The Schedules are documents produced by the member countries of the World Trade Organization in which they list the obligations they have accepted on
In the case of developed economies, their GATT schedule of bindings on goods covers most of the customs tariff, because on average 99% - by value - of imports are under bound tariffs. The corresponding proportion in developing countries is 61 percent of the value of imports. Both developed and developing countries have bound 100% of their tariff lines on agricultural products.
A much lower proportion of services imports are covered by bound market access conditions listed in the GATS schedules.
The obligations listed in the schedules are an important part of the contract that lies behind membership of the WTO. They comprise an individual contractual undertaking by each WTO member country to provide every other member country with the specified benefits.
The contract is expressed by saying that the provisions of the schedules are "bound" against any alteration that would result in reduced benefits to other WTO members. The party maintaining the binding runs the risk of losing equivalent benefits in other markets should they fail to honor this contract.
Members of the WTO need not be "sovereign" states. Like the GATT, the WTO requires only that members should be governments in control of a customs territory. Hong Kong, for example, which is a territory of China is a full member of the WTO and was formerly a member of GATT. To make this distinction clear, we will speak of "economies" that are members of WTO.
Although membership of the WTO provides many benefits to an economy, the obligations contained in the Schedules of other members are among the most important. The benefits of the WTO include, for example, the provisions for binding settlement of disputes, based on the application of the WTO rules, which is a significant benefit for all economies. But the key to the progressive liberalization of trade, which is an overriding objective of the WTO, is the bindings recorded in the schedules. The schedules not only record the undertaking of members to keep their markets open, they also provide a starting point for future trade liberalizing negotiations.
This central role of the Schedules is specified in Article II of the GATT and Article XX of GATS, which make the country schedules "an integral part" of the Agreements.
[back to top]All members of the WTO negotiated a schedule of obligations when they first joined the WTO. For most members this was a schedule that encompassed the results of negotiations in the Uruguay Round.
Countries that were formerly members of the GATT - that is, most WTO members - updated their old GATT tariff schedules with the results of the negotiations, and added new schedules of services and agriculture obligations. It is important to note that, in contrast to the GATT - where some former colonies of GATT members were able to join the Agreement without lodging a schedule of commitments - all WTO members must have a schedule.
Economies that have acceded to the WTO since the end of the Uruguay Round are required to negotiate a schedule "from scratch" as part of the accession process. This is the same procedure that formerly applied to economies acceding to the GATT.
When an government seeks to join the WTO, it drafts a "memorandum" - normally with the assistance of the WTO Secretariat - in which it proposes membership and offers to bind trade access to its market for specific products and services. This offer forms the basis for the initial WTO schedule of the economy. The WTO Council appoints a working group to discuss the offer with the government and to make a recommendation to the Council on whether the government should be invited to join the WTO. Meanwhile, members of the WTO will undertake negotiations with the government, usually seeking improvements or changes in the proposed schedule.
The objective of these negotiations is to strike a reasonable "balance" of benefits between the acceding economy and the current WTO membership. The acceding economy benefits from contractual rights to the access provided in the schedules of the current members of WTO: the current members secure new access rights in the market of the acceding country, frequently including reductions in access barriers. Once a satisfactory balance is struck, the Council decides on accession.
This pre-negotiation of the WTO schedule may take some time and require extensive changes to the legislation and regulations of the acceding country as it brings its trade policies into conformity with the provisions of the WTO.
[back to top]Bindings are intended to be permanent "ceilings" on the level of access to a market, but they are not immutable. When the WTO undertakes negotiations to reduce protection, the negotiations focus on the bound rate of tariff or the bound level of market access provisions and other policies affecting trade in services.
The GATT"s success in reducing tariff rates from higher than 40% averages to less than 5% averages is a record of reduced bound rates of tariff.
A member may decide that the withdrawal or modification of a binding is necessary, for example
Both GATT and the GATS require that the member changing the binding consult with members whose exports are affected by the change of binding in order to reach agreement on measures that would compensate affected parties for the change in binding.
For more information on the rules for the modification of schedules see the topics on Modification of GATT Schedules and Modification of GATS Schedules.
[back to top]In effect, whether the member country has recently joined the WTO or was a member of the former GATT, country schedules are likely to be the result of a negotiation and to be changed only in negotiations.
Even if the occasion of the change is not part of a formal round of negotiations, the rules require consultation and negotiations in almost all cases where a binding may be breached.
Although many bindings are the result of a bilateral negotiation or a negotiation where requests and offers were exchanged between the participants, this is not the only "negotiating" context in which bindings are make.
Many schedules from the Uruguay Round, for example, reflect the application of an agreed target for cuts to tariffs on agricultural products -- and an agreement that all reductions would be bound. Sometimes there were also bilateral negotiations on the reductions agreed: but not in all cases. The schedules of bound cuts to Total Aggregate Measures of Support (Total AMS) were created by each participant in the Uruguay Round and subject to some verification by other participants that the cuts achieved the agreed targets. But in most cases the bound rate was established "unilaterally".
[back to top]It is not necessary to bind tariffs in order to achieve the benefits of a tariff reduction and a bound tariff or services access provision is not sufficient in all cases to achieve trade liberalization.
This point is frequently misunderstood. Bindings are a contract between governments: they are not essentially trade liberalizing. Normally, a binding applies to a reduction in the rate of a tariff or a measure opening up a services market. But the binding adds nothing - in economic terms - to the effects of the liberalization. A 30% cut in a tariff rate will have the same incidence - reducing the tax effect on consumers/users of a product and cutting protection to domestic industry - whether it is bound or un-bound. The binding is not necessary for liberalization and, in most countries, the most dramatic market liberalization measures have been taken outside negotiating frameworks on a unilateral basis and not bound.
The reason a bound tariff is more valuable to trading partners - and even to domestic businesses - is that the government will find it more difficult to increase the tariff in the future. Binding brings stability to a government"s trade policy. But the binding does not make the tariff cut more liberal.
Many countries have bound large numbers of tariffs or have bound services access provisions without making any reduction in the incidence of the tariff or services access barriers. The WTO Agriculture Agreement, for example, required all participants to bind 100% of their agriculture tariff rates, whether or not any individual rate was reduced. The target reduction was averaged over groups of tariff lines, which meant that some individual lines were not cut at all, while others were cut by more than the average rate.
It is also possible that a binding can be made or retained at a rate that is more protective than t he "operative rate" or the "applied rate" (these two terms mean the same thing - the rate of tariff that is actually charged when a good clears customs).
In the Uruguay Round, many developing countries were permitted to adopt ceiling bindings on agricultural products in order to meet the requirement for 100% bound rates. These "ceiling" rates were often 100% or 50% - which means that a tariff of 100% of the value of the import (or 50% of the value) is the "legal" rate in the schedule. But the operative rate may be lower: say 30%. The reduction commitments that these countries accepted - commitments that operate on the bound rate of duty - will apply to the ceiling rate of duty and not to the operative rate. Of course, if the ceiling rate exceeds the operative rate by more than the margin of reduction, there will be no liberalization due to the reduction commitments. In future negotiations, too, these countries will be able to start from the ceiling rate of duty in any exchange or application of tariff liberalization formulae.
[back to top]A breach of a binding occurs if, for any reason, a member economy fails to live up to the contract implied in its Schedules. For example, if a member increases a tariff or levies a charge that has the effect of reducing the value of a binding or eliminating the value altogether (the jargon term is "impairing or nullifying" the value of the binding).
Article II of the GATT specifies that the binding obligation with respect to tariffs means that goods imported from another member country
"…shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided for therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with importation in excess of those imposed on the date of this Agreement…".
Examples of other charges which have been found to breach a bound tariff include excessive customs clearance or inspection fees and markups on imported goods by state-authorized trading companies that contributed to higher than normal profits by the company.
Breaches of bindings are considered a "prima facie" basis for a dispute resolution case and have been the subject of many GATT decisions.
Bindings may be breached, temporarily, without penalty under defined circumstances
In all of these cases, the binding remains in the schedule as a valid binding, but it is temporarily set aside under particular provisions of the GATT or GATS. Cases (a) and (b) involve non-discriminatory action. Case (c) may, and (d) always involves action to temporarily increase protection on a discriminatory basis affecting imports from particular WTO members.
It is important to note that in every case the rules provide for reinstatement of the binding after a short period or "compensation" for affected contracting parties should the change be permanent.
A binding, like other WTO obligations, may be subject to exceptions in specified circumstances. The general exceptions of Article XX of GATT permit WTO members to breach their obligations for compelling reasons such as public health, safety or order or to conserve scarce natural resources. Article XXI of the GATT provides for such breaches for national security purposes.
The GATS Agreement provides similar exceptions in Article XIV. However it also provides a specific exception to national treatment obligations - which appear only in the schedules under GATS -
"aimed at ensuring the equitable or effective imposition or collection of direct taxes in respect of services or service suppliers of other Members".
The exceptions provision of the GATS also permits the use of policies inconsistent with the MFN obligations in Article II of GATS where the discrimination results from -
"an agreement on the avoidance of double taxation or provisions on the avoidance of double taxation in any other international agreement or arrangement by which the Member is bound".
This provision is in addition to the temporary MFN exemptions permitted under the Annex to the GATS on Article II (MFN) Exemptions (see below).
A provision of the Agreement Establishing the WTO (Article IX.3 on Decision-making) gives the General Council of the WTO the power in "exceptional circumstances" to waive an obligation of any member if approved by a three-fourths majority of members.
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Industrial |
Developing |
Transition |
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|
Imports under bound rates pre UR (%) |
94 |
13 |
74 |
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Imports under bound rates post UR (%) |
99 |
61 |
96 |
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Outcome of the UR |
|||
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Already bound duty free (%) |
18 |
1 |
12 |
|
Bindings with reductions (%) |
64 |
32 |
76 |
|
Bindings without reductions (%) |
3 |
26 |
1 |
|
No offer (%) |
16 |
42 |
10 |
Source: GATT (1994)
[back to top]In most member economies, bindings under GATT and GATS affect only part of their imports of goods and services. One challenge is to define which goods and services are covered by a binding and which are not.
In the case of goods trade, the classification of imports uses a detailed and well-established system of tariff item descriptions.
The task of classification is more difficult in the case of services trade.
A tariff nomenclature is a system of classifying goods that are moved across customs borders - although in practice governments use it more often for classifying imports than exports. The system of descriptions used by almost all economies in the WTO is the so-called "Harmonised" system of tariff nomenclature, which was introduced by the members of the World Customs Organization in 1984.
These product descriptions are classified (organized) by a series of 8 or 10 digit numbers. The first 6 digits of each number used to describe a product are guaranteed to be the same as the first six digits of the number used to describe that product (or product group) in every other economy using the harmonised system.
The digits are normally grouped: the first two digits are often used as "chapter" headings in the tariff - broad tariff groups such as "electrical machinery" or "fish products". The first four digits, however, normally appear grouped together with standard descriptions applying to each group.
The remaining digits - those after the sixth place that describe distinctions between products in the six digit group - may vary from country to country. Many countries use the "variable" number groups after the eighth digit for statistical purposes and may use an individual system of statistical codes.
Without this standard set of product descriptions it would be difficult, if not impossible, to conduct detailed trade negotiations. Importers and exporters would be much less certain about the conditions of access to particular markets and would find it much more difficult and expensive to obtain international statistical and market information.
The GATS schedules look very different than the GATT schedules, for two reasons: the services schedules contain a less detailed numerical classification of services than the Harmonised System of tariff classifications and they must deal with the various form of access to services markets.
Classification. Services are much more diverse and difficult to classify than physical goods. In place of the thousands of tariff lines that might be found in a GATT schedule, the GATS schedules employ a standardized description: the United Nations Central Product Classification (CPC) system, which identifies 12 basic service sectors, subdivided into about 160 sub-sectors or separate service activities. For example, the tourism category is divided into sub-sectors for hotels and restaurants, travel agencies and tour operators, and tourist guide services
The GATS schedules must also provide for the different means by which services markets are accessed. Article 1 of the Agreement classifies services by four modes of supply
Temporary MFN exemptions that may apply to services listed in the schedules, are recorded separately from the schedules themselves. These exemptions could provide some members of GATS with more favourable terms of access than the terms specified in the schedule.
Such measures must have been specified in a list of MFN Exemptions submitted by the end of the Uruguay Round or by the conclusion of extended negotiations on certain sectors for which the delayed submission of related exceptions was expressly authorized. Subsequent requests for exemptions from Article II (MFN) can only be granted under the waiver procedures of the Agreement establishing the WTO.
In contrast to the complex nature of the GATS schedules of commitments, the MFN Exemption lists are largely self-explanatory and are structured in a straightforward manner. In order to ensure a complete and precise listing of a country"s MFN exemptions, each country is required to provide five types of information for each exemption:
It is a basic principle of the Agreement that specific commitments are applied on an MFN basis. Where an exemption applies, therefore, to an item that already appears in the schedule, the effect can only be to permit more favourable treatment to be given to the country to which the exemption applies than is given to all other Members. Where there are no commitments in the GATS schedule, however, an MFN exemption may also permit less favourable treatment to be given. It is not necessary to list measures providing for preferential liberalization of trade in services among Members of economic integration agreements, such as Free Trade Areas; such preferential treatment is permitted under Article V of the GATS and must meet the criteria laid down in that Article.
[back to top]The various national schedules of the WTO (four GATT schedules and the GATS schedule) are incorporated into the WTO agreements. The member government commitments that they record therefore have equal weight with the other provisions of the treaties - such as the provisions of the articles themselves.
A closer reading of Article II of GATT| The Article | Comments |
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1. (a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement. (b) The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date. (c) The products described in Part II of the Schedule relating to any contracting party which are the products of territories entitled under Article I to receive preferential treatment upon importation into the territory to which the Schedule relates shall, on their importation into such territory, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided for in Part II of that Schedule. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with importation in excess of those imposed on the date of this Agreement or those directly or mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date. Nothing in this Article shall prevent any contracting party from maintaining its requirements existing on the date of this Agreement as to the eligibility of goods for entry at preferential rates of duty. |
The first provision of Article II requires that members give effect to non-discrimination through the "appropriate" schedules. The reference is to the dual MFN and preferential schedules that were a feature of the early years of GATT and were the subject of special provisions in Article 1 of GATT. The preferences usually reflected colonial trade arrangements. Bindings on these preferences were rare, however, and the preferences were progressively reduced or eliminated during subsequent GATT trade negotiating rounds. The formula of "treatment no less favourable" ensures that the obligation applies to conditions that might have appeared in the Schedules - such as the variation that occurs in a "seasonal" tariff on some food and horticultural product. The Article is explicit that other duties and charges not necessarily specified in the schedule are fixed by the binding commitment at the actual levels on the date of the Agreement or at levels imposed be legislation existing on that date. The provision on other duties and charges was elaborated during the Uruguay Round to require the explicit incorporation of the charges into the schedules |
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2. Nothing in this Article shall prevent any contracting party from imposing at any time on the importation of any product: (a) a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III*in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part; (b) any anti-dumping or countervailing duty applied consistently with the provisions of Article VI;* (c) fees or other charges commensurate with the cost of services rendered. |
Some duties not in the schedules may be levied without a breach of binding. Members may levy a direct tax, such as a VAT tax, on imports as long as the rate of the tax is identical to the rate on domestic products. Anti-dumping duties, countervailing (anti-subsidy) duties and fees for customs inspections may be charged. There are detailed rules in Article VI governing the application of dumping charges and dispute settlement cases. |
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3. No contracting party shall alter its method of determining dutiable value or of converting currencies so as to impair the value of any of the concessions provided for in the appropriate Schedule annexed to this Agreement. |
Valuation is crucial in the determination of an ad valorem duty. The benefit of a binding can be eliminated by an arbitrary or unfair valuation. The Uruguay Round adopted a detailed Agreement on Customs Valuation, elaborating the procedures to be followed. |
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4. If any contracting party establishes, maintains or authorizes, formally or in effect, a monopoly of the importation of any product described in the appropriate Schedule annexed to this Agreement, such monopoly shall not, except as provided for in that Schedule or as otherwise agreed between the parties which initially negotiated the concession, operate so as to afford protection on the average in excess of the amount of protection provided for in that Schedule. The provisions of this paragraph shall not limit the use by contracting parties of any form of assistance to domestic producers permitted by other provisions of this Agreement |
State-designated trading enterprises that are given import monopoly powers may affect the value of a binding in a number of ways, particularly by adding a "mark-up" to import prices. Article XVII of GATT and the findings of disputes panels detail the obligations of state-trading importers in this respect. An Understanding reached during the Uruguay Round requires that members report to GATT on the activities of these enterprises. |
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5. If any contracting party considers that a product is not receiving from another contracting party the treatment which the first contracting party believes to have been contemplated by a concession provided for in the appropriate Schedule annexed to this Agreement, it shall bring the matter directly to the attention of the other contracting party. If the latter agrees that the treatment contemplated was that claimed by the first contracting party, but declares that such treatment cannot be accorded because a court or other proper authority has ruled to the effect that the product involved cannot be classified under the tariff laws of such contracting party so as to permit the treatment contemplated in this Agreement, the two contracting parties, together with any other contracting parties substantially interested, shall enter promptly into further negotiations with a view to a compensatory adjustment of the matter. |
Reclassification of goods within a tariff may effectively remove the benefit of a binding. Reclassification may be subject to disputes settlement procedures. |
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6. [Provision on exchange rates for the calculation of specific duties] |
Relates to the regime of fixed exchange rates that existed in 1947. It is no longer operative. |
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7. The Schedules annexed to this Agreement are hereby made an integral part of Part I of this Agreement. |
The incorporation of the national schedules into the GATT is a provision of Article II of the GATT. |
Because bindings listed in the schedules are such a fundamental part of the WTO, many developments in trade and trade policy over the fifty years of the GATT have affected the provisions of Article II. During the Uruguay Round, participants in the negotiations decided on a number of new interpretations of GATT provisions relating to bindings and to matters such as customs valuation and the procedures for the renegotiation of bindings
As we saw, paragraph 1(b) of Article II requires that "ordinary customs duties" not be higher than the levels specified in the national schedules. In practice, however, imports are sometimes required to bear other duties or charges, before being cleared through customs. These duties or charges were not in the past recorded in schedules so that, although charges had been bound against increase, the schedules themselves did not say exactly what trade barriers imports would face. The new agreement provides that duties and charges other than customs duties that were imposed at the border on imports and exports of each product as of 15 April 1994 should be included in each country"s schedule, and should be bound at that level. The effect will be both to increase the transparency of each country"s border protection and to reduce the likelihood of these duties and charges being increased in future.
This agreement deals with the definition of state-trading enterprises, and transparency of their activities. Article XVII of GATT ensures government-owned enterprises, or enterprises that have special privileges granted by the government, are not permitted by this privileged situation to escape the GATT rules of non-discrimination (the MFN and national treatment rules). The Article does not cover purchases by governments for their own use: this is beyond its scope. State trading enterprises must not distort trade by favouring particular suppliers, restricting quantities imported or exported, by subsidizing exports, or by fixing high prices for example by adding an unusually large "mark-up" to import prices. The understanding designates as "state trading enterprises" both governmental and non-governmental enterprises, including marketing boards, which through the exercise of exclusive or special rights or privileges granted to them influence through their purchases or sales the level or direction of imports or exports. These enterprises must be notified to the WTO.
The GATT obliges members to apply tariff bindings, recorded in the schedules, on a non-discriminatory (MFN) basis to all other members. GATT Article III also requires that all imported products that enter a market must be assured treatment - for example by regulations - on the domestic market that is "no less favorable" than the treatment of like domestic products. This is the "national treatment" principle.
Although both the MFN and national treatment principles appear in GATS, they are implemented in a different manner than in GATT
These provisions are reflected in the GATS schedules.