from http://www.worldtraderules.com

Guide to Reading WTO Schedules

© Peter Gallagher -- www.worldtraderules.com, 2002

What are the Schedules?

The heart of GATT and GATS

The Schedules are documents produced by the member countries of the World Trade Organization in which they list the obligations they have accepted on

1. The binding of tariff rates
2. The liberalization of services markets
3. The liberalization of agricultural trade: import access, export subsidies and domestic support

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.

Created on accession

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.

Bindings may be changed

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

• In order to realign its tariff or its services market access undertakings when joining a free trade area or customs union. The tariff rates or the services market access conditions applying to imports or services providers from economies that are not in the "free trade area" or the customs union will be less advantageous in some respects than those applying to countries inside the area.
• In order to reduce the number of different rates in the tariff ("tariff simplification")
  
  
• As a result of changes to the system of tariff classification - for example when revisions are issued to the Harmonised System of Tariff Classification
• For reasons of industry policy such as a change to the level of protection or assistance extended to an industry

If the economy with which a binding was negotiated ceases to be a member of GATT (Article XXVII). Only one economy has ever withdrawn from the GATT.

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.

Bindings normally a result of negotiation

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".

Binding and liberalization

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.

Ceiling bindings

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.

Breeches of bindings

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.

Temporary breaches

Bindings may be breached, temporarily, without penalty under defined circumstances

• As part of emergency balance of payments action (Article XII of GATT)
  
  
• By developing countries at an early stage of their development in certain circumstances (Article XVIII C & D of GATT)
  
  
• As part of an emergency safeguard action (Article XIX of GATT) or under the terms of the special agricultural or textiles safeguards
  
  
• As a result of the application of an anti-dumping or countervailing duty (Article VI of GATT)

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.

Waivers and exceptions

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.

Increases in tariff bindings after the Uruguay Round

Source: GATT (1994)

Classification issues

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.

Use of tariff nomenclature (GATT)

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.

Some examples of "Chapter" headings in the HS Tariff

• Agricultural products: predominantly in "chapters" 01 - 24
  
  
• Fish and Fish products: predominantly in "chapter" 03 but also found in 0509, 1504 and 1603-05
  
  
• Wood, pulp, paper and furniture: predominantly in "chapters" 44, 45, 47 and 49 but also in part of "chapter" 48
  
  
• Textiles and clothing: this large group is distributed over many "chapters", particularly 50-63 but some products are also found in "chapters" 65, 65, 66, 70, 87, 88, 91, 94, 95 and 96.

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.

Classification of services (GATS)

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

1. business (including professional and computer) services
2. communication services
3. construction and related engineering services
4. distribution services
5. educational services
6. environmental services
7. financial (insurance and banking) services
8. health-related and social services
9. tourism and travel-related services
10. recreational, cultural and sporting services
11. transport services and
12. other services not included elsewhere

Access

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

• services that are traded across borders - such as telecommunications services
• services consumed abroad by consumers who travel to the service provider such as education and medical services where the student or the patient travels or tourism services
• services that are provided by the provider establishing a commercial presence - a branch office, or an agency or a subsidiary - in the consuming country. Banking and legal services, for example, are frequently delivered in this way. Note that this mode of supply does not necessarily imply that the office established in the importing country is staffed by persons from the exporting country.
• services that depend on the temporary movement of natural persons, such as the management or specialists needed for a branch operation of a service provider (see mode 3) or labour services, for example in the construction or household or nursing services sectors. This mode does not include persons looking for employment in another country, or seeking citizenship or residence. WTO members may regulate the entry and stay of the persons covered by a commitment to provide access under Mode 4 - for instance by requiring visas - as long as the requirements do not prevent their commitments from being fulfilled

Temporary MFN Exemptions under GATS

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:

1. Description of the sector or sectors in which the exemption applies;
2. Description of the measure, indicating why it is inconsistent with Article II;
3. The country or countries to which the measure applies;
4. The intended duration of the exemption;
5. The conditions creating the need for the 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.

The nature of the Contract: GATT Article II

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.

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

Understanding on Article II:1(b)

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.

The Understanding on Article XVII

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.

Application of MFN and national treatment in GATT and GATS

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

• It is possible for members to negotiate and record in their GATS schedules, a temporary exception to MFN treatment of services imports
• National treatment does not apply automatically when service imports access the domestic market. Instead, national treatment is available only when it is provided for a service in a member"s schedule of commitments.

These provisions are reflected in the GATS schedules.

GATT Schedules

The Marakesh Protocol

The Marakesh Protocol is the legal instrument by which each WTO member"s commitments in the Uruguay Round to eliminate or reduce tariff rates and non-tariff measures applicable to trade in goods became an integral part of the GATT 1994. All of the thousands of pages of national schedules, representing the detailed results of the market access negotiations, including specific commitments under the agricultural agreements, were attached to the Protocol. Under the terms of the Protocol"s first paragraph, each individual schedule then became a schedule to GATT 1994 on the date that the country concerned became a WTO member.

In the past, GATT schedules consisted almost entirely of tariff bindings affecting imports on an MFN basis. Following the Uruguay Round, however, the number and size of national schedules expanded rapidly and the schedules record many new types of bound commitments.

GATT schedules now contain details not only of tariffs but also of other commitments to emerge from the Round such as the commitments on reductions in domestic support for agriculture and on reductions in the use of agricultural export subsidies. Every WTO member is required to transform its non-tariff barriers to agricultural imports into tariffs and to bind 100% of them.

The Marakesh Protocol itself contains the rules for applying the agreed concessions and sets the timetable for putting the agreed tariff reductions for non-agricultural products into force. Unless otherwise specified in a schedule, all such tariff reductions agreed to in the Uruguay Round are to be made in five equal annual installments, the first on the entry into force of the WTO agreement, and the remainder on the first of January of each year.

Example: The GATT Schedule of Arcadia

This is an extract from the schedule of an imaginary country: Arcadia. It shows part of the first table in the GATT schedules, Tariffs on Agriculture. This table can be quite long because all agricultural products are now to be protected only by tariff measures and all tariffs on agriculture products are to be bound. Where there is a variety of bound rates, each one appears listed in Section 1 - A of the schedule.

The second schedule in Arcadia"s tariff shows a short extract from the tariff-quotas introduced to ensure minimum levels of market access for all agricultural products as required by the Agreement on Agriculture. The Agreement requires that, for most products subject to tariffication of non-tariff barriers, a tariff quota be created that will permit imports to achieve 4% of domestic consumption by the end of the implementation period. Note that Arcadia has allocated some of these quota rights to Andaman and Bythnia, which thus benefit from guaranteed access at the in-quota rate for a proportion of product. Article XIII of the GATT governs the allocation of agricultural quotas.

The Arcadian schedule of bindings for non-agricultural tariffs is straightforward. It shows the base rate of duty for each product whose tariff rate is to be bound following the implementation of the cuts negotiated in the Uruguay Round. Note that items 4418.20.10 and 4418.20.90 were not previously bound and that the bindings formerly applying to some of the products in this category were negotiated with Bythnia.

The Arcadian schedule displaying commitments limiting subsidization of domestic agricultural production is, like most such schedules, very short. The document referenced in the last column contains most of the data on the calculations of the Total Aggregate Measure of Support. This schedule shows only the ceilings on the level of support which will apply in each year of the implementation period for a developed country - developing countries are required to cut their Total AMS by 13% over 10 years.

Arcadia has made commitments limiting the budget outlays and volume of agricultural export subsidies. These are recorded in Part IV of its WTO schedule.

What does a GATT schedule look like?

The best way to illustrate the schedules is to look at some examples. Here is a set of extracts from the GATT Schedule of an imaginary country, Arcadia.

Where are schedules found?

The best source of information on the schedule of a WTO member is the government of that member. A second source is the WTO, which can provide the latest (unconsolidated) schedule. One difficulty here is that the latest schedule may only record only the changes that have been made to the historical schedule. In order to understand the full implication of the changes, it may be necessary to consult the "earlier editions" of the schedule.

GATS Schedules

The General Agreement on Trade in Services (GATS) comprises several parts. The framework agreement and its Annexes contains the articles of the Agreement. Attached to the framework are the schedules of specific commitments and the lists of exemptions from MFN treatment that have been submitted by member governments.

Requirement to lodge a GATS schedule

The GATS Agreement requires each member to set out the commitments that it has undertaken in a schedule that specifies the

1. terms, limitations and conditions on market access;
2. conditions and qualifications on national treatment;
3. undertakings relating to additional commitments;
4. where appropriate the time-frame for implementation of such commitments; and
5. date of entry into force of such commitments.

The schedules and the exemption lists are integral parts of the Agreement (Article XX of GATS). At the time of signature of the Marakesh Agreement in April 1994 - marking the conclusion of the Uruguay Round - 95 schedules of specific commitments in services and 61 lists of derogations from the MFN principle had been submitted and agreed. The only way to tell what services trade concessions a WTO member has made - and to what extent those concessions are affected by limits on national treatment or by temporary MFN exemptions - is by reference to a it"s GATS schedule, and (where relevant) its MFN exemption list.

The 95 schedules which were attached to the GATS in April 1994 cover 106 current and prospective WTO members.  The European Union"s schedule covers its 12 member States as of that date (Austria, Finland and Sweden submitted schedules separately), and indicates specific commitments at the national level where applicable.

Reading a GATS Schedule

The schedules are complex documents.

A specific commitment in a GATS schedule is an undertaking to provide market access and national treatment for the service activity in question on the terms and conditions specified in the schedule. When making a commitment a government binds the specified level of market access and national treatment and undertakes not to impose any new measures that would restrict entry into the market or the operation of the service. Specific commitments thus have an effect similar to a tariff binding - they are a guarantee to economic operators in other countries that the conditions of entry and operation in the market will not be changed to their disadvantage.

As in the case of GATT schedules, services commitments can only be withdrawn or modified after the agreement of compensatory adjustments with affected countries, and no withdrawals or modifications may be made until three years after entry into force of the Agreement. Such modifications of commitments may not affect the application of most-favoured-nation (MFN) treatment.

Commitments can however be added or improved at any time.

The national schedules all conform to a standard format which is intended to facilitate comparative analysis.

The commitments and limitations are in every case entered with respect to each of the four modes of supply which constitute the definition of trade in services in Article I of the GATS: these are cross-border supply; consumption abroad; commercial presence; and presence of natural persons (see above)

For each service sector or sub-sector that is offered, the schedule must indicate, with respect to each of the four modes of supply, any limitations on market access or national treatment which are to be maintained.

A commitment therefore consists of eight entries which indicate the presence or absence of market access or national treatment limitations with respect to each mode of supply. The first column in the standard format contains the sector or subsector that is the subject of the commitment; the second column contains limitations on market access; the third column contains limitations on national treatment. In the fourth column governments may enter any additional commitments which are not subject to scheduling under market access or national treatment.

In nearly all schedules, commitments are split into two sections: First, "horizontal" commitments which stipulate limitations that apply to all of the sectors included in the schedule; these often refer to a particular mode of supply, notably commercial presence and the presence of natural persons. Eighty-seven countries that submitted schedules in April 1994 indicated limitations to commitments that apply to all sectors in their schedule under "Horizontal commitments".

In the second section of the schedule, commitments which apply to trade in services in a particular sector or subsector are listed.

Example: The GATS Schedule of Arcadia

The following is a brief extract from the GATS schedule of Arcadia.

Modes of supply:

(1) Cross-border supply (2) Consumption abroad (3) Commercial presence (4) Presence of natural persons

The services schedule of "Arcadia" is divided into two parts with four columns each.

Part I lists "horizontal commitments": in other words, provisions that apply to foreign suppliers of any service that has been scheduled. In Arcadia"s case, any foreign service supplier wishing to establish a commercial presence in Arcadia for delivery of any scheduled service will have to meet notification and examination requirements, and will need authorization to buy land. Arcadia accepts no commitments, except as specified, to allow entry of foreigners to its national territory to deliver services.

Part II sets out the commitments undertaken for each listed sector or sub-sector.  No specific commitments have been undertaken for any sector or sub-sector that is not listed in the schedule.

The first column Members are free, subject to the results of their negotiations with other participants, to identify which sectors, sub sectors or activities they will list in their schedules, and it is only to these that the commitments apply. It will be seen that committed sectors are sometimes very broad, as in "banking and other financial services" and sometimes very narrow, as in "noise abatement services".

In the great majority of schedules, the order in which the sectors are listed corresponds to the WTO Secretariat classification of the twelve broad sectors (see above).

Furthermore, in most cases, the sectoral entries are accompanied by numerical references to the Central Product Classification system of the United Nations which gives a detailed explanation of the services activities covered by each listed sector or subsector, and on which the secretariat list is based. Where this was not possible, listings are to provide a sufficiently detailed definition to avoid any ambiguity as to the scope of the commitment..

The second columnsets out any limitations to market access for the sector or sub-sector concerned, when the service is provided by a particular mode of delivery, that fall within the six types of restriction mentioned in Article XVI. The need for a separate column endlessly listing the four individual modes is avoided by simply placing a number from (1) to (4) in front of each entry. A note at the top of the schedule reminds us that, for instance, (1) refers to cross-border supply of the service.

Article XVI:2 of the GATS lists six categories of restriction which may not be adopted or maintained unless they are specified in the schedule. All limitations in schedules therefore fall into one of these categories. They comprise four types of quantitative restriction plus limitations on types of legal entity and on foreign equity participation.

The third column specifies in the same way limitations that are placed, in accordance with the rules in Article XVII, on national treatment for foreign suppliers of the service.

The fourth column is provided to enter any further binding commitments that have been offered, as envisaged in Article XVIII. Arcadia"s final column is empty, like that of most non-fictitious WTO members.

Arcadia"s schedule includes examples of the three kinds of annotation to be found in all schedules.

1. The entry "none" means that the scheduling member has undertaken to place no limitation on market access or on national treatment for foreign supply of that service by the mode concerned.
2. The entry "unbound" means that the member has undertaken no commitment, and therefore retains full freedom to act as it may desire.

Where access is partly liberalized - the most common case - the schedule sets out in detail the nature of a market access or national treatment limitation.

Where the schedule records the barriers as "none" or provides detail of the barriers to be applied, the member has undertaken a bound commitment that, when the designated service is supplied by the specified mode, it will receive treatment not less favourable than is stated in the schedule. This is the GATS equivalent of the GATT binding.

Arcadia"s sectoral commitments provide that foreign suppliers of retailing services are completely free to offer such services to Arcadians who go to the foreign countries concerned, or to supply them by mail order, but for other modes of supply they face the limitations indicated.

How do Governments administer schedules?

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.

Negotiations and negotiating rights

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.

Modification of GATT Schedules

The procedures for modification or withdrawal of GATT bindings are contained in Article XXVIII of the GATT.

The requirement for modifications

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.

• Sometimes these changes are the result of changes in technology, creating new product groups or changing the physical nature or components of goods in a way that necessitates a tariff reclassification. For example, fishing rods made of wood (bamboo etc) have been largely replaced by fishing rods made of more exotic materials (fiberglass, other plastics and composite materials). Where items made of wood are generally dutiable at 10% and composite plastic materials are "free", a government may decide - or may agree in response to requests from trading partners - to modify a binding previously applying to fishing rods to "split" the old binding into two.
• The reclassification of tariffs following changes to the standard descriptions in the Harmonised Tariff System also frequently results in modifications of schedules. The World Customs Organization has initiated two sets of modifications of the Harmonised System classifications since they were first adopted in 1988: HS92 and HS96. The latter led to changes in almost 400 of the 5,000 standard descriptions. A further modification is planned for the year 2002.

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.

Rights of the Parties Concerned

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.

Authorization of negotiations

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.

Understanding on Article XXVIII

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.

Consolidation of Schedules

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.

Modification of GATS Schedules

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).

Annex - Services Commitments

DC=Developed countries;  LDC=Developing countries;  TE=Transition economies.