Schedules of Concessions and Tariff Bindings: Article II

In one line

Every member has a list, annexed to the treaty, of the maximum tariff it may charge on each product, and exceeding that maximum is a breach of the Agreement.

In exam wording: Article II of GATT 1994 obliges each member to accord to the commerce of other members treatment no less favourable than that provided in its Schedule of concessions, and in particular not to impose ordinary customs duties in excess of those set out in it.

Why bindings exist

A tariff that can be raised at will is not a concession. The whole value an exporter gets from a round is the assurance that the rate will not move, because that assurance is what justifies investing in the market. A binding converts a policy into a legal commitment.

And a binding is what makes MFN worth having. Article I generalises whatever rate a member applies; Article II fixes a ceiling on the rate it may apply. Together they produce a single published maximum rate available to everybody, which is the core architecture of the goods regime.

Reading a Schedule

A Schedule is a member's own document, annexed to GATT 1994 by the Marrakesh Protocol, and it is an integral part of the treaty.

It is organised by the Harmonized System, the World Customs Organization's nomenclature, in which every traded good has a six digit code that is common to all users, with further digits added nationally. So tariff line 5208.11 means the same fabric in Delhi and in Ottawa.

Part I of a Schedule holds MFN concessions, divided into section IA for agricultural products, IB for agricultural tariff quotas, and II for other products. Part II holds preferential concessions, Part III non-tariff concessions and Part IV the agricultural commitments on domestic support and export subsidies.

Two columns matter most. The bound rate is the legal maximum. The applied rate is what the member actually charges, and it may be lower. The gap between them is called binding overhang or water in the tariff, and it is large for many developing members, which means their legal ceiling is far above their real policy.

What Article II obliges

Article II:1(a), treatment no less favourable than that provided in the Schedule. Article II:1(b), no ordinary customs duties in excess of those set out, and other duties or charges limited to those imposed at the date of the Agreement or required by legislation then in force. Article II:2 permits, notwithstanding the binding, a charge equivalent to an internal tax consistent with Article III:2 on a like domestic product, an anti-dumping or countervailing duty consistent with Article VI, and fees commensurate with the cost of services rendered.