If the country did not reduced applied tariffs below their bound levels, other countries could request compensation in the form of higher tariffs of their own. If one WTO member raises applied tariffs above their bound level, other WTO members can take the country to dispute settlement. Members have the flexibility increase or decrease their tariffs (on a non-discriminatory basis) so long as they didn't raise them above their bound levels. When countries join the WTO or when WTO members negotiate tariff levels with each other during trade rounds, they make agreements about bound tariff rates, rather than actually applied rates.īound tariffs are not necessarily the rate that a WTO member applies in practice to other WTO members' products. The bound tariff is the maximum MFN tariff level for a given commodity line. Exporting countries may have access to several different preference programs from a given importing partner and for a given product.īound tariffs are specific commitments made by individual WTO member governments. The EU's Everything But Arms (EBA) program is one example. The European Union, Japan, United States offer multiple unilateral preference programs. The largest of these programs is the Generalized System of Preferences (GSP), which was initiated in the 1960s. Many countries, particularly the wealthier ones, give developing countries unilateral preferential treatment, rather than through a reciprocal agreement. Preferences therefore differ between partners and agreements. Some agreements specify that members will receive a percentage reduction from the MFN tariff, but not necessarily zero tariffs. These agreements are reciprocal: all parties agree to give each other the benefits of lower tariffs. In a customs union (such as the Southern Africa Customs Union or the European Community) or a free trade area (e.g., NAFTA), the preferential tariff rate is zero on essentially all products. Virtually all countries in the world joined at least one preferential trade agreement, under which they promise to give another country's products lower tariffs than their MFN rate. World MFN Weighted Average Tariff from WITS In some rare cases, WTO members/GATT contracting parties have invoked the "Non-Application Clause" of WTO/GATT agreements and chosen not to extend MFN treatment to certain other countries. Some countries impose higher tariffs on countries that are not part of the WTO. This means that, in practice, MFN rates are the highest (most restrictive) that WTO members charge one another. In current usage, MFN tariffs are what countries promise to impose on imports from other members of the WTO, unless the country is part of a preferential trade agreement (such as a free trade area or customs union). Also explore Bound overhang for various countries. Most Favored Nation (MFN), Bound Tariff (BND) and Effectively Applied (AHS). You are here: Protection Data Query > Background > Types of Tariffs
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