country must be extended to all WTO Members immediately and
unconditionally. Finally, security and predictability in trade in goods are achieved through the periodic
rounds of negotiations and the commitments embodied in the "binding of tariffs" made during these
negotiation rounds.
4.
Yes. Tristat can apply a tariff different from the one listed in its WTO Schedule of tariff concessions in two
circumstances.
(1) Tristat may have an applied tariff not higher than the bound tariff in its Schedule. However, if Tristat
offers a lower rate to Vanin for example, it must apply this rate to all Members.
(2) Tristat may charge a higher tariff than the bound rate in its Schedule to any non-Member, such as
Rauritania, since WTO obligations do not extend to non-Members.
5.
No. Tristat may, in addition to tariffs, also charge:

"Other duties and charges," if they are listed in its Schedule;

internal taxes (i.e. Value Added Tax);

trade remedy measures (i.e. countervailing or anti-dumping duties), subject to the conditions
provided in the relevant WTO Agreements for the application of such measures; and,

6.
customs fees for services rendered.
First, the renegotiation of any tariff concession requires compensating the exporting Members. In other
words, to seek to increase a particular tariff binding, the requesting Member must negotiate with
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interested Members and agree to compensate, that is to decrease tariff binding(s) on another item or
other items. According to Article XXVIII, Members who are entitled to participate in renegotiations are
those ''Members primarily concerned'' which include Members with "Initial Negotiating Rights'' (INR
Members) and Members having a "Principal Supplying Interest (PSI). The requesting Member should also
consult with Members that have a ''substantial interest'' in a concession if one wishes to withdraw or
modify a concession.
Second, the WTO Members participating in the renegotiation of the concession
''shall endeavour to maintain a general level of reciprocal and mutually advantageous concessions not less
favourable to trade than that provided for in this Agreement prior to such negotiations.''
7.
Tariff-Rate Quotas allow for a two-tiered administration of customs duties. A predetermined amount of a
given product can be imported at a "preferential" rate.
Once that amount has been exceeded, all
additional imports are subject to a higher rate (usually the MFN or "bound" rate). In reality there is no
maximum limit on imports.
In our example, Tristat has a TRQ of one MT on paper. Paper from zero to one MT can be imported at a
preferential rate of, for example, two per cent (in quota bound duty). When the one MT quota is filled,
paper can be imported at the MFN rate, for example, ten per cent (out-of-quota bound duty). However,
there is not restriction on the quantity of paper than can be imported.
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