Why tariff bindings are important

Importers and exporters depend on stable tariff policy. If a tariff lowered during a WTO negotiating round could be unilaterally raised again later, the concession would have little or no value to foreign or domestic producers.

An exporting firm will be reluctant to pursue new markets if the treatment afforded to products it intends to export is uncertain. This is especially true if taking advantage of the lower tariff requires investment in plant, equipment and distribution network, investments that would become unprofitable if the tariff were raised.

For domestic producers, the fact that the national government might subsequently raise a tariff also creates uncertainty, not only for the firms that use the import as an input into their own production, but especially for export-oriented firms that have to compete for human and financial resources with import-competing firms.

This is why "bindings" are important. When a country agrees to bind a tariff at a certain level in GATT it commits itself not to increase the tariff above that level except by negotiation with compensation for affected trading partners. The binding applies both to the tariff rate and to other duties and charges that might be applied to this tariff item.

Binding is considered so important that countries that agree to bind previously unbound tariffs are given "negotiating credit" for the decision even if the tariff is bound at a level above the currently applied level. This practice is known as a "ceiling binding" and has been used by many developing country participants in the Uruguay Round.

WTO members are required to published ‘schedules’ of bound commitments covering

• trade in agricultural products: agricultural tariffs, export subsidies and domestic support and service activities,
• tariff levels for industrial goods,
• other duties and charges, and
• non-tariff measures affecting trade in industrial products.

WTO rules ensure that members’ trade measures do not undermine tariff bindings. In the area of goods, these include

• limits on the use of anti-dumping and countervailing duties
• limits on fees and other charges for customs services
• prohibition of quantitative restrictions
• a requirement to grant national treatment (non-discriminatory treatment) to imported goods once they have entered the customs territory of the importing country.