EPRS Admin By / October 27, 2017

Rise in annual average tariffs of all productscountry

Tariff bindings are the second pillar of the GATT system. Tariff bindings imply the commitment not to raise a tariff…

Rise in annual average tariffs of all productscountry

Tariff bindings are the second pillar of the GATT system. Tariff bindings imply the commitment not to raise a tariff beyond a certain ceiling; once bound, the tariff ceiling cannot be modified unless via renegotiation (see below). Tariff bindings are found in the schedule of concessions (Article II GATT) that Contracting Parties negotiate for the different tariff lines (the tariff lines correspond to the product definition to which the tariff is applied). In practice, countries will search for a balance of concessions that allows them to achieve some reciprocity through negotiation (‘negotiations on a reciprocal and mutually advantageous basis, directed to the substantial reduction of the general level of tariffs and other charges on imports and exports’ Article XXVIII bis GATT). Similar countries achieve a similar average tariff level through this practice (see map below). Tariff bindings also ensure a certain stability in the trading system by placing a ceiling on the permitted rise in tariffs. This feature was meant to avoid the escalation in trade tariffs of the pre-war period (see table 14).
Tariff bindings only impose a ceiling – applied MFN tariffs might be lower. The latter means that countries that have higher ceilings can apply higher MFN tariffs. Some countries have not bound all their tariff lines; in the case of an unbound tariff line, the contracting party does not face any limits to the rise in MFN tariffs possible for that particular product. As shown in the tables below, both the EU and the USA have binding coverage at 100 %. Moreover for non-agricultural products, bound tariff rates are equal or between 0-5 % in 65.6 % of tariff lines for the EU and in 74.1 % of tariff lines for the USA. In other words, the capacity of raising tariffs in those tariff lines is particularly limited. Moreover, even when tariffs have higher bound rates, applied tariffs are often close to the bound rates, so that any leeway to raise tariffs further can be rather limited (in technical terms, the ‘average tariff water is small’).


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