There are two continuing administrative tasks associated with GATT (and GATS) schedules: dealing with modifications of the bindings and consolidating existing "loose-leaf" schedules into a single, up-to-date schedule that can be used as an authoritative reference for WTO obligations.
[back to top]When a member of WTO wishes to modify a bound tariff or to withdraw a bound rate a binding for any reason, it is obliged to enter negotiations with affected trading partners with a view to reaching agreement on "mutually advantageous" alternative arrangements (Article XXVIII.2). These arrangements will often comprise new bindings in other tariff rates - possibly in the tariff items that will apply to the same products after the modification of the schedule - with similar commercial value to the bindings that are to be modified or withdrawn.
These negotiations will normally be conducted among a relatively small number of countries. One of these is, of course, the importing country that is considering changing a bound tariff rate. The other countries, described in the GATT as the members "principally concerned" in such a negotiation are
The initial negotiator: the government that originally obtained the tariff binding in return for concessions of its own
Principal suppliers: countries that in recent years may have become larger exporters of that product, to the market concerned, than the initial negotiator
Countries with less direct trade interest that nevertheless have a"substantial interest" in the market to which the tariff binding applies
The GATT provides that these groups of countries have rights, defined by Article XXVIII, when a bound tariff rate is changed. An understanding reached in the Uruguay Round extended and clarified these rights, extending the rights of countries that are especially dependent on a particular market, even where they would not have qualified for rights under the terms of Article XXVII.
[back to top]The procedures for modification or withdrawal of GATT bindings are contained in Article XXVIII of the GATT.
Modifications of a GATT (or GATS) schedule occur for a variety of reasons. Some of the most common are:
Simplification of the tariff schedule. Governments often prefer to maintain a relatively small number of "ranges" in their tariffs in order to avoid creating artificial incentives for investment or production of particular products within an industry due only to small variations in the levels of import protection. Also, a small range of tariffs with "integer" values simplifies the task of Customs agencies in assessing duty payable at the border.
Changes in tariff descriptions resulting in reclassification of goods.
Trade negotiating "rounds" are the source of major revisions in GATT schedules. Many changes are the result of bilateral negotiations conducted during a trade round and some are the result of tariff or other "formulas" applied by all participants to their schedules. For example, the terms of the Uruguay Round Agreement on Agriculture required all participants to create (if necessary) and bind tariffs covering all items in Chapters 1 through 24 of the Harmonised system classification.
Policy changessuch as a decision to vary the level of protection ("industry assistance") given to a particular industry may also result in a need to modify or withdraw a binding. If a government decides for any reason to increase the level of import protection for producers in an industry, the higher level of protection may involve a breach of a tariff binding. The GATT requirement that any breach of a binding should be compensated by equivalent concessions elsewhere in a tariff schedule - implying reduced import protection for some other industry - acts as a disincentive to governments considering such policy changes.
Article XXVIII obliges any member of WTO that wishes to modify or withdraw a binding to enter into negotiations with other parties "primarily concerned" with the objective of maintaining
"…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
The term "mutually advantageous" is a common formula in the language of the Treaties. In this case it denotes almost any outcome of the negotiations acceptable to the "parties concerned" - the details of which do not concern the GATT - as long as the outcome is "not less favourable to trade".
If the "parties primarily concerned" are unable to reach agreement, then the Member proposing to modify or withdraw a binding is free to do so, but the other parties are also authorized to withdraw equivalent rights and concessions "initially negotiated with the [party withdrawing the binding]". The effect of this "tit-for-tat" action is to re-establish a balance of trade rights between the parties.
Of course, the threat of possible "tit-for-tat" withdrawals in tariff lines of the other parties" choosing is a powerful incentive on the member proposing to withdraw or modify its bindings to reach negotiated agreement with the other parties.
Article XXVIII attempts to ensure that the Council of the GATT retains control of the frequency of tariff re-negotiations by providing a regular three year cycle for negotiations. But most members avail themselves of the provision in Article XXVIII.5 to "reserve their rights" to introduce new proposed modifications of their schedules at any time during the next three-year cycle.
Note that improvements or additions to any country"s GATT schedule may be made at any time on a unilateral basis. There is no requirement to enter negotiations with trading partners in order to offer them a non-reciprocated binding. Member countries have little incentive, however, to do this since an unbound tariff reduction will win them the same economic benefits as a bound tariff reduction without affecting the balance of benefits they derive from GATT membership.
The Uruguay Round Understanding on Article XXVIII of the GATT clarifies some aspects of the rights of members to compensation when a tariff binding is withdrawn or modified in a way that reduced the benefits to them. Under the GATT rules, the right to compensation for loss of the benefits of a tariff binding is largely reserved to countries that have a recognized status as the initial negotiators or principal suppliers of the product concerned
The Understanding recognizes that, for some supplying countries, a small share in the market for the product concerned may be of great economic importance. The change should benefit the smaller WTO members, and particularly developing countries. Under the new rule, the WTO member whose exports are proportionately most vulnerable to a change in a tariff binding will be recognized as having an additional principal supplying interest, and therefore the right to negotiate for compensation, if it does not already have the benefit of being the initial negotiator or principal supplier.
This status will be established on the basis of evidence that the supplying member concerned has the highest ratio of exports affected by the concession (that is, exports of the product to the market of the member modifying or withdrawing the binding) to its total exports. Experience of the new rule will be reviewed after five years, and if it has not worked satisfactorily in giving greater negotiating rights to smaller suppliers, improvements may be made.
The understanding also clarifies several technical points on Article XXVIII negotiations, such as how to establish negotiating rights when new products are affected by withdrawals of tariff bindings, or when an unlimited concession is replaced by a tariff quota.
[back to top]From the time when it joins the WTO, when its GATT and GATS schedules become part of its "Protocol of Accession" to the treaties, a member"s schedule may undergo progressive modifications.
These modifications are notified to the WTO as they occur, in accordance with the requirements of GATT and GATS, and become part of the member"s schedule of commitments. The physical "schedule of commitments" for any member country frequently consists, therefore, of a series of notifications modifying an earlier document which may itself be a notification of a modification of earlier schedules.
These "loose leaf" schedules are a potential source of confusion for anyone seeking to understand the precise terms of the commitment of any country on a particular tariff line or GATS services sector. Each modification must be traced back to its origins to fully appreciate the historical obligations including "initial negotiator" rights.
Most former members of GATT, when they joined the WTO in 1994 lodged a WTO schedule incorporating a GATT schedule that was already a folder of complex "loose leaf" modifications to historical schedules. Subsequent modifications - e.g. to take account of the Harmonised System changes in 1996 - have added to the complexity of the schedules in many cases.
Governments are attempting to "consolidate" these complex documents into a single reference document recording all existing obligations in the same place. Digital storage of the information, in databases or even in readily updated text documents, makes this task more feasible than it has been in the past. To date, a small number of developed countries and some developing countries with relatively simple schedules have achieved consolidation of their schedules.
[back to top]Members may not modify any undertaking in their GATS schedules for three years after the date on which it entered into force and must give three months notice of their intention to modify any item.
The provisions for modification of GATS schedules are slightly more onerous than those applying to the modification of GATT schedules under Article XXVIII of GATT. For example, there is no categorisation of affected members according to Initial Negotiator Rights. Under GATS, any member may be considered an "affected member".
Members wishing to modify an item in their GATS schedule must attempt to reach a negotiated agreement with "affected members" on a "mutually advantageous" alternative arrangement that compensates affected members for their loss of rights as a result of the modification.
If, however, no agreement is reached, any affected member may refer the matter to arbitration to "enforce a right it may have to compensation" (GATS Article XXI.3(a)).
The modifying member may not proceed with the modification until it has made compensatory adjustments in accordance with the finding of the arbitration. There is a penalty for proceeding without fulfilling the terms of an arbitration (GATS Article XXI.4(b)): any affected member that participated in the arbitration may withdraw equivalent benefits (on a discriminatory basis).