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WTO Schedules of Concessions
and Renegotiation of Concessions ESTIMATED TIME: 4 hours
OBJECTIVES OF MODULE 4
To explain the WTO Schedules of concessions on goods and the main disciplines
applicable to them, particularly Article II of the GATT 1994.
To explain the rules and procedures regarding the modification of the Schedule of
concessions through renegotiations, with a focus on Article XXVIII of the
GATT 1994.
To introduce the Integrated Data Base (IDB) and the Consolidated Tariff Schedule
(CTS).
MODULE
4
2
MODULE 4 TO SCHEDULES OF CONCESSIONS AND RENEGOTIATION OF CONCESSIONS .............. 1
I. INTRODUCTION ............................................................................................................ 3
II. WTO SCHEDULES OF TARIFF CONCESSIONS .................................................................... 4
II.A. STRUCTURE OF WTO GOODS SCHEDULES ........................................................... 4
II.B. CONSOLIDATED LOOSE-LEAF SCHEDULES ........................................................ 10
II.C. AMENDMENTS TO WTO SCHEDULES ................................................................ 11
III. ARTICLE II OF THE GATT 1994 ..................................................................................... 15
III.A. APPLICATION AND INTERPRETATION OF ARTICLE II:1(A) OF THE GATT 1994 ........ 17
III.B. APPLICATION AND INTERPRETATION OF ARTICLE II:1(B), OF THE GATT 1994, FIRST
SENTENCE ..................................................................................................... 18
III.C. OTHER DISCIPLINES AIMED AT PRESERVING THE VALUE OF TARIFF CONCESSIONS
CONTAINED IN ARTICLE II OF THE GATT 1994 .................................................. 21
III.D. TAXES AND CHARGES NOT SUBJECT TO THE RULES ON TARIFF CONCESSIONS ..... 23
IV. MODIFICATION OF THE SCHEDULES OF CONCESSIONS .................................................. 27
IV.A. MODIFICATION OF SCHEDULES UNDER ARTICLE XXVIII OF THE GATT 1994 ......... 28
IV.B. RENEGOTIATIONS OF CONCESSIONS UNDER OTHER GATT PROVISIONS .............. 37
V. INFORMATION ON TARIFFS AND IMPORT FLOWS ........................................................... 47
V.A. CONSOLIDATED TARIFF SCHEDULE (CTS) DATABASE ......................................... 47
V.B. INTEGRATED DATA BASE (IDB)........................................................................ 49
V.C. DISSEMINATION OF CTS AND IDB.................................................................... 50
VI. SUMMARY .................................................................................................................. 52
3
I. INTRODUCTION
In Module 3, we have studied tariffs as the most visible barrier to market access for goods. We have also
introduced the eight rounds of GATT multilateral trade negotiations, which have resulted in substantial
reductions of tariffs and a wide coverage of bound tariff lines.
The outcome of the negotiations on tariffs (most importantly the tariff concessions) have been incorporated in
legal documents called ''Schedules of Concessions'', which record WTO Members' specific commitments on
tariffs and other concessions. By doing so, the Schedules of concessions provide security and predictability of
market access for goods. In this Module, we will explain Members' WTO Schedules of concessions on goods
and the disciplines applicable thereto, particularly Article II of the GATT 1994.
Tariff concessions may become too onerous to maintain over time due to changing circumstances. In such
cases, Members are allowed to modify their tariff concessions through negotiations with Members holding
special rights, subject to certain requirements. In this regard, Article XXVIII of the GATT 1994, which is the
main provision ruling the modification of the Schedules of concessions, will be also explained in this Module.
An overview of the databases containing information regarding Members' tariffs and import flows, administered
by the WTO Secretariat, will be provided at the end of this Module.
4
II. WTO SCHEDULES OF TARIFF CONCESSIONS
IN BRIEF
The WTO Schedule of concessions on goods record, specific tariff and non-tariff concessions given by each
Member on an MFN basis, as well as domestic support and export subsidy commitments on agricultural
products. The Schedules of concessions form part of the binding commitments made by WTO Members and
are an integral part of the WTO Agreements.
Each Member has its own Schedule of concessions, except for Members that are part of a customs union
(e.g. the European Union and Switzerland/Liechtenstein), who have a single common Schedule that covers
all its Members. Members' tariff bindings are recorded in their Schedules of concessions on goods, which are
annexed to the GATT 1994 and are considered an integral part of that Agreement. 1 In the case of Members
that acceded to the WTO after its establishment, their Schedules are part of their Protocols of Accession.
The Schedules also record the results of bilateral or plurilateral negotiations (e.g. plurilateral negations
under the auspices of the Information Technology Agreement "ITA").
Determining a Member's concession for a specific tariff line could involve, in some cases, the examination of
several different legal instruments (e.g. pre- Uruguay Schedules, 2 Uruguay Round Schedules, accession
Schedules, ITA Schedules). In order to consolidate all tariff information, the Council for Trade in Goods has
established Consolidated Loose-leaf Schedules on Goods. Although the process of consolidation remains
pending for most Members, in practice, the information has been consolidated on an informal basis through
the Consolidated Tariff Schedules Database (CTS).
Article II of the GATT 1994 is the main provision dealing with the WTO Schedules of concessions in goods. It
requires Members, among others, to refrain from imposing ordinary customs duties in excess of those
provided in their Schedules of concessions.
II.A. STRUCTURE OF WTO GOODS SCHEDULES
In the WTO, tariffs are regarded as the most visible barriers to trade in goods and are subject to negotiations,
which have led to their successive reduction. However, the value of such tariff reductions would not guarantee
enhanced and predictable market access conditions if Members could freely increase them after the
negotiations. Thus, Members agree to bind their tariffs at specific levels and to record such tariff bindings in
their WTO Schedules of concessions, which represent their legal commitments in the WTO in respect of those
products and levels. The Appellate Body clarified in EC – Computer Equipment that concessions provided for in
1 See Article II:7 of the GATT 1994.
2 It should be noted that the Schedules of concessions pre-dating the Uruguay Round are also part of the GATT
1994. It is worth noting however, that the Uruguay Round negotiations introduced changes to most, but not
all, of the concessions granted previously.
5
Members' Schedules are part of the GATT 1994, which constitutes an integral part of the WTO Agreement
pursuant to Article II:2 of the WTO Agreement (EC – Computer Equipment, Appellate Body Report, para. 84).
A WTO Member's goods Schedule consists of four parts:
Part I - Most Favoured Nation (MFN) tariffs: i.e. records the maximum tariff levels that can be
imposed on goods originating from other WTO Members. Part I is further divided into:
Section I: A — Agricultural products - Tariffs;
Section I: B — Agricultural products – Tariff quotas;
Section II — Other products (which are referred to as "non-agricultural" products in the context of
the Doha negotiations);
Part II – Preferential Tariffs: records (historical) preferential tariff arrangements listed in Article I of
the GATT 1994;
Part III – Non-Tariff Concessions: enumerates concessions made relating to non-tariff measures;
and,
Part IV – Agricultural Products - Commitments Limiting Subsidization: records specific
commitments on domestic support and export subsidies on agricultural products.
Important note
For the purpose of this Course, we only examine the MFN tariffs on other products (non-agricultural
products), that is, Part I: Section II of the goods Schedule.
RECALL:
Non-agricultural products or "other products" refer to all products which are NOT covered by the
Agreement on Agriculture (see Module 2). Agricultural products are defined in Annex 1A of the
Agreement on Agriculture. In practice, non-agricultural products cover a wide range of goods, including
manufactured products, fuels and mining products, fish and fish products, as well as forestry products.
These were referred to as "other products" in the context of the Uruguay Round and are sometimes called
"industrial" products.
6
Although there is no requirement to use a specific format, most WTO Schedules contain the following
information under Part I – Section II:
Tariff item number
Description of the product
Rate of duty (Base rate and Bound rate)
Implementation period (period of time over which the tariffs are reduced)
Initial negotiation rights (INR)
Other duties and charges (ODCs)
Special qualifications, usually in the form of footnotes and head notes, setting up "other terms and
conditions" on the concession.
Important information
In order to get a precise understanding of what was agreed by the WTO Members, a thorough reading of the
Schedule (including the footnotes, head notes and specific limitations or conditions) is needed.
Member X
This Schedule is authentic only in the English Language
PART I – MOST-FAVOURED NATION TARIFF
SECTION II – Other Products
Tariff Item
Number
Description of Products Base Rate of Duty Bound Rate of Duty Implementation
Period
Initial
Negotiating
Right (INR)
Other Duties
and Charges
Other Terms and
Conditions
Ad valorem
(%)
Other U/B Ad valorem
(%)
Other From To
1 2 3 4 5 6 7 8
03010 Live Fish:
0301.10.00 Ornamental fish $5/kg B 0.0 1995 2004 Member Z 5%
0301.90. Other live fish:
0301.93.00 - Carp 0.0 U 5.0 Member W & Member Y
$5/kg
(...)
4203 Articles of Apparel and Clothing Accessories, of Leather or of Composition Leather:
1995 2004
4203.10.00 Articles of apparel 50.0 U 38.0
4203.30.00 Belts and bandoliers 25.0 U 25.0
3305.30.00 - Hair lacquers
(...)
4805 Other Uncoated Paper and Paperboard, in Rolls or Sheets:
Concession annexed to the Marrakesh Protocol will be implemented on 01.01.2012
4805.30.00 Sulphite wrapping paper 30.0 or if lower $50/t
U 5.0
Table 1: Example of a Schedule of Concessions on Non-Agricultural Products
EXPLANATION:
Column 1 (Tariff Item Number) and Column 2 (Description of Products): reflect the tariff code and
product description used by the Member. Although there is no formal requirement to use a specific tariff
nomenclature, they often refer to the Harmonized System (HS) Nomenclature up to the six-digit level.
Members are free under the HS and the WTO to introduce national distinctions beyond those six-digit codes
(often referred to as "breakouts") for various purposes (see Module 3 - The Harmonized System).
Column 3 (Base Rate of Duty): records the base rate of duty to which the tariff cutting techniques/formulae
should be applied during trade negotiations. The base rates can be bound (B) or unbound (U) initially. During
the Uruguay Round Members defined the base rates for "other products" as follows: for those tariff lines
already bound, the base rates were defined as the existing bound MFN rates; for unbound tariff lines, the base
rates were defined as the MFN applied tariff rates during a reference period of time as agreed by the Members.
Column 4 (Bound Rate of Duty): records what is probably the most important outcome of tariff
negotiations. That is, the final bound tariff rates to be achieved at the end of the implementation period. The
Marrakesh Protocol to the GATT 1994 (paragraph 2) provided that the reductions agreed upon by each Member
in the Uruguay Round shall be implemented in five equal rate reductions, except as otherwise specified in a
Member's Schedule (see below – Column 5). According to the Marrakesh Protocol, the first such reduction had
to be made effective on the date of entry into force of the Agreement Establishing the WTO (1st January 1995)
and each successive reduction made effective on 1st January of each of the following years. The final rate had
to become effective no later than the date four years after the date of entry into force of the WTO Agreement
Establishing the WTO, except as was otherwise specified in that Member's Schedule.
Column 5 (Implementation Period): Members requiring a transitional period to implement the committed
tariff reductions normally indicate so in their Schedules of concessions. For Member X, Column 5 specifies the
year "from" and "to" in which the tariff reduction will take place (it refers to 1st January of the year
concerned). The tariff concession on "ornamental fish" made by Member X will be implemented in 10 equal
reductions, starting from the date of entry into force of the Agreement Establishing the WTO (1st January
1995). After the end of the designated implementation period (i.e. 1st January 2004), tariffs are not allowed
to be applied on "ornamental fish" beyond the levels specified in Column 4. The Schedules of some Members
replace this column by headnotes or footnotes which describe the implementation in more general terms.
Column 6 (Initial Negotiating Rights): indicates the Members holding initial negotiating rights (INRs). The
INRs are generally the result of bilateral negotiations between Members, but are sometimes not reflected in
Members' Schedules. Members holding INRs are entitled to participate in renegotiations with a Member
requesting for modification of its tariff concessions (i.e. increasing the bound tariff rates). In our example,
Country Z holds INRs with Country X on ''ornamental fish'', while Country W and Country Y hold INRs with
Country X on ''carp''. If Country X requests to modify the concessions made on "ornamental fish", it would be
required to engage in renegotiations with the Member(s) holding INRs on ornamental fish (in this case Country
Z) in accordance with Article XXVIII of the GATT 1994 (explained below).
Column 7 (Other Duties and Charges): specifies other duties or charges (ODCs) inscribed according to
Article II:1(b), second sentence, of the GATT 1994 and the "Understanding on the Interpretation of
Article II:1(b) of the GATT 1994". Other duties and charges may be imposed in addition to the ''ordinary
customs duty''. Other duties and charges levied and not recorded in Member's Schedules are inconsistent with
Article II:1(b) of the GATT 1994. In the example, Country X may apply an ODC up to 5% ad valorem on
''ornamental fish''. Country X is also allowed to impose a specific duty up to $5/kg on ''carp''.
10
Column 8 (Other Terms and Conditions): wherever necessary, clarifications or comments regarding the
scope of the concessions shall be included in the Schedule. Like in the case of the implementation period, the
Schedules of certain Members have recorded terms and conditions that apply on the concession through
footnotes and headnotes rather than through comments in a separate column.
Note
The Schedules of concessions resulting from the Doha Round of negotiations will use the Uruguay Round
formats although, the Doha Round Schedules will probably differ from the Uruguay Round Schedules. The
Uruguay Round formats required the same information, but used a smaller number of columns, leaving the
final details of the structure of some tables to each Member. For more information on Doha Schedules on
Goods, please refer to the document "(Draft) Doha Schedules on Goods: Guidelines for Preparation and
Procedures for Submissions prepared by the Secretariat" (JOB(06)/99/Rev.1). It should be noted that the
modalities regarding Doha Schedules of Concessions are still under negotiation.
Information on WTO Members' Schedules is available on each WTO Member country’s information page on
the WTO website. To have access to a Member's Schedule, go to the list of Members and click a country’s
name. http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
II.B. CONSOLIDATED LOOSE-LEAF SCHEDULES
The practice since the GATT 1947 was that the changes in the Schedules resulting from rounds of negotiations
or from renegotiations was attached to protocols or other legal instruments. Thus, information on concessions
made by a GATT Contracting Party was spread out throughout several different legal instruments. Following
the conclusion of the Tokyo Round in 1979, it was decided that a single document should replace all earlier
Schedules and negotiating records with respect to each Contracting Party. 3 It was also decided that such
consolidated Schedules should be in a "loose-leaf" format, i.e. a flexible system which allows to keep the
Schedules updated as and when necessary through loose papers which are replaced as changes are introduced.
In 1996 a further decision regarding the establishment of consolidated loose-leaf Schedules was adopted in
order to provide the legal framework for such Schedules. 4
The 1996 Decision provides that the consolidated Schedules shall be binding instruments, replacing all previous
Schedules for all purposes relating to a Member's rights and obligations under the WTO, except with respect to
historical Initial Negotiating Rights (INRs). The consolidated Schedules therefore, shall contain all necessary
information in order to reflect the exact situation in respect of each tariff concession and commitment. These
Schedules mainly include the following:
WTO Member;
Schedule Number;
Pre-Uruguay Round Schedule;
3 GATT BISD 27S/22.
4 G/L/138.
11
Schedules annexed to the Marrakesh Protocol, Schedules annexed to Protocols of Accession (PA);
HS96 changes – recording the status of implementation of HS changes;
Rectifications/Modifications to schedules, if any;
Comments – mainly record the procedures used for the implementation of HS changes.
Although the 1996 Decision has not worked as originally envisaged (i.e. only a limited number of Members
submitted a loose-leave schedule), transparency has been considerably improved by the Consolidated Tariff
Schedule Database (CTS), which is maintained by the WTO Secretariat on an informal basis, without
implications as to the legal status of the information therein.
TO KNOW MORE...:
Secretariat keeps track of the different modifications to the Schedules in a document entitled "Situation of
Schedules of WTO Members" which is periodically updated and circulated under the G/MA/W/23/Rev
document symbol. This document is available in WTO Documents on-line: http://docsonline.wto.org.
See also: IDB/CTS Internet Analysis Facility: http://iaf.wto.org
II.C. AMENDMENTS TO WTO SCHEDULES 5
Schedules of concessions change from time to time for several reasons, the most important of which are:
the introduction of the Harmonized System and its subsequent amendments (explained below);
rectifications and modifications introduced to the Schedules for various reasons, including
modifications resulting from tariff renegotiations under Article XXVIII of the GATT 1994 (explained in
the next section of this Module).
II.C.1. HARMONIZED SYSTEM AND THE GATT/WTO SCHEDULES OF
CONCESSIONS 6
RECALL (MODULE 3):
Most tariff Schedules are based on the Harmonized System (HS) which is an international product
nomenclature for the description, classification and coding of goods developed by the World Customs
Organization (WCO). The HS was established through the "International Convention on the Harmonized
5 For more information, please refer to:
http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_table_e.htm
6 See also: Yu, Dayong, The Harmonized System – Amendments and their Impact on WTO Members
Schedules, WTO Staff Working Paper ESRD-2008-02.
12
Commodity Description and Coding System" (hereinafter the HS Convention), which entered into force on
1 January 1988.
There is no obligation under the WTO for Members to adopt the HS or to implement subsequent changes
in their Schedules of concessions. However, as of January 2009, there were 118 WTO Members which
were contracting parties to the HS Convention and, in practice, most WTO Members have used the HS to
describe the concessions in their corresponding Schedule. The HS has also been referred to in
multilateral agreements (such as the Agreement on Agriculture and the Agreement on Textiles and
Clothing) and in plurilateral agreements (Agreement on Trade in Civil Aircraft, the Information Technology
Agreement, etc.).
The HS is administered by the WCO and is subject to periodic review by the HS Committee of the WCO.
As of 2009, it has been amended four times - in 1992, 1996, 2002 and 2007, respectively. The purpose
for the periodical review and amendments is to take into account changes in technology and patterns in
international trade.
As explained in Module 3, GATT Contracting Parties used different nomenclatures to schedule their concessions
before the introduction of the HS, such as the Brussels Tariff Nomenclature (BTN) and later the Customs
Cooperation Council Nomenclature (CCCN). The lack of consistency in product classifications posed difficulties
for conducting tariff negotiations and monitoring the implementation of concessions.
Following the adoption of the HS by the Customs Co-operation Council in June 1983, Contracting Parties to the
GATT decided to introduce the HS in the Schedules of concessions of those Contracting Parties to the GATT
which were also contracting parties to the HS Convention. It was understood that the adoption of the HS
would ensure greater ability for countries to monitor and protect the value of tariff concessions. A Decision
adopted by the Contracting Parties in July 1983 laid down the main principles and procedures in connection
with the introduction of the HS in national tariffs and Schedules of concessions, where the main principle to be
observed was that the existing GATT bindings should be maintained unchanged. 7 Renegotiations under
Article XXVIII of the GATT 1994 were envisaged for those cases where, as a result of the introduction of the
HS, Members had to change their tariff bindings. 8
Following the entry into force of the HS on 1 January 1988, a certain number of pre-UR Schedules were
transposed following the above mentioned procedures. Some Contracting Parties undertook to negotiate their
Schedules in connection with the implementation of the HS. 9
II.C.2. INTRODUCTION OF THE HS AMENDMENTS INTO THE SCHEDULES
OF CONCESSIONS
Following the introduction of the HS into their Schedules of concessions, the GATT Contracting Parties and later
the WTO Members have taken actions to reflect each HS amendment into their Schedules with a view to
7 See L/5470/Rev.1.
8 Yu, Dayong, (see footnote 2), pages 8-9.
9 Yu, Dayong, (see footnote 2), pages 8-9.
13
keeping the authentic texts of their Schedules of tariff concessions up–to-date and in conformity with their
national tariffs. This is important because it would otherwise be very difficult for traders and other Members to
compare the duty being charged by the Member in practice with the corresponding concession in its WTO
Schedule.
For this purpose, the Committee on Tariff Concessions of the GATT adopted a simplified procedure to
implement the HS1992 amendment and any future changes relating to the HS. 10
Eleven GATT Contracting
Parties followed these procedures and submitted the required documentation. 11
Members made use of the same procedures for introducing modifications resulting from HS1996 amendments.
A total of 49 Members submitted HS1996 documentation, out of which 29 were full loose-leaf Schedules, 12
19
included only the HS1996 changes and 1 included information on a preliminary basis. 13
Since a large number
of Schedules had not being transposed, the General Council adopted in 2009 procedures for the verification
and certification of HS1996 changes relating to the Schedules of 64 developing country Members which, at the
time of the adoption of such procedures, had not initiated the introduction of HS1996 amendments. 14
In 2001, the WTO General Council established new procedures for the introduction of HS2002 amendments in
the Schedule of concessions. 15
Although the HS2002 is being currently applied by most WTO Members, only
some of them submitted the documentation required by these procedures. 16
Since the "do-it-yourself"
approach was not delivering results in a timely and efficient manner, Members decided to amend the HS2002
procedures by asking the Secretariat to undertake most of the technical work. These procedures will be
explained in detail in the following section.
II.C.3. NEW PROCEDURES FOR THE TRANSPOSITION OF THE HS2002 AND
HS2007 AMENDMENTS 17
The General Council adopted on 15 February 2005 amendments to the procedures in which the CTS database
(explained below) would be used as a working tool to introduce the changes in the Schedules resulting from
the HS2002 amendments. Furthermore, the WTO Secretariat was instructed to transpose the Schedules of
10 Decision of 8 October 1991, Annex to L/6905
11 GATT docs. Let/1793, TAR/M/34 and 35.
12 Decision of 29 November 1996, G/L/138.
13 G/MA/TAR/2/REV.37.
14 WT/L/756.
15 WT/L/407
16 G/MA/TAR/4/REV.8.
17 ''Yu, Dayong, ''The Harmonized System – Amendments and Their Impact on WTO Members' Schedules'',
WTO Staff Working Paper ESRD-2008-02''.
14
concessions of all developing countries, in consultation with the respective Member, 18
which represented a
significant departure from the previous approach, where Members prepared and reviewed the documentation
by themselves.
According to the new procedures, the Secretariat would transpose Members' commitments included in the CTS
database to the HS2002 nomenclature following a standard methodology. The Members concerned are given a
certain period of time to review the Secretariat's work and to provide comments. The files, including possible
modifications by the Members, are then submitted to a process of multilateral review by all other Members.
Developed Members are expected to prepare their own HS2002 files, which are also reviewed by the
Secretariat before they are presented for multilateral review. If there are no objections to the files with the
draft changes at the multilateral review sessions, then the files are considered approved and the HS2002
changes are circulated under the 1980 Procedures for Modification and Rectification of Schedules. 19
These
amendments are formally certified by the Director-General if no reservations are raised by other Members after
a three-month period of time. 20
The new procedure has proved to be very effective, in particular in ensuring that the concessions of all
Members are transposed in a timely and efficient manner. In light of the success of the new procedure for
HS2002, the General Council adopted very similar procedures for the transposition of the HS2007 related
amendments. 21
The Secretariat prepares periodically a report which provides the status of the HS2002 files.
22 As of March 2009, 115 Schedules have been transposed by the WTO Secretariat and 29 of them have been
certified. 23
EXERCISES:
1. What is a WTO Member's Schedule of tariff concessions?
2. List the main information contained in a Schedule.
3. Why is the transposition of concessions to reflect HS amendments important? Explain briefly this
procedure.
18 Decision of 15 February 2005, WT/L/605.
19 G/MA/TAR/RS/ document symbol series.
20 Yu, Dayong, (see footnote 2), pages 9-11.
21 WT/L/673.
22 See JOB(06)/8/ document symbol.
23 As of March 2009, the transposition of 3 Members was pending. It is worth noting that no transposition was
required for seven Members whose Schedules were already in HS2002 nomenclature.
15
III. ARTICLE II OF THE GATT 1994
Tariff concessions, which constitute a significant achievement of trade negotiations under the auspices of the
GATT/WTO, must be protected from being eroded by other governmental measures. The main provision
relating to tariff concessions is Article II of the GAT 1994, but there are several other provisions in the GATT
and the WTO Agreements which also deal with the issue. These rules aim at ensuring the predictability and
security of tariff commitments as incorporated in Members' Schedules of concessions, as well as to preserve
the value of tariff commitments.
Article II: of the GATT 1994 - Schedules of Concessions
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.
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.
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.
16
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.*
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.
6. (a) The specific duties and charges included in the Schedules relating to contracting parties members
of the International Monetary Fund, and margins of preference in specific duties and charges
maintained by such contracting parties, are expressed in the appropriate currency at the par value
accepted or provisionally recognized by the Fund at the date of this Agreement. Accordingly, in case
this par value is reduced consistently with the Articles of Agreement of the International Monetary Fund
by more than twenty per centum, such specific duties and charges and margins of preference may be
adjusted to take account of such reduction; provided that the CONTRACTING PARTIES (i.e., the
contracting parties acting jointly as provided for in Article XXV) concur that such adjustments will not
impair the value of the concessions provided for in the appropriate Schedule or elsewhere in this
Agreement, due account being taken of all factors which may influence the need for, or urgency of,
such adjustments.
(b) Similar provisions shall apply to any contracting party not a member of the Fund, as from the date
on which such contracting party becomes a member of the Fund or enters into a special exchange
agreement in pursuance of Article XV.
7. The Schedules annexed to this Agreement are hereby made an integral part of Part I of this Agreement.
In short, this Article sets out the following rules (explained in detail below):
Article II:1(a) – requires Members to accord to the commerce of the other Members treatment no less
favourable than that provided for in their Schedules. This means that the treatment can in practice be
more favourable if the Member so decides;
Article II:1 (b) first sentence – provides the basic disciplines on tariffs/ordinary customs duties. This is
the legal foundation for the "bound tariffs" in the GATT 1994. To be noted that this treatment is to be
granted in an unconditional manner, unless there are "terms, conditions or qualifications" in the
Schedule limiting such concession;
17
Article II:1 (b) second sentence – sets forth the basic disciplines on "other duties or charges" (ODCs) -
see also Module 3;
Article II:1 (c) –sets forth the rules applicable to products entitled to preferential treatment as provided
in Members' Schedules. This historical provision is not applicable anymore to the extent that
practically all Members have discontinued their historical Part II preferences;
Article II:2 – lists the charges and duties that are not covered by the disciplines in Article II and which
may be applied to products in excess of those provided in the Schedules (as long as the relevant
provisions are respected);
Article II:3 – prohibits Members from altering their methods of determining dutiable value or methods
of converting currencies so as to impair the value of tariff concessions. To be noted that the
determination of value for customs purposes is regulated by Article VII of GATT and the Agreement on
Customs Valuation;
Article II:4 – establishes disciplines for those cases in which imports into a certain Members are to take
place under a monopoly;
Article II:5 – lays down procedures to address a situation in which a member believes that the
treatment contemplated in a concession by another Member is not being provided;
Article II:6 – provides that currency revaluations should not undermine the value of tariff concessions
expressed in terms of specific duties, for which it makes reference to the rules of the International
Monetary Fund, which at the time were based on the "gold standard"; and,
Article II:7 - specifies the legal status of a Schedule as an integral part of the GATT 1994. Since the
GATT 1994 is an integral part of the WTO Agreement, it means that Schedules of concessions are also
an integral part of the WTO Agreement.
Besides Article II of the GATT 1994, the value of tariff concessions is also protected through other GATT
provisions and WTO Agreements regulating different "non-tariff" governmental measures on trade in goods.
These measures will be explained in detail in Module 5.
III.A. APPLICATION AND INTERPRETATION OF ARTICLE II:1(A)
OF THE GATT 1994
Article II:1(a) of the GATT 1994 requires Members to accord to the commerce of the other Members treatment
no less favourable than that provided for in their Schedules of concessions, i.e. to respect the commitments
they have assumed in their Schedules.
In Argentina-Textiles and Apparel, the Appellate Body stated that paragraph (a) of Article II:1 contains a
general prohibition against according treatment less favourable to imports than that provided for in a Member's
Schedule. Article II:1(b) refers to specific measures which could lead to the provision of less favourable
treatment. Therefore, according to the Appellate Body, any measure inconsistent with Article II:1(b) is
necessarily inconsistent with Article II:1(a) (Argentina-Textiles and Apparel, Appellate Body Report, para. 45).
18
III.B. APPLICATION AND INTERPRETATION OF ARTICLE II:1(B),
OF THE GATT 1994, FIRST SENTENCE
The first sentence of Article II:1(b) of the GATT 1994 provides that Members shall refrain from applying
customs duties in excess of the bound levels provided for in their Schedules. This obligation is subject to the
terms, conditions or qualifications in their Schedules.
The obligation contained in Article II:1(b), first sentence, has been clarified by GATT/WTO Panels and the
Appellate Body in a number of occasions. 24
The Table below summarizes the key issues and findings with
respect to Article II:1(b), first sentence, of the GATT 1994.
CASE MEASURE MAIN FINDINGS
EC - Bananas III
DS27 The EC' regime for the importation,
distribution and sale of bananas, introduced
on 1 July 1993 and established by Council
Regulation 404/93 (Regulation 404/93)
Terms, conditions or qualifications in the
Schedules
Article II permits Members to incorporate into
their Schedules acts yielding rights under the
General Agreement but not acts diminishing
obligations under that Agreement (EC -
Bananas III, Appellate Body Report,
para. 154).
Argentina - Textiles and Apparel
DS56 Argentina's system of minimum specific
import duties, known as "DIEM", on textiles
and apparel under which, textiles and apparel
were subject to either a 35 per cent
ad valorem duty or a minimum specific duty,
whichever was higher. See case study.
Type of duty and "in excess of"
The Appellate Body concluded that the
application of a type of duty different from the
type provided for in a Member's Schedule is
inconsistent with Article II:1(b), first
sentence, of the GATT 1994 to the extent that
it results in ordinary customs duties being
levied in excess of those provided for in that
Member's Schedule (Argentina - Textiles and
Apparel, Appellate Body Report, para. 55).
See case study.
24 The interpretations of the adjudicating bodies under the DSU are legally binding only upon the parties in
respect of the subject matter to a specific dispute.
19
CASE MEASURE MAIN FINDINGS
EC — Computer Equipment
DS62,
DS67,
DS68
The EC application of tariffs on local area
networks ("LAN") equipment and multimedia
personal computers ("PCs") in excess of those
provided for in the EC Schedules through
changes in customs classification.
Interpretation of the Schedules
A tariff concession provided for in the
Member's Schedule should be interpreted
according to the general rules of treaty
interpretation set out in Articles 31 and 32 of
the Vienna Convention on the Law of Treaties
(VCLT) – see box below -.
The purpose of treaty interpretation under
Article 31 of the Vienna Convention is to
ascertain the common intentions of the
parties. In this regard, the Appellate Body
said that the Panel should have further
examined the following: the Harmonized
System and its Explanatory Notes as context
in interpretation of the terms of the Schedule;
the existence and relevance of subsequent
practice; the European Communities'
classification practice during the Tokyo Round,
in addition to that during the Uruguay Round;
relevant US practice with regard to the
classification of the product at issue; and the
EC legislation governing customs classification
at the time (EC - Computer Equipment,
Appellate Body Report, para. 80 - 110).
Canada - Dairy
DS103,
DS113
Canadian government's support system
(Special Milk Classes Scheme) for domestic
milk production and export, as well as
Canada's tariff quota (TRQ) regime for
imports of fluid milk.
Other Terms and Conditions
Recalling an earlier finding (EC - Computer
Equipment) that Members' Schedules should
be interpreted under the general rules of
interpretation set out in the VCLT, the
Appellate Body stated that a strong
presumption arises that the language which is
inscribed in a Member's Schedule under the
heading, "Other Terms and Conditions", has
some qualifying or limiting effect on the
substantive content or scope of the concession
or commitment.
20
CASE MEASURE MAIN FINDINGS
The Appellate Body concluded that Canada's
limitation of cross-border purchases of fluid
milk to "Canadian consumers", which was
specified expressly as a condition in Canada's
Tariff Schedule, justified Canada's effective
limitation of access to the TRQ to imports for
"personal use". But, it found that Canada's
value limitation set at Can$20 for each
importation was inconsistent with Art. II:1(b),
as there was no mention of such value
limitation in Canada's Schedule (Canada -
Dairy, Appellate Body Report, para. 134).
EC — Chicken Cuts
DS269,
DS286
EC measures pertaining to the tariff
reclassification from heading 02.10 (relating
to, inter alia, salted chicken) to heading 02.07
(relating to, inter alia, frozen chicken) of
certain frozen boneless chicken cuts
impregnated with salt.
Interpretation of the term "salted"
The Appellate Body concluded that the
Harmonized System is relevant ("constitutes
context") for purposes of interpreting tariff
commitments in the WTO Members' Schedules
within the meaning of Article 31(2)(a) of the
VCLT (EC - Chicken Cuts, Appellate Body
Report, para. 199)
Schedule of Concessions and tariff
reclassification
The Appellate Body upheld the Panel's finding
that the EC measures (relating to tariff
classification) imposed duties on the products
at issue in excess of the relevant heading of
the EC tariff commitments because under the
EC Schedule, tariffs on frozen meat (02.07)
are higher than on salted meat (02.10) and
thus, violated Article II:1(a) and (b) of the
GATT 1994 (EC - Chicken Cuts, Appellate
Body Report, para. 347).
Note: The Vienna Convention on the Law of Treaties (VCLT)
The precise scope of the rights and obligations contained in the WTO agreements is not always evident from
a mere reading of the legal texts. therefore, Article 3.2 of the DSU recognizes the need to clarify the rights
and obligations of members under the WTO covered agreements pursuant to ''customary rules of
interpretation of public international law''.
21
Note: The Vienna Convention on the Law of Treaties (VCLT)
While customary international law is normally unwritten, the Vienna convention on the law of treaties (VCLT)
has codified in articles 31 and 32 some of these customary rules of treaty interpretation. although Article 3.2
of the DSU does not refer directly to such provisions, the appellate body has recognized their status of "rule
of customary or general international law" (US - Gasoline, p. 17; Japan - Alcoholic beverages II, pages 10-
12). WTO adjudicating bodies make frequent reference to these rules when interpreting provisions contained
in the covered agreements. these legal interpretations are legally binding only on the parties and in respect
of the subject matter of a specific dispute.
The text of the VCLT can be found at:
http://untreaty.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf
TO KNOW MORE...
A more detailed description of the legal findings concerning the different provisions under Article II of the
GATT 1994 can be found in:
http://www.wto.org/english/res_e/booksp_e/analytic_index_e/gatt1994_02_e.htm#article2
III.C. OTHER DISCIPLINES AIMED AT PRESERVING THE VALUE
OF TARIFF CONCESSIONS CONTAINED IN ARTICLE II OF
THE GATT 1994
There are other provisions contained in Article II aimed at preserving the value of tariff concessions. For
example, Article II:1(b) second sentence allows Members to apply other duties and charges, in addition to
ordinary customs duties, subject to certain requirements. Article II:3 prohibits Members from altering their
methods of determining dutiable value or methods of converting currencies so as to impair the value of tariff
concessions, while Article II:6 provides that currency revaluations should not undermine the value of such
concessions.
III.C.1. OTHER DUTIES AND CHARGES (ODCS)
As has been explained before, the "bound rate" of duty in a Schedule of concessions represents the maximum
customs duty that WTO Members have committed to levy on imports from other Members. However, "ODCs"
may be imposed in addition to the "ordinary customs duty" if provided and within the levels indicated in a
Member's Schedule.
ODCs are regulated by the second sentence of Article II:1(b) and the Understanding on the Interpretation of
Article II.1(b). Some examples of ODCs include "temporary import surcharges", "revenue taxes" and charges
imposed by import monopolies (see also Article II:4 below). Article II:1(b) second sentence stipulates that
imported products shall be exempt from "all other duties or charges of any kind" that are imposed "on or in
connection with" importation, to the extent that such duties or charges exceed amounts imposed on the date
22
of entry into force of the GATT 1994 (or which are directly and mandatorily required to be imposed by
legislation in force on that date), as recorded and bound in the Schedules of concessions annexed to the GATT
1994. In this way, the second sentence of Article II:1(b) helps to prevent tariff concessions from being
circumvented.
However, unlike tariffs, there were no legal instruments which recorded ODCs that a Contracting Party to the
GATT 1947 was allowed to apply before the Uruguay Round. This led to a lack of transparency and difficulties
in retrieving data. The Understanding on the Interpretation of Article II:1 (b) of GATT 1994, negotiated during
the Uruguay Round, is aimed at obtaining greater transparency in the use of ODCs. This Understanding, which
is legally part of the GATT 1994, provides that the date as of which "other duties or charges" are bound, for the
purpose of Article II, shall be 5 April 1994. "Other duties or charges" had to be recorded in the Schedule at the
levels applicable on that date. In case of renegotiation of a concession or negotiation of new concessions, the
applicable date for the tariff item in question shall become the date of the incorporation of the new or revised
concessions into the Schedule. If ODCs were not recorded in a Member's Schedule but are nevertheless levied,
they are inconsistent with Article II:1 (b).
Members had three years – until 15 April 1997 – originally, and then three years after any subsequent
renegotiation, to challenge the level of ODCs recorded against any tariff item if they considered that the level
was greater than applied at the date of first incorporation in the WTO Schedules. The recording of an ODC in a
Member's Schedule is without prejudice to its consistency with the rights and obligations of the Members under
the GATT 1994. All Members retain the right to challenge, at any time, the consistency of other ODC with such
obligations (Understanding on the Interpretation of Article II:1 (b) of GATT 1994, paragraph 5).
III.C.2. OTHER PROVISIONS AIMED AT PRESERVING THE VALUE OF
TARIFF CONCESSIONS CONTAINED IN ARTICLE II OF THE GATT
1994 (BESIDES ODCS)
As mentioned above, there are some other provisions under Article II of the GATT 1994 aimed at protecting
the value of tariff concessions by targeting other governmental measures. These include:
Article II:3 of the GATT 1994 – prevents Members from altering their method of determining dutiable
value or converting currencies so as to impair the value of any of the concessions provided for in the
Schedule. For import tariffs calculated on an ad valorem basis, the customs values of imports are
crucial, as they determine the final applicable tariff rates. The benefit of binding could otherwise be
eliminated or circumvented by an arbitrary of unfair valuation. Customs procedures applied to
determine the customs value of imported goods are normally referred to as ''customs valuation''.
Under the WTO, customs valuation is regulated by Article VII of the GATT 1994 and the Agreement on
Customs Valuation, which will be studied in Module 5.
Article II:4 of the GATT 1994 – prevents the operation of import monopolies from frustrating the
Scheduled tariff concessions. This provision relates to Article XVII on State Trading Enterprises (STEs)
–i.e. governmental and non-governmental enterprises which have been granted exclusive or special
rights or privileges in the exercise of which they influence through their purchases or sales the level or
23
direction of imports or exports. 25
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 II:4 applies to import monopolies whether or not they are STEs.
Article II:5 of the GATT 1994 – reclassification of goods within a tariff may effectively remove the
benefit of a tariff binding. In this regard, Article II:5 provides for compensatory adjustment between
Members in situations where a Member's rights are affected by another Member's reclassification of
bound duties; and,
Article II:6 of the GATT 1994 – is a provision on exchange rates for the calculation of specific duties. It
was aimed at protecting tariff concessions from being undermined by currency revaluation. This
provision relates to the regime of fixed exchange rates that existed during the first three decades of the
GATT 1947. 26
III.D. TAXES AND CHARGES NOT SUBJECT TO THE RULES ON
TARIFF CONCESSIONS
At the same time that Article II of the GATT 1994 provides disciplines on tariffs and ODCs, it explicitly
enumerates a number of levies on imports which are not subject to the rules on tariff bindings. In this respect,
Article II:2 of the GATT 1994 provides that nothing therein shall prevent any Member from imposing at any
time on the importation of any product the following charges:
Internal taxes imposed consistently with Article III:2 of the GATT 1994 - tariffs are different from
internal taxes or charges. An internal tax may however, be applied at the border on imported goods
(see Ad note to Article III). They are subject to the national treatment embodied in Article III of the
GATT which prohibits a Member from utilising internal regulations to favour its domestic products over
the imported products of other WTO Members;
Anti-dumping or countervailing duties applied consistently with Article VI of the GATT 1994 – anti-
dumping and countervailing measures take the form of customs duties, which may be levied in excess
of the bound tariff rates provided in the Schedule of concessions of the Member applying the measure.
They are permitted under the WTO provided that their application meets the conditions laid down in
Article VI of the GATT and the Agreement on Anti-Dumping or the Agreement on Subsidies and
Countervailing Measures, depending on the case. These measures are applied as a deviation from the
general rules on bound concessions (See Module 2);
''Fees'' or ''charges'' commensurate with the cost of services rendered - ''fees'' or ''charges'' associated
with an import service may be applied to imports, subject to certain conditions. Although they are not
tariffs or ODCs, such ''fees'' or ''charges'', if applied arbitrarily and unjustifiably, may increase the costs
of transactions for importers and exporters and consequently, impede market access in the form of
non-tariff barriers. Thus, Article VIII of the GATT 1994 requires them to be limited in amount to the
25 See paragraph 2 of the "Understanding on the Interpretation of Article XVII of GATT 1994". It is worth
noting that an enterprise need not to be owned by the state to be designed as a STE.
26 In this regard, it should be noted that the WTO does not deal with issues relating to monetary policies and
exchange rates.
24
approximate cost of services rendered and not to represent an indirect protection to domestic products
or a taxation of imports or exports for fiscal purposes. You will study customs fees and formalities in
Module 5, which explains NTMs.
EXERCISES:
4. According to Article II:1, first sentence, of the GATT 1994, what are the basic disciplines on tariffs
concessions under the WTO?
5. What does Article II:1(b) second sentence provides with respect to "other duties and charges" (ODCs)?
6. Are all border charges imposed on imports subject to the disciplines on bound concessions?
25
CASE STUDY
ARGENTINA - TEXTILES AND APPAREL
(Argentina — Measures Affecting Imports of Footwear, Textiles, Apparel and other Items) (DS56)
Parties Timeline of the dispute
Complainant United States Articles II and VIII
of the GATT 1994
Establishment of Panel 25 February 1997
Circulation of Panel Report 25 November 1997
Respondent Argentina Circulation of AB Report 27 March 1998
Adoption 22 April 1998
1. Measure – Argentina's System of Minimum Specific Import Duties, known as
"DIEM"
The measure at issue was Argentina's system of minimum specific import duties, known as "DIEM", on textiles
and apparel under which textiles and apparel were subject to either a 35% ad valorem duty or a minimum
specific duty, whichever was the higher.
In its Schedule, Argentina had included a bound tariff rate of 35% ad valorem on imports of textiles, apparel
and footwear. While the 35% ad valorem duty was calculated on the basis of the transaction value of the
imported products, the specific minimum duty for an entry was calculated on the basis of a pre-determined
percentage (on ad valorem basis) which was applied to a ''representative price'' determined by Argentina on
the basis of international prices. The Table below provides an example of how the specific minimum duty was
calculated.
AN EXAMPLE OF THE ''DIEM'' SYSTEM
26
1. AD VALOREM DUTY
Suppose the transaction value of the imported product is $ 100. The ad valorem tariff will be $35 ($100 *
35%).
2. MINIMUM SPECIFIC DUTY
Scenario 1
Suppose the ''representative price'' for the imported product was calculated at $100 and the predetermined
price determined by Argentina's customs authorities was 20% ad valorem. The minimum specific duty would
be $20 ($100 * 20%). Since the higher duty is applicable, customs would apply the $35 tariff (the ad valorem
tariff of 35% resulting in 35$- is higher than the minimum specific duty of $20)
Scenario 2
Suppose now the ''representative price'' is calculated at $200 and the ''percentage'' is pre-determined by
Argentina at 20% ad valorem. The minimum specific duty would be $40 ($200 * 20%). In this case, the final
duty applicable is a $40 specific duty (the minimum specific duty of $40 is higher than the ad valorem tariff of
35% resulting in $35).
In Scenario 2, Argentina's DIEM system results in the application of a duty in excess of the bound tariff rate
recorded in Argentina's Schedules of concessions.
2. Findings
The Appellate Body concluded that the application of a type of duty different from the type provided for in a
Member's Schedule is not per se inconsistent with Article II:1(b), first sentence, of the GATT 1994. This,
however, to the extent that it resulted in ordinary customs duties being levied in excess of those provided for
in that Member's Schedule. In other words, Members can apply a different type of duty than that included in
its Schedule of concessions, but only to the extent that it does not charge more than it has committed to.
The Appellate Body stated that the structure and design of the Argentina system is such that for any DIEM the
possibility remains that there is a "break-even" price below which the ad valorem equivalent of the customs
duty collected is in excess of the bound ad valorem rate of 35% (Argentina – Textiles and Apparel, Appellate
Body Report, paras. 53 - 55).
27
IV. MODIFICATION OF THE SCHEDULES OF
CONCESSIONS
IN BRIEF
As studied in Module 3, modifications of tariff concessions usually take place during multilateral rounds of
trade negotiations (e.g. the Doha Round). Despite the fundamental importance of recording tariff
concessions resulting from such negotiations in a transparent and predictable manner, WTO Members are
allowed to modify or withdraw their tariff concessions subject to certain conditions. The possibility of
allowing for such modifications stems from the consideration that a negotiated tariff binding may become too
cumbersome to maintain at times due to changing circumstances. Thus, the possibility of having tariff
renegotiations introduce flexibility into the WTO system to allow Members to seek a lasting rebalancing of
concessions in such circumstances.
There are different provisions dealing with the modification or withdrawal of tariff concessions and other
concessions included in the Schedules. Many of these provisions allow a Member to renegotiate in order to
modify or withdraw tariff and non-tariff concessions on a permanent basis subject to stipulated
requirements, including compensation. The main provision in this respect is Article XXVIII of the GATT
1994, which allows a Member to enter into renegotiations in three different situations: 1) before the
initiation of a three-year period; 2) in "special circumstances", subject to the authorization of other
Members; or, 3) if the Member has reserved its right to do so before the initiation of the triennial period.
Other relevant provisions include Article XXIV:6 of the GATT 1994, which provides for the renegotiation of
tariff concessions in the context of the formation of a customs union, and Article XVIII:7 of the GATT 1994
which provides for renegotiations of concessions by developing countries for purposes of promoting the
establishment of a particular industry. In addition, Article XXVII of the GATT 1994 allows a Member to
withhold or withdraw a concession made during multilateral rounds of trade negotiations if the government
with which the concession was negotiated does not become or has ceased to be a WTO Member.
While the provisions mentioned above allow the permanent modification or withdrawal of a concession, a
Member can also suspend a tariff concession on a temporary basis, for instance, by requesting a waiver
under Article IX:3 of the Agreement Establishing the WTO –explained in Module 2.
Last but not least, one should distinguish the process of "modification" of tariff Schedules explained above
from the procedure of "rectification" of the Schedule (see box below). The latter is limited to changes of a
purely formal character that do not alter the scope of the concessions contained therein.
This section will focus on tariff renegotiations held under Article XXVIII of the GATT 1994.
28
Modification vs. Rectification
The GATT Contracting Parties adopted the 1980 Procedures for Modification and Rectification of Schedules of
Tariff Concessions 27
(Decision on Rectification), which provides that changes resulting from formal
modification or rectification could be certified by the Director-General if no objection is raised by any other
Member within a 3 month period. This procedure is subject to the following conditions:
The proposed rectification shall be limited to amendments or rearrangements which are of a purely
formal character and which do not alter the scope of the concessions.
The proposed modifications resulting from action under Article II, Article XVIII:7, Article XXIV:6,
Article XXVII or Article XXVIII, shall be a correct reflection of the modification.
If objections are raised (e.g. because another Member considers the change alters the scope of the
concession) on any of these grounds, the Member wishing to modify / rectify its Schedule could end-up
in Article XXVIII of the GATT 1994 renegotiations.,
IV.A. MODIFICATION OF SCHEDULES UNDER ARTICLE XXVIII
OF THE GATT 1994
Article XXVIII of the GATT 1994 is the main WTO provision on tariff and non-tariff renegotiations, according to
which the renegotiation of any concession recorded in the Schedules requires Members holding special rights to
be compensated ''in order to maintain 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 of
the GATT 1994). For example, a Member seeking to increase the rate of a particular tariff binding must
negotiate with the Members that would be most affected by the changes and compensate them, for example,
by reducing the bound tariff rate(s) of another item or other items:
Article XXVIII of the GATT 1994: Modification of Schedules*
1. On the first day of each three-year period, the first period beginning on 1 January 1958 (or on the first
day of any other period* that may be specified by the CONTRACTING PARTIES by two-thirds of the
votes cast) a contracting party (hereafter in this Article referred to as the ―applicant contracting party‖)
may, by negotiation and agreement with any contracting party with which such concession was initially
negotiated and with any other contracting party determined by the CONTRACTING PARTIES to have a
principal supplying interest* (which two preceding categories of contracting parties, together with the
applicant contracting party, are in this Article hereinafter referred to as the ―contracting parties
primarily concerned‖), and subject to consultation with any other contracting party determined by the
CONTRACTING PARTIES to have a substantial interest* in such concession, modify or withdraw a
concession* included in the appropriate schedule annexed to this Agreement.
2. In such negotiations and agreement, which may include provision for compensatory adjustment with
respect to other products, the contracting parties concerned shall endeavour to maintain a general level
of reciprocal and mutually advantageous concessions not less favourable to trade than that provided for
27 L/4962.
29
in this Agreement prior to such negotiations.
3. (a) If agreement between the contracting parties primarily concerned cannot be reached before 1
January 1958 or before the expiration of a period envisaged in paragraph 1 of this Article, the
contracting party which proposes to modify or withdraw the concession shall, nevertheless, be free to
do so and if such action is taken any contracting party with which such concession was initially
negotiated, any contracting party determined under paragraph 1 to have a principal supplying interest
and any contracting party determined under paragraph 1 to have a substantial interest shall then be
free not later than six months after such action is taken, to withdraw, upon the expiration of thirty days
from the day on which written notice of such withdrawal is received by the CONTRACTING PARTIES,
substantially equivalent concessions initially negotiated with the applicant contracting party.
(b) If agreement between the contracting parties primarily concerned is reached but any other
contracting party determined under paragraph 1 of this Article to have a substantial interest is not
satisfied, such other contracting party shall be free, not later than six months after action under such
agreement is taken, to withdraw, upon the expiration of thirty days from the day on which written
notice of such withdrawal is received by the CONTRACTING PARTIES, substantially equivalent
concessions initially negotiated with the applicant contracting party.
4. The CONTRACTING PARTIES may, at any time, in special circumstances, authorize* a contracting party
to enter into negotiations for modification or withdrawal of a concession included in the appropriate
Schedule annexed to this Agreement subject to the following procedures and conditions:
(a) Such negotiations* and any related consultations shall be conducted in accordance with the
provisions of paragraph 1 and 2 of this Article.
(b) If agreement between the contracting parties primarily concerned is reached in the negotiations,
the provisions of paragraph 3 (b) of this Article shall apply.
(c) If agreement between the contracting parties primarily concerned is not reached within a period of
sixty days* after negotiations have been authorized, or within such longer period as the CONTRACTING
PARTIES may have prescribed, the applicant contracting party may refer the matter to the
CONTRACTING PARTIES.
(d) Upon such reference, the CONTRACTING PARTIES shall promptly examine the matter and submit
their views to the contracting parties primarily concerned with the aim of achieving a settlement. If a
settlement is reached, the provisions of paragraph 3 (b) shall apply as if agreement between the
contracting parties primarily concerned had been reached. If no settlement is reached between the
contracting parties primarily concerned, the applicant contracting party shall be free to modify or
withdraw the concession, unless the CONTRACTING PARTIES determine that the applicant contracting
party has unreasonably failed to offer adequate compensation.* If such action is taken, any contracting
party with which the concession was initially negotiated, any contracting party determined under
paragraph 4 (a) to have a principal supplying interest and any contracting party determined under
paragraph 4 (a) to have a substantial interest, shall be free, not later than six months after such action
is taken, to modify or withdraw, upon the expiration of thirty days from the day on which written notice
of such withdrawal is received by the CONTRACTING PARTIES, substantially equivalent concessions
initially negotiated with applicant contracting party.
5. Before 1 January 1958 and before the end of any period envisaged in paragraph 1 a contracting party
may elect by notifying the CONTRACTING PARTIES to reserve the right, for the duration of the next
30
period, to modify the appropriate Schedule in accordance with the procedures of paragraph 1 to 3. If a
contracting party so elects, other contracting parties shall have the right, during the same period, to
modify or withdraw, in accordance with the same procedures, concessions initially negotiated with that
contracting party.
(*) See also Ad note to Article XXVIII of the GATT 1994.
Other WTO legal instruments applicable to renegotiations under Article XXVIII of the GATT 1994 include the
following:
Understanding on the Interpretation of Article XXVIII of the GATT 1994;
Procedures for Modification and Rectification of Schedules of Tariff, Decision adopted on 26 March 1980 28
; and,
Procedures for Negotiations under Article XXVIII, Guidelines adopted on 10- November 1980. 29
IV.A.1. WHEN CAN A MEMBER START RENEGOTIATIONS UNDER
ARTICLE XXVIII OF THE GATT 1994?
According to Article XXVIII, a Member may enter into tariff negotiations with a view to modify or withdraw
concessions recorded in the Schedule in the following three situations:
before the initiation of a three-year period starting from 1 January 1958 (Article XXVIII:1 of the GATT 1994) –
see below;
in special circumstances, if authorized by the Members (Article XXVIII:4 of the GATT 1994); and,
following a reservation made by a Member before the initiation of the triennial period (Article XXVIII:5
of the GATT 1994).
The notification of a Member's intention to modify or withdraw its concessions is required irrespective of the
type of situation invoked by a Member to renegotiate such concessions (see below).
01.01.1958-31.12.1960 01.01.1976-31.12.1978 01.01.1994-31.12.1996
01.01.1961-31.12.1963 01.01.1979-31.12.1981 01.01.1997-31.12.1999
01.01.1964-31.12.1966 01.01.1982-31.12.1984 01.01.2000-31.12.2002
01.01.1967-31.12.1969 01.01.1985-31.12.1987 01.01.2003-31.12.2005
01.01.1970-31.12.1972 01.01.1988-31.12.1990 01.01.2006-31.12.2008
28 L/4952.
29 C/113.
31
01.01.1973-31.12.1975 01.01.1991-31.12.1993 01.01.2009-31.12.2011
Table 2: Art.XXVIII Triennial-Period
When can a Member start Renegotiations under Article XXVIII of the GATT 1994?
Renegotiations before a
three-year period (para. 1)
Request for authorization: between 3 and 6 months before the
beginning of the triennial period. The Member shall notify the
intention of modification or withdrawal of tariff concessions*. The
negotiations shall be completed before the commencement of the
successive three-year period.
For example, for the three-year period commencing on 1 January
2009, the Member wishing to modify or withdraw any concession
should have notified other Members to this effect between 1 July 2008
and 30 September 2008. Negotiations should have been completed
by 31 December 2008 and the effect of the modification should take
place on 1 January 2009 (Ad Article XXVIII:1.3).
Renegotiations in special
circumstances (para. 4)
Request for authorization: at any time. The Member concerned shall
request the authorization from other Members by sending a
notification of its intention of modification or withdrawal of tariff
concessions*.
The renegotiation shall be completed within a 60-day period if such
negotiations involve only a single item or a very small group of items.
A longer period of time may be granted by Members if such
negotiations involve a larger number of items (Ad Article XXVIII: 4.3).
Renegotiations following a
reservation Member (para. 5)
Reservation of rights to modify tariffs: before the end of any three-
year period. The Member concerned shall reserve the rights for
renegotiation at any time before the end of any triennial period
through a notification*.
Negotiations may be completed at any time. In practice,
Article XXVIII:5 has gradually become the most frequently-invoked
provision for tariff renegotiations.
*Notification Requirements for Starting Tariff Renegotiations under Paragraphs 1, 4 and 5
Although the procedures for starting renegotiations under Article XXVIII differ according to the
paragraph under which they are undertaken, the three of them apply the same definitions and
are subject to the same substantive requirements. In terms of the procedures for starting
renegotiations under Article XXVIII, a Member entering into a renegotiation under paragraphs 1
or 5 of Article XXVIII must submit a notification, which will thereafter be circulated to all other
Members. A Member requesting permission to enter into a renegotiation under paragraph 4
must, on the other hand, submit a "request for authority to enter into negotiations" which is also
32
circulated to the other Members and included in the agenda of the Council for Trade in Goods.
Both the notifications and the requests should include the following information: 30
i. a list of the items that will be renegotiated, with their corresponding tariff line numbers (HS),
indicating for each item the Members with INRs, if any;
ii. an indication of whether the intention is to modify a concession (e.g. increase the duty or
transform a simple duty into a tariff rate quota) or to withdraw it, in whole or in part, from
the Schedule;
iii. statistics of imports of the products involved, by country of origin, for the last three years for
which statistics are available; and,
iv. if specific or mixed duties are affected both values and quantities should be indicated, if
possible.
Although the early practice makes it difficult to determine the exact number of renegotiations that took place
under the GATT, the Secretariat's records show that at least 42 GATT Contracting Parties initiated roughly 300
renegotiations between 1951 and 1994. Since the establishment of the WTO in 1995, there have been 34
requests to enter into renegotiations under Article XXVIII, four of which have been withdrawn, eight have been
concluded and formally certified, and five have been concluded, but have not been certified yet. The remaining
17 requests concern negotiations which are still ongoing. 31
It should nevertheless be noted that, two of them
relate to Schedules which were withdrawn in the context of an enlargement of the EU (i.e. Hungary and
Bulgaria) (for the latest summary, see G/MA/W/23/Rev.6.).
IV.A.2. WHO IS ENTITLED TO COMPENSATION UNDER ARTICLE XXVIII OF
THE GATT 1994?
Article XXVIII:1 provides that the requesting Member should:
negotiate with Members holding ''initial negotiating rights'' (INRs) and with the Member having a
"principal supplying interest" (PSI). The group gathering both INRs and PSI Members, together with
the Member seeking to renegotiate a concession, is called "parties primarily concerned"; and,
enter into consultation with any other Member having a "substantial interest" (SI) on the concession.
30 See Guidelines contained in C/113+Corr.1.
31 As of March 2009.
33
PARTICIPANTS
(Members with)
Who is entitled to negotiations/consultations under Article XXVIII
of the GATT 1994?
" P
AR
TIES
PR
IM
AR
ILY
CO
NC
ER
NE
D" E
nti
tled
to
Neg
oti
ati
on
s
Initial
Negotiating
Rights (INRs)
Initial negotiating rights are generally the result of bilateral negotiations
(see product-by-product or request/offer approach in Module 3) and thus,
can sometimes be determined by consulting the Schedules and the
negotiating records associated with a concession.
In case of tariff concessions that result from a tariff reduction approach
based on a formula, no INR is granted. However, in the Kennedy and Tokyo
Rounds, the CONTRACTING PARTIES decided to grant "floating INRs", that
is, INRs granted to the Member that was the biggest import supplier over a
previous representative period (normally the previous three years or a
reasonable period), or would have been the biggest import supplier in the
absence of a quantitative restriction.
In cases where renegotiations involve a concession of a new product (i.e. a
product for which three years' trade statistics are not available), the
Member possessing INRs on the tariff line where the product is or was
formerly classified shall be deemed to have an initial negotiating right
(Understanding on the Interpretation of Article XXVIII:4 of the GATT 1994).
Initial negotiating rights can also be granted to a Member having a PSI
under certain circumstances. In this regard, any Member having a PSI in a
concession which is modified or withdrawn shall be accorded an INR in the
compensatory concessions, unless another form of compensation is agreed
between the Members concerned (Understanding on the Interpretation of
Article XXVIII, paras. 1 & 7, of the GATT 1994).
Principal
Supplying
Interest (PSI)
The object of providing for the participation in the negotiation of any
Member with a PSI, in addition to those holding INRs, is to ensure that a
Member with a larger share in the trade affected by the modification of a
concession than a Member with INRs, shall have an effective opportunity to
protect the contractual rights which it enjoys under the Agreement (Ad note
to Article XXVIII of the GATT, para. 1.4).
There are two criteria that may be used to identify Members with a PSI:
Criteria based on import shares: a Member has a PSI if it has had, over
a reasonable period of time prior to the negotiations (usually three years),
the largest share in the market of the requesting Member, or would have
had it in the absence of discriminatory quantitative restrictions (Ad note to
Article XXVIII of the GATT, para. 1.4);
34
PARTICIPANTS
(Members with)
Who is entitled to negotiations/consultations under Article XXVIII
of the GATT 1994?
Principal
Supplying
Interest (PSI)
Criteria based on export shares:
During the GATT times, Members could exceptionally be determined to have
PSI whenever the modifications being sought affected trade which
constituted a major part of the total exports of such Member (Ad note to
Article XXVIII of the GATT, para. 1.5);
This provision was developed further during the Uruguay Round, when it
was agreed that a Member with the highest ratio of exports affected by the
concession (i.e. exports of the product to the market of the Member
modifying or withdrawing the concession out of a Member's total exports)
shall be deemed to have a PSI if it does not already have an INR or a PSI as
provided for in Article XXVIII:1 (Understanding on the Interpretation of
Article XXVIII of the GATT 1994, para. 1). The objective of the new
provision is to allow access to negotiating rights for a wider range of
countries, particularly the small and medium-sized exporting Members.
Substantial interest (SI)
Entitled to Consultations
Article XXVIII provides explicitly that there is no precise definition of
"substantial interest". It however clarifies that:
Substantial interest should be understood as covering only those Members
which have, or in the absence of discriminatory quantitative restrictions
affecting their exports could reasonably be expected to have, a "significant
share" in the market of the Member requesting to modify or withdraw the
concession (Ad note to Article XXVIII of the GATT, para. 1.7).
GATT practice: SI has normally been granted to those Members who
accounted at least 10% of imports of the item for which modifications were
being sought. 32
It is worth noting that the determination of Members with a "PSI" or a "SI" only considers trade in the affected
product which has taken place on a MFN basis in a three year period. In other words, a PSI or a SI cannot be
granted to Members whose exports are benefiting from preferential treatment from the Member requesting
tariff modification (Understanding on the Interpretation of Article XXVIII of the GATT 1994, para. 3).
IV.A.3. HOW ARE RENEGOTIATIONS CONDUCTED UNDER
ARTICLE XXVIII OF THE GATT 1994?
As mentioned above, a Member seeking to modify or withdraw a concession (e.g. increase a particular tariff
binding) shall negotiate with Members having INRs and PSI with a view to agreeing on compensation in order
32 TAR/M/16.
35
to maintain "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". Such compensation is negotiated between
the parties primarily concerned and could consist, for example, in the reduction of bound tariff rate(s)
applicable to another item or other items of interest to the INR holder and the Members with a PSI. In
addition, requesting Members must carry out consultations with other Members having SI. Although the terms
used are different (i.e. negotiations vs. consultations), in practice, Members having SI have similar rights to
those of INR holders and Members with a PSI.
In most cases, negotiations conducted under Article XXVIII were successful and led to agreement (between
parties primarily concerned) regarding the modification of concessions being sought and compensations made for
the changes. The procedural requirements for Article XXVIII renegotiations can be summarized as follows: 33
1. NOTIFICATION OF THE INTENTION TO NEGOTIATE FOR
THE MODIFICATION OR WITHDRAWAL OF CONCESSIONS
A Member intending to negotiate for the modification or withdrawal of
concessions in accordance with the procedures of Article XXVIII, should
transmit a notification to that effect to the Secretariat, which will
distribute the notification to all other Members (see also notification
requirements for tariff renegotiations under paragraphs 1, and 5 of
Article XXVIII, explained above). A Member seeking authorization under
paragraph 4 shall first submit a request for authorization, which shall be
approved in the Council for Trade in Goods before proceeding.
2. CLAIM OF RIGHTS
Members claiming PSIs or SIs should communicate their claim in writing
to the Member initiating the renegotiation, and at the same time inform
the secretariat, within 90 days of the date of initial notification
(paragraphs 1 and 5), or from the date of the authorization to enter into negotiations has been granted by the
Council for trade in Goods (paragraph 4). If the requesting Member recognizes the claim, it will constitute a
determination by the Members of interest in the sense of Article XXVIII:1. If a claim of interest is not
recognized, the claiming Members may refer the matter to the Council of Trade in Goods or the General Council
to decide whether such interest exists. Members holding INRs are, in principle ,not required to make a claim of
interest because the Member initiating the renegotiation is supposed to communicate to those Members
holding INR or PSI rights the compensatory adjustments which it is prepared to offer. In practice, however,
they often also submit a claim of rights.
The Member requesting to modify its concessions is the one who furnishes the statistics for the purpose of
determining whether or not the claiming Members are qualified for PSIs (import criterion) or SIs. If, in
exceptional circumstances, the requesting Member is not able to supply relevant import statistics, it shall give
due consideration to export statistics provided by the claiming Members. This would also be the case for the
PSI under the export criterion.
33 See C/113 and Corr.1, BISD 27S/26 and BISD 27S/28.
36
3. CONDUCT OF NEGOTIATIONS AND ANNOUNCEMENT UPON COMPLETION OF
NEGOTIATIONS
Once the relevant Members have been identified and their rights recognized, bilateral negotiations are
conducted between the requesting Member and each of the Members having an INR or a PSI, as well as
consultations with Members having SI . Upon completion of each bilateral negotiation, a joint letter should be
submitted to the Secretariat including the following information: (a) concessions to be withdrawn; (b) bound
rates to be increased; (c) reduction of rates bound in the existing Schedules; and, (d) new concessions on
items not in existing schedules. Upon completion of all its negotiations the Member requesting the
modification or withdrawal should send to the Secretariat a final report including the following information: (1)
Members with whom Negotiations resulted in agreement; (2) Members with whom agreement was not
reached; and, (3) Members with whom consultations were held.
4. CHANGES TO THE SCHEDULE COME INTO EFFECT
The requesting Member holding successful negotiations pursuant to paragraph 1 will be free to give effect to
the changes agreed upon in the negotiations as from the first day of the period referred to in Article XXVIII:1.
In the case of negotiations under paragraph 4 or 5 of Article XXVIII, as from the date on which the conclusion
of all the negotiations have been notified to the WTO Secretariat. However, "formal effect" of such
modifications have to be introduced into the Schedule through the 1980 rectification /modification procedures,
which conclude with a "certification" by the Director General (see below).
Introduction of the agreed modifications into the Schedules 34
(Circulation of the changes and
certification, procedural requirements 5 & 6)
Certification is the process of attesting changes in the authentic text of the Schedule to reflect modifications
resulting from renegotiations under Articles II, XVIII:7, XXIV:6, XXVII and XXVIII, as well as rectifications of
Schedules of a purely formal character. This process is intended to keep the authentic texts of Schedules up
to date and consistent with corresponding items in national customs tariffs.
Regarding the renegotiation of concessions, the changes as agreed upon by interested parties involved in
such negotiations, can be introduced in the national tariff schedule of the requesting Member right after the
conclusion of negotiations, but further multilateral procedures are required in order to introduce the
modification into the Member's WTO Schedule of concessions. A draft of such changes shall be
communicated to the Director-General where possible within three months but not later than six months
thereafter. The Director-General will then circulate the draft to all Members and if no objection has been
raised by another Member within 3 months after circulation, the changes will be certified and be given
formal effect.
Objections to this type of amendment to a Schedule may only be raised on the grounds that the draft does
not correctly reflect the modifications as agreed upon during such negotiations.
34 L/4962.
37
What if the Members involved in renegotiations cannot reach an agreement at the end of the negotiation
period? In such circumstances, the requesting Member is free to implement the modifications or withdrawals,
which will however give the rights to Members holding INRs and PSI to withdraw equivalent concessions
initially negotiated with the Member that initiated the renegotiation. In cases where the primarily concerned
parties have agreed upon the modification or withdrawal and compensation, a Member holding SI rights is also
entitled to withdraw concessions if it is not satisfied with that agreement (Article XXVIII:3 of the GATT). As it
will be explained below, and unlike the retaliation that takes place under the DSU, the withdrawal of equivalent
concessions by the INR, PSI or SI holders would be on an MFN basis. The permission to withdraw equivalent
concessions is intended to restore the balance resulting from previously negotiated concessions so that the
modification or withdrawal of any concessions will not lead to a level of less favourable overall market access
conditions than that achieved prior to the renegotiation.
As mentioned above, such a withdrawal would have to be on an MFN basis. Therefore, there is the risk of
similar modifications by other Members in "retaliation" for such modification. The possibility for such
withdrawal must be implemented no later than 6 months after the implementation of the proposed modification
or withdrawal by the requesting Member. In practice, the period can be extended by agreement between the
requesting Member and the retaliating Member.
IV.B. RENEGOTIATIONS OF CONCESSIONS UNDER OTHER
GATT PROVISIONS
Renegotiation of concessions can also take place under Articles XXIV:6, XVIII:7 and XXVII of the GATT 1994.
IV.B.1. TARIFF RENEGOTIATIONS IN THE CONTEXT OF THE FORMATION
OF A CUSTOMS UNIONS - ARTICLE XXIV:6 OF THE GATT 1994
Article XXIV:6 of the GATT 1994 provides:
Article XXIV:6 of the GATT 1994
Territorial Application — Frontier Traffic — Customs Unions and Free-trade Areas.
If, in fulfilling the requirements of subparagraph 5 (a), a contracting party proposes to increase any rate of
duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply. In
providing for compensatory adjustment, due account shall be taken of the compensation already afforded by
the reduction brought about in the corresponding duty of the other constituents of the union.
Article XXIV:6 of the GATT 1994 specifically targets the increase in tariff rates in excess of scheduled bound
rates as a result of the formation of a customs union. It provides that in cases where, in the context of the
formation of a customs union, a Member proposes to increase any bound rate, the procedures for modification
of schedules set forth in Article XXVIII of the GATT 1994 shall apply. As clarified by the Understanding on the
Interpretation of Article XXIV of the GATT 1994, the following requirements apply:
38
The process of negotiation must be commenced before tariff concessions are modified or withdrawn
upon the formation of a customs union or an interim agreement leading to a customs union
(paragraph 4);
the negotiations will be entered into in good faith with a view to achieving mutually satisfactory
compensatory adjustment (paragraph 5);
affected Members shall take due account of reductions of duties on the same tariff line made by other
parties of the customs union. Only if such reductions do not provide the necessary compensatory
adjustment, the customs union would provide compensation, which may take the form of reductions of
other tariff lines (paragraph 5); and,
where an agreement cannot be reached within a reasonable period, the customs union shall be free to
modify or withdraw the concession and affected Members shall then be free to withdraw substantially
equivalent concessions (paragraph 5).
In practice, Article XXIV:6 renegotiations have been mainly used by the European Communities in the context
of its formation and subsequent enlargements. In this regard, during the life of the GATT, there were four
major renegotiations under Article XXIV:6, all of which concerned the European Communities including:
renegotiations during the Dillon Round from 1960 to 1962 due to the formation of the EEC - initial six
members - in 1957;
renegotiations due to the first enlargement of the EEC from six members to nine members in 1973;
renegotiations due to the second enlargement of the EEC from nine members to ten members in 1981;
and,
renegotiations due to the third enlargement of the EEC from ten members to twelve members in 1986.
Since the establishment of the WTO, Article XXIV:6 was invoked only in three instances, all of which also
involved the enlargement of the EEC: (i) renegotiations due to the fourth enlargement of the EEC from 12
members to 15 members in 1995; (ii) renegotiations due to the fifth enlargement of the EEC from 15 members
to 25 members in 2004; and (ii) renegotiations due to the sixth enlargement of the EEC from 25 to 27 in 2007.
IV.B.2. RENEGOTIATION OF CONCESSIONS IN THE CONTEXT OF
GOVERNMENTAL ASSISTANCE TO ECONOMIC DEVELOPMENT -
ARTICLE XVIII:7 OF THE GATT 1994
Article XVIII:7 of the GATT 1994 provides:
Article XVIII*: Governmental Assistance to Economic Development
7. (a) If a contracting party coming within the scope of paragraph 4 (a) of this Article considers it
desirable, in order to promote the establishment of a particular industry* with a view to raising the
general standard of living of its people, to modify or withdraw a concession included in the appropriate
Schedule annexed to this Agreement, it shall notify the CONTRACTING PARTIES to this effect and enter
into negotiations with any contracting party with which such concession was initially negotiated, and
with any other contracting party determined by the CONTRACTING PARTIES to have a substantial
interest therein. If agreement is reached between such contracting parties concerned, they shall be free
39
to modify or withdraw concessions under the appropriate Schedules to this Agreement in order to give
effect to such agreement, including any compensatory adjustments involved.
(b) If agreement is not reached within sixty days after the notification provided for in subparagraph (a)
above, the contracting party which proposes to modify or withdraw the concession may refer the matter
to the CONTRACTING PARTIES which shall promptly examine it. If they find that the contracting party
which proposes to modify or withdraw the concession has made every effort to reach an agreement and
that the compensatory adjustment offered by it is adequate, that contracting party shall be free to
modify or withdraw the concession if, at the same time, it gives effect to the compensatory adjustment.
If the CONTRACTING PARTIES do not find that the compensation offered by a contracting party
proposing to modify or withdraw the concession is adequate, but find that it has made every reasonable
effort to offer adequate compensation, that contracting party shall be free to proceed with such
modification or withdrawal. If such action is taken, any other contracting party referred to in
subparagraph (a) above shall be free to modify or withdraw substantially equivalent concessions
initially negotiated with the contracting party which has taken the action.*
(*) See also Ad Note to Article XVIII, paragraph 7(b).
Article XVIII:7 of the GATT 1994 allows developing country Members to enter into renegotiations with
interested Members for the purpose of promoting the establishment of a particular industry. The invocation of
Article XVIII:7 requires no prior authorization. Article XVIII:7 renegotiations apply substantially similar
procedural and substantive requirements as those set out in Article XXVIII:3 of the GATT 1994.
One noticeable difference between Article XXVIII and Article XVIII:7 of the GATT 1994 is that the latter only
refers to INRs-holders and SIs-holders as interested parties.
During the GATT years, Article XVIII:7 was invoked nine times by: Indonesia (1983), Greece (1956 and 1965),
Korea (1958), Benelux on behalf of Suriname (1958) and Sri Lanka (twice in 1955 and once each in 1956 and
1957. 35
IV.B.3. WITHDRAWAL OF CONCESSIONS UNDER ARTICLE XXVII OF THE
GATT 1994
Finally, concessions can also be withdrawn permanently in accordance with Article XXVII of the GATT 1994. It
provides:
Article XXVII: Withholding or Withdrawal of Concessions
Any contracting party shall at any time be free to withhold or to withdraw in whole or in part any concession
provided for in the appropriate Schedule annexed to this Agreement, in respect of which such contracting
party determines that it was initially negotiated with a government which has not become, or has ceased to
be, a contracting party. A contracting party taking such action shall notify the CONTRACTING PARTIES and,
upon request, consult with contracting parties which have a substantial interest in the product concerned.
35 Analytical Index of the GATT (1995), p. 500 - 501.
40
Article XXVII provides two circumstances where a Member is entitled to withdraw its committed concessions,
namely where:
a government with which a concession was initially negotiated has not become a Member of the WTO;
and,
a government with which a concession was initially negotiated has ceased to be a Member of the WTO.
Article XXVII was invoked during the life of the GATT in a number of cases. For example, when Syria/Lebanon
failed to become Contracting Parties of the GATT, three Contracting Parties withdrew some concessions.
Furthermore, when China ceased to be a Contracting Party of the GATT, twelve Contracting Parties withdrew
concessions that were initially negotiated with the government of China.
EXERCISES:
7. Summarize the GATT/WTO provisions pertaining to tariff renegotiations.
8. To initiate renegotiations under Article XXVIII of the GATT 1994, what is the Member modifying its
concession required to do?
9. What do "INR", "PSI" and "SI" stand for and who is entitled to an INR or a PSI?
10. What are the possible outcomes of an Article XXVIII renegotiation?
41
ILLUSTRATION
Exercise 1 - How to distinguish the different types of modifications to a Schedule?
Schedule M – Bratina
This Schedule is authentic only in the English Language
PART I – MOST FAVOURED NATION TARIFF
SECTION II – Other Products
Tariff item number
Description of the products
Base rate of duty (U/B)
Bound rate of duty
Implementation Period
INR Other duties
and charges
1 2 3 4 5 6 7
0301 LIVE FISH
0301.10.00 -Ornamental fish 10$/T (U) 5$/T 1995/2004 Thailand
0301.9 - Other live fish:
0301.91 --Trout (Salmo trutta, Oncorhynchus mykiss, Oncorhynchus aguabonita, Oncorhynchus gilae, Oncorhynchus apache and Oncorhynchus chrysogaster)
0301.91.10 --Of the following species: Salmo trutta, Oncorhynchus mykiss, or Oncorhynchus aguabonita,
100% 50% 1995 Canada
Chile
5%
0301.91.90 --Other 66% (U) (U)
0301.92.00 --Eels (anguilla spp.) 66% (U) 50% or $90/kg, whichever is the highest
1995/2004 Malaysia
Japan
$5/Kg
0301.93.00 --Carp 66% (U) 50% 1995/2004 Norway
0301.99.00 --Other: 66% (U) (U) 2000 EEC
Suppose Bratina is a WTO Member. Based on the WTO Schedule of concessions of Bratina and the
modifications proposed by this Member (see below), indicate whether the rectifications/modifications proposed
by Bratina are:
42
(i) of a purely formal character and may be introduced through the 1980 Procedures for Modification and
Rectification of Schedules of Tariff Concessions (L/4962); or,
(ii) will change the scope of the concession and thus, procedures under Article XXVIII of the GATT 1994
(Modification of Schedules) should be followed; or,
(ii) not possible in the WTO context.
PROPOSED RECTIFICATIONS/MODIFICATIONS
Case 1: Bratina notifies its intention to modify its tariff concession on item 0301.10.00 (ornamental fish) from
5$/T to ―$5/1000Kg‖.
Case 2: Bratina notifies its intention to modify its tariff concession on item 0301.10.00 (ornamental fish) from
5$/T to ―$75/1000Kg‖.
Case 3: Bratina notifies its intention to modify its tariff concession on items 0301.92.00 (eels) from 50% or
$90/kg (whichever is higher) to ―60%‖.
Case 4: Bratina notifies its intention to modify the description of item 0301.91.10, to eliminate the phrase
―Salmo trutta‖.
Case 1 Case 2 Case 3 Case 4
1980 Procedure for rectification
Article XXVIII of the GATT 1994
The modification is not possible
43
Exercise 2 – Which Members are entitled to compensation under Article XXVIII of
the GATT 1994?
The Government of Bratina notifies its intention to renegotiate one of its tariff concessions (tariff line
0301.10.00 –ornamental fish) as follows:
World Trade Organization 2 July 2009
ARTICLE XXVIII:5 NEGOTIATIONS
Schedule M – Bratina
The following communication, dated 28 June 2009, is being circulated at the request of the
Delegation of Bratina.
__________________
Pursuant to paragraph 5 of Article XXVIII of the General Agreement on Tariffs and Trade (GATT
1994), the government of Bratina notifies hereby its intention to modify the tariff concession on items
0301.10.00 (ornamental fish) in Schedule M – Bratina.
Bratina is willing to enter into negotiations and consultations with the Members concerned according
to Article XXVIII for the modification of concessions with respect to the tariff line mentioned above.
The statistics of imports of the tariff line concerned for the triennial period of reference are included
in Annex 1.
Annex 1
Table 1. Bratina – Import and Export Data
Tariff item
numb.
Description
of product
2005 2006 2007 Average 2005/2007
Vol TM Value
(Mill.$)
Vol TM Value
(Mill.$)
Vol TM Value
(Mill.$)
Vol TM Value
(Mill.$)
Part.
(%)
0301.10.00 Ornamental
fish
284.6 118.9 298.7 120.4 317.3 131 300.2 123.4 100.0
Where:
Brazil 156.5 65.4 74.7 66.3 104.7 43.2 112.0 58.3 47.2
EEC 56.9 23.8 116.5 24.1 123.8 51.1 99.1 33.0 26.7
Australia 22.8 9.5 23.9 9.6 34.9 14.4 27.2 11.2 9.1
Canada 21.3 8.9 14.9 9.0 22.2 9.2 19.5 9.0 7.3
44
Tariff item
numb.
Description
of product
2005 2006 2007 Average 2005/2007
Vol TM Value
(Mill.$)
Vol TM Value
(Mill.$)
Vol TM Value
(Mill.$)
Vol TM Value
(Mill.$)
Part.
(%)
Saint
Lucia
15.4 6.4 17.9 6.5 19.0 7.9 17.4 6.9 5.6
Others 11.7 4.9 50.8 4.9 12.7 5.2 25.0 5.0 4.1
Table 2. Compilation of Export and Other Relevant Data
Member Imports of
ornamental fish in
Bratina (Mill.USD)
2007 – Exports from the
Member to the rest of
the world (Mill. USD)
Importance in relative
terms (%)
Australia 11.2 141,358 0.00644
Brazil 58.3 160,649 0.02938
Canada 9.0 420,693 0.00174
EEC 33.0 1,704,088 0.00157
Saint Lucia 6.9 112 5.00000
QUESTIONS
Using as a basis the Schedule of concessions of Bratina (see Exercise 1), Bratina’s notification including Annex
I (Table 1), and the additional information provided in Table 2, identify which Members may qualify as having:
1. Initial Negotiating Rights (INR)
_________________________________________________
2. Principal Supplying Interest (PSI) –import shares criterion
_________________________________________________
3. Principal Supplying Interest (PSI) – export shares criterion
_________________________________________________
4. Members having a Substantial Interest (SI)
_________________________________________________
45
ANSWERS
Exercise 1
Case 1 Case 2 Case 3 Case 4
1980 Procedure for
rectification/modification of schedules
X
Article XXVIII of the GATT 1994 X X X
The modification is not possible
Case 1: The modification is of a purely formal character, because 1 tonne is equal to 1000 kg (1 tonne =
1000 kg). Therefore, the change would not change the scope of the concession so it can be introduced
through the 1980 Procedures for Modification and Rectification of Schedules of Tariff Concessions.
Case 2: Since the modification affects the scope of Bratina's concessions ($5 per tonne is not the same as $75
per tonne – resulting the latter in a higher customs duty--), Bratina would have to follow the procedures under
Article XXVIII of the GATT 1994.
Case 3: The modification affects the scope of the concessions since an ad valorem tariff of 60% may result in
certain cases higher than an specific tariff of $90/kg. For this reason, Bratina would have to follow procedures
under Article XXVIII of the GATT 1994.
Case 4: By eliminating the phrase ―Salmo trutta‖ from the description of item 0301.91.10, Bratina is affecting
the scope of the concessions. In practical terms, such elimination equals to a change in the scope of the
concession, i.e. the product concerned will be subject to a different concession under tariff line 0301.91.90 –-
other--.
Exercise 2
1. Initial Negotiating Rights (INR)
Thailand. See Schedule M - Bratina, tariff line 0301.10.00 (ornamental fish).
2. Principal Supplying Interest (PSI) –import shares criterion
Brazil. According to the information available in Annex 1 (import data), Brazil had over the period 2005/2007 a
larger share in the market of Bratania than Thailand (the Member with INR), which does appear in the chart.
Therefore, Brazil holds a PSI.
3. Principal Supplying Interest (PSI) – export shares criterion
Saint Lucia. This Member has the highest ratio of exports affected by the concession, i.e. exports of the
product to the market of the Member modifying or withdrawing the concession. (see Understanding on the
46
Interpretation of Article XXVIII of the GATT 1994, para. 1). According to Table 2 (export data) such exports
represent in relative terms 5.00000%.
4. Members having a Substantial Interest (SI)
European Union. There is no precise definition of substantial interest. According to GATT practice, a 10% (or
more) share rule has been generally applied for the definition of a "substantial supplier" (TAR/M/16). The EU
has more than 10% (26.7%).
47
V. INFORMATION ON TARIFFS AND IMPORT FLOWS
The WTO is the main repository agency for trade policy information and related trade statistics. This section
provides an overview of the information available on tariffs and import flows. The two main sources on tariff
information are the Consolidated Tariff Schedules (CTS) database and the Integrated Data Base (IDB). The
CTS contains all WTO Members' concessions on goods, while the IDB provides annual information on applied
tariffs and imports starting from 1996. Both databases are available electronically and are accessible through
the web.
There is also a variety of other sources containing tariff information in more aggregated form, including the
World Tariff Profiles (issued jointly by the WTO, ITC and UNCTAD), the International Trade Statistics
publications, certain documents in the TN/AG/S series, as well as reports prepared by the Secretariat for the
purposes of the Trade Policy Review Mechanism.
Why do CTS and IDB matter?
The CTS and IDB constitute practical working tools which provide standardized and consolidated information
on tariff and trade flows. WTO Members and the public at large can benefit from the information available in
the databases. This is particularly interesting for developing and LDC Members that have less resources than
the more advanced economies to maintain and analyse such databases. The IDB and CTS databases serve
to:
improve transparency of information on applied tariffs, tariff concessions and import flows at the
most detailed level of national tariff lines;
provide detailed and precise information in the area of market access for goods;
enhance Members' capacity to formulate and review relevant trade policies;
enable the WTO Secretariat and Members to prepare for, analyse and evaluate bilateral and
multilateral trade negotiations from the market access perspective.
V.A. CONSOLIDATED TARIFF SCHEDULE (CTS) DATABASE
The CTS, approved by the WTO Committee on Market Access on 27 November 1998 (G/MA/63), is an
electronic database which contains Members' concessions on goods in a standardized format. The term
"consolidated" means that for each Member, the database contains all tariff concessions to date in one listing
and in the latest nomenclature adopted by the Member. The CTS database has been established as a working
tool only, without implications as to the legal status of the information therein.
The CTS contains Members' tariff commitments (bound tariffs) and, if applicable, specific commitments in
agriculture (domestic support, export subsidies and tariff quota information). As explained at the beginning of
this Module, these commitments are included in various legal documents such as the Uruguay Round
Schedules, pre-UR Schedules, Protocols of Accession and commitments for the ITA. These commitments are
kept up-to-date by including new accessions, rectifications and modifications and HS transpositions into the
electronic files of Members in the CTS. Corrections and revisions identified by Members and the Secretariat are
48
also being incorporated in the CTS files. The original version of the CTS was recorded in HS 1996 nomenclature
but for most Members their commitments have now been transposed to HS 2002 nomenclature.
The CTS records the most important concession elements 36
of the Schedules of concessions, such as final
bound duties (i.e. final bound rates to be achieved at the end of the implementation period), product
descriptions, implementation period, initial negotiating rights (INRs) and other duties and charges (ODCs) (see
box below).
Data Elements included in the CTS Database*
Tariff commitments
HS tariff line code
Product level
Product description
Source of concession
Legal Instrument
Base duty
Bound duty
Other Duties and Charges
Special safeguard
INR
Implementation period From / To
Source: G/MA/63
* Relevant to this course
While developed country Members prepared their own CTS files, the Secretariat was requested to prepare the CTS
files for all developing country Members in a standard format. The files were then reviewed by the Members
concerned for approval. Comments and clarifications from Members were introduced into their files after which they
were deemed approved. Members have the right to review and amend their CTS file at any time.
36 For more detailed technical information on the content of the CTS database, please refer to document
G/MA/63, consolidated tariff schedules database technical co-operation project, of 18 June 1999 and
G/MA/110, consolidated tariff schedules database project formats for specific commitments in agriculture, of
31 July 2000.
49
V.B. INTEGRATED DATA BASE (IDB)
Following the General Council decision of 16 July 1997 (WT/L/225), WTO Members shall supply, on an annual
basis, a comprehensive set of tariff duties and imports statistics at the level of customs tariff lines to the
Integrated Data Base (IDB). The information has to be supplied in electronic form and the deadlines are 30
March for the tariff of the current year and 30 September for the import statistics of the previous year.
Submitting information to the IDB is thus a WTO notification requirement. However, as not all Members comply
with this notification in a comprehensive and timely manner the WTO Secretariat can provide assistance to
Members to collect such information, either through technical assistance missions or by actively searching and
compiling data from official sources which can be identified by the Secretariat. In these cases Member's
approval is required before inclusion of such data in the IDB.
Briefly, the IDB contains the following information 37
as from 1996:
Tariff data: The tariff data include the current MFN applied customs duties, the current MFN bound
38duties and the product descriptions
39 for all tariff lines. Preferential duties, in-quota duties and ad
valorem equivalents are also included when available.
Import statistics: The import information includes for each tariff line, the value in both national
currency and US dollars and the volume of trade - quantity and quantity unit- by country of origin. For
tariff lines having non-ad valorem duties, a secondary unit of quantity is often provided when it is used
for the duty calculation.
The particularity of the IDB is that for a given year, the import statistics are linked to the tariff data at the tariff
line level.
37 For more detailed technical information on the notification requirements please refer to document
G/MA/IDB/W/6, Guidelines for Supplying PC IDB Submissions, of 15 June 2000.
38 The IDB notification requirements include not only current applied rates but also current bound duties and
the binding situation for each tariff line. Following the establishment of the Consolidated Tariff Schedules
database (CTS) final bound duties are available for all Members. In view of the fact that for most Members final
bound duties are now applicable, current bound duties and binding situation are no longer a priority for IDB
submissions.
39 In English, French or Spanish.
50
Detailed data elements included in the IDB
Tariff data Import statistics
HS Tariff line number
(national tariff line number)
Product description
MFN applied duty
Other duties (i.e. preferential duties)
Partner country
(partners eligible for other duty
schemes)
Other information
(in quota duty rates, ad valorem
equivalents)
HS Tariff line number
Customs Value
(import value for customs purposes
Partner country
(country of origin of imports)
Quantity unit
(national quantity unit used for recording import
volumes)
Import quantity
(import volume expressed in the quantity unit)
References: The reference information is required to standardize national data into IDB format and provide
users with details on the comparability of data among reporting countries. The references consist of
information for both tariff and import data, such as the type of nomenclature (HS2007, HS2002, HS1996) the
year, the weight of the imported goods upon which customs duties are assessed (net weight, gross weight)
and the trading partners receiving preferential treatment when preferential duties are provided.
Concerning the import data, the reference information consists of the national country codes and the national
quantity unit codes used in the import statistics; the imports valuation basis (CIF, FOB etc); the system of
trade (general or special system); the currency in which the import values are provided; the average annual
exchange rate between the US dollar and the national currency.
V.C. DISSEMINATION OF CTS AND IDB
The IDB and CTS database information is disseminated via the following Internet facilities and other media:
TARIFF DOWNLOAD FACILITY (TDF) (http://tariffdata.wto.org) - Free public access
The TDF is a user-friendly software application which allows for the download of detailed IDB and CTS
information. Users can choose and download several countries and years at the same time. Data can be
exported in different formats for further use with other PC software. The TDF also has a very unique feature
that facilitates easy concordance of tariff schedules across different Harmonized System (HS) nomenclatures.
Currently available for MFN tariff data and imports from world at HS 6-digit level. It also includes preferential
tariffs.
IDB/CTS INTERNET ANALYSIS FACILITY (IAF) (http://iaf.wto.org) - Free public access (as of 2010)
51
The IAF is a more analytical software application to facilitate the analysis of detailed national tariff line data
maintained in the IDB and CTS databases. The applications allows for the calculation of certain summary
statistics based on a user-defined subset of information from the database and to generate reports based on
these analysis. These reports can then be exported in different formats for further use with other PC software.
Authorized users (WTO Member governments and selected international and inter-regional organizations) can
also access tariff line level import data.
INTERNET FILE TRANSFER FACILITY (FTF) (http://sft.wto.org) - For authorized users only
As the name suggests, this site allows for transfer or download of any IDB country period data or CTS Member
information in standardized MS Access database file or text format. The complete IDB dataset for approved
country periods and latest CTS files approved by Members can be downloaded by authorized users.
CTS CD-ROM - For authorized users only
It contains all approved CTS schedules. This is the same concession information of Members that can be
downloaded from the FTF but stored in a CD and hence very handy for those without good Internet connection.
IDB/CTS PORTABLE ANALYSIS FACILITY (PAF) - For authorized users only
The PAF is an "off-line" version of the IDB/CTS Internet Analysis Facility. This application is contained in two
DVDs (one for data and one for the software).
The use and publication of any information sourced from these two databases are subject to the conditions
outlined in document G/MA/238, "Dissemination of the IDB and CTS".
52
VI. SUMMARY
In the WTO, tariffs are regarded as the most visible barrier to trade in goods ad are subject to negotiations,
which have led to their successive reduction. However, the value of such tariff reductions would not
guarantee enhanced and predictable market access conditions if Members could freely increase them after
negotiations. Therefore, Members agreed to bind their tariffs at specific levels and record such tariff
bindings together with other concessions in their ''Schedules of concessions'', which form part of the binding
commitments made by the Members and are an integral part of the WTO Agreements. By doing so, the
Schedules of concessions provide security and predictability of market access for goods.
Each WTO Member has its own Schedule of concessions, except for Members that are part of a customs
unions, who have a single common Schedule that covers all its Members. Most WTO Schedules contains
information on tariff item number, description of the product, base tariff rates, bound tariff rates, etc. In the
case of Members that acceded to the WTO after its establishment, their Schedules are part of their Protocols
of Accession. The Schedules also record the results of bilateral or plurilateral negotiations (e.g. plurilateral
negations under the auspices of the Information Technology Agreement "ITA").
As far as the tariff nomenclature is concerned, Schedules normally follow the Harmonized System (HS),
which provides an international coding system for the classification of traded goods. The HS is subject to
reviews and periodical amendments by the World Customs Organization (WCO), aiming to reflect the
changes in technology and patterns in international trade. The GATT Contracting Parties and later the WTO
Members, have taken actions to reflect each HS amendment into their Schedules with a view to keep the
authentic texts of their Schedules up-to-date and in conformity with their applied national tariffs. This is
very important because it allows traders and other Members to compare the tariff rate applied by a Member
with the corresponding bound tariff rate in that Member's WTO Schedule.
Article II:1 of the GATT 1994 sets out the basic disciplines on the WTO Schedules of Concessions. According
to the firs sentence of Article II:1(b), Members shall refrain from imposing tariffs in excess of the bound
levels provided for in their Schedules. This obligation is subject to the terms, conditions or qualifications set
forth in the Schedule. To preserve the value of tariff concessions, Article II:1 second sentence sets out
disciplines on ''other duties or charges'' (ODCs). Members may apply ODCs, in addition to ordinary customs
duties, only if provided in and within the levels indicated in their Schedules. In order to protect tariff
concessions from being eroded by other governmental measures, the GATT and the WTO Agreements
include several other provisions which aim at ensuring the predictability and security of tariff commitments
as recorded in Members' Schedules, as well as to preserve the value of tariff concessions.
At the same time that Members recognize the fundamental importance of recording tariff concessions
resulting from negotiations in a transparent and predictable manner, they also recognize that tariff
concessions may become too onerous to maintain at times due to changing circumstances. Therefore,
Members are allowed to modify or withdraw their tariff concessions through negotiations with Members
holding special rights, subject to certain procedural and substantive requirements.
Article XXVIII of the GATT 1994 is the principal provision dealing with the modification or withdrawal of tariff
concessions and other concessions included in the WTO Schedules. It allows Members to begin a
renegotiation in three circumstances: 1. before the initiation of each three-year period, 2. in special
circumstances, subject to authorization by other Members; and, 3. if the Member has reserved its right to
renegotiate before the initiation of the triennial period. Any Member seeking to modify or withdraw a
concession (e.g. increase a particular tariff binding) must make a notification to the Secretariat to this effect
53
and negotiate with Members holding special rights with a view to agreeing on compensation in order to
maintain the general level of reciprocal and mutually advantageous concessions achieved prior to such
renegotiations. Such compensation could consist, for example, in the reduction of bound tariff rate(s)
applicable to another item or other items. If such agreements cannot be reached, the requesting Member is
free to implement the modifications or withdrawals concerned, whereas the Members holding special rights
are entitled to withdraw equivalent concessions initially negotiated with the requesting Member. Withdrawal
would have to be on an MFN basis. In practical terms, this means that there is the risk of similar
modifications by other Members in "retaliation".
Other provisions of the GATT 1994 which allow a Member to renegotiate concessions include Article XXIV:6,
which provides for renegotiations of tariff concessions in the context of the formation of a customs union,
and Article XVIII:7, which provides for renegotiations of concessions by developing countries for the purpose
of promoting the establishment of a particular industry. In addition, Article XXVII of the GATT 1994 allows a
Member to withhold or withdraw a concession made during multilateral rounds of trade negotiations if the
government with which the concession was negotiated does not become or has ceased to be a WTO Member.
The procedural and substantive requirements for these renegotiations are similar to those applied to
renegotiations under Article XXVIII of the GATT 1994.
While all the provisions mentioned above allow the permanent modification or withdrawal of a concession, a
Member can also suspend a concession on a temporary basis, for instance, by requesting a waiver under
Article IX:3 of the Agreement Establishing the WTO.
54
PROPOSED ANSWERS:
1. For trade in goods, WTO negotiations produce general rules that apply to all Members and specific
commitments made by individual Members. The specific commitments are recorded in documents called
―Schedules of Concessions‖, which consist of a list of products for which specific tariff commitments
(bound tariffs) and other commitments have been agreed by each Member in the context of trade
negotiations. These concessions are granted on an MFN basis.
The Schedules of tariff concessions are legal instruments which are annexed to the GATT 1994 and form
an integral part of the legally binding commitments made by WTO Members. In the case of Members that
acceded to the WTO after its establishment, their Schedules are part of their Protocols of Accession. The
Schedules also record the results of bilateral or plurilateral negotiations (e.g. plurilateral negotiations
under the auspices of the Information Technology Agreement "ITA").
2. In general, the Schedules contain the following information under Part I – Section II:
Tariff item number;
Description of the product;
Rate of duty (base rate and bound rate);
Implementation period (period of time over which the tariffs are reduced);
Initial Negotiation Rights (Members holding initial negotiating rights -INR);
Other duties and charges (ODCs);
Special qualifications, usually in the form of footnotes and head notes, setting up "other terms and
conditions" on the concessions.
It is worth noting that, the Schedules of concessions resulting from the Doha Round of negotiations will
use the Uruguay Round formats although, the Doha Round Schedules will probably differ from the
Uruguay Round Schedules. The Uruguay Round formats require the same information but use a smaller
number of columns, leaving the final details of the structure of some tables to each Member.
3. The introduction of HS amendments is important to maintain a straight relation between the
nomenclature used in the Schedules and that used by trade agents and customs officials. If the HS
nomenclature utilised in the Schedules did not evolve to match new developments, it would be very
difficult for traders to compare the duty being charged by a Member with the corresponding concession in
its WTO Schedule.
Since the "do-it-yourself" approach was not delivering results in a timely and efficient manner, Members
decided to amend the HS2002 procedures by asking the Secretariat to undertake most of the technical
work. In this regard, the General Council adopted new procedures in which the Consolidated Tariff
Schedule (CTS) database would be used as a working tool. Furthermore, the WTO Secretariat was
instructed to transpose the Schedules of concessions of all developing countries, in consultation with the
relevant Member. According to this new procedure, the Secretariat would transpose Members'
commitments included in the CTS database to the HS2002 nomenclature following a standard
methodology. The Members concerned are given a certain period of time to review the Secretariat's work
and to provide comments. The files including possible modifications by the Members are then submitted
to a process of multilateral review by all other Members. Developed Members are expected to prepare
their own HS2002 files, which are also reviewed by the Secretariat before they are presented for
55
multilateral review. If there are no objections to the files with the draft changes at the multilateral
review, the files are considered approved and the HS2002 changes are circulated under the 1980
Procedures for Modification and Rectification of Schedules. These amendments are formally certified by
the Director-General if no reservation s are raised by other Members after a three-month period of time.
4. Article II of the GATT 1994 sets out the basic disciplines on tariff concessions. While Article II:1(a)
generally prohibits granting other Members treatment less favourable than that provided for in a
Member's Schedule, the first sentence of Article II:1(b) provides that Members shall refrain from applying
tariffs in excess of the bound levels provided for in their Schedules. The obligation contained in
Article II:1(b) first sentence is however, subject to the terms, conditions or qualifications in their
Schedules. Article II:1(b) prohibits the application of ordinary customs duties in excess of those set forth
in the Schedule. It is mainly from the commitments assumed under Article II of the GATT 1994 that the
predictability and security of market access conditions are achieved. However, there are several other
provisions in the GATT and the WTO Agreements aimed at preserving the value of tariff concessions.
5. Members' obligation under Article II:1(b), second sentence, covers not only ordinary customs duties, but
also ODCs, which include all charges levied on imports except those listed in Article II:2 of the GATT
1994. Some examples of ODCs include "temporary import surcharges", "revenue taxes" and charges
imposed by import monopolies. . The second sentence of Article II:1(b), together with the Understanding
on the Interpretation of Article II:1(b) of the GATT 1994, prohibit a Member from applying ODCs (which
may be imposed in addition to ordinary customs duties) that are not provided in its Schedule of
concessions. Such ODCs shall be imposed within the levels indicated in the Schedule. In this way, the
second sentence of Article II:1(b) helps to prevent tariff concessions from being circumvented.
6. No. Article II:2 of the GATT expressly allows Members to impose at any time on the importation of any
product: (a) charges equivalent to an internal tax imposed according to Article III:2 of the GATT 1994;
(b) anti-dumping or countervailing duties applied consistently with Article VI of the GATT, the Agreement
on Anti-dumping and the Agreement on Subsidies and Countervailing Measures respectively; and, (c) fees
or other charges commensurate with the costs of the service rendered.
7. There are different GATT provisions dealing with the modification or withdrawal of tariff concessions. In
general, they allow Members to renegotiate in order to modify or withdraw tariff concessions on a
permanent basis, subject to stipulated requirements. These provisions include:
Article XXVIII (the main provision on tariff renegotiations) - which allows a Member to enter into
renegotiations in three different circumstances: i) before each three-year period; ii) in special
circumstances, subject to the authorization of the Members; or, iii) if the Member has reserved its
right to do so before the initiation of the triennial period.
Article XXIV:6 - which provides for the renegotiation of tariff concessions in the context of the
formation of a customs union.
Article XVIII:7 – which provides for renegotiations by developing countries for purposes of
promoting the establishment of a particular industry.
8. Article XXVIII:1 renegotiations can be initiated between 3 and 6 months before the beginning of any
triennial period and should be completed before the commencement of successive three-year period.
Article XXVIII:4 renegotiations can be initiated at any time after authorization from the Membership and
in principle, should be completed within 60 days from the authorization. Article XXVIII:5 renegotiations
can be initiated at any time as long as a Member has reserved its right before the end of a three-year
period, and may be completed at any time. All three sets of renegotiations require the requesting
56
Member to communicate the Secretariat a notification of its intention of modification or withdrawal of
tariff concessions.
9. The term INR is the acronym of "Initial Negotiating Right" while the term PSI is the acronym of "Principal
Supplying Interest". A WTO Member is required to have an INR or a PSI to be entitled to participate in a
tariff renegotiation. The group gathering the Members with INRs and the Member with PSI, together with
the Member seeking to renegotiate a concession, is referred to as "Parties Primarily Concerned". INRs
can be determined sometimes by consulting the Schedules and the negotiating records associated with
the concession. PSIs can be determined either on the basis of import shares in the market of the
requesting Member or on the basis of export shares of the claiming Member. In the case of Members with
PSIs, the objective is to ensure that a Member with a larger share in the trade affected by the
modification of a concession than a Member with INRs has an effective opportunity to protect the
contractual rights which it enjoys under the Agreement.
The term SI refers to Members holding a "Substantial Interest". Members with SI are entitled to
consultations. While there is no precise definition of SI, the term is intended to be construed to cover
only those Members which have, or in the absence of discriminatory quantitative restrictions affecting
their exports, could reasonably be expected to have, a significant share in the market of the Member
requesting to modify or withdraw the concession. According to GATT practice, the substantial interest has
normally been recognized to those Members having an import share of 10% or more of the item for which
modifications were being sought.
10. In some cases, an Article XXVIII renegotiation leads to the conclusion of bilateral agreements between
the requesting Member and the interested parties (INRs and PSIs holders). Such agreements take the
form of compensations that the requesting Member agrees to provide to the interested parties. In cases
where the parties primarily concerned have agreed upon the modifications or withdrawals and
compensations, the Members holding SIs are entitled to retaliate if they are not satisfied with the
agreement.
If the Members involved in an Article XXVIII renegotiation cannot reach an agreement, the requesting
Member is free to implement the modifications or withdrawals at issue, which will however, give the right
to Members holding INRs, PSIs and Sis to withdraw equivalent concessions. The withdrawal of equivalent
concessions by INR, PSI or SI holders would be on an MFN basis. This means that there is the risk of
similar modifications by other Members in "retaliation". The possibility for such withdrawal shall be
implemented no later than 6 months after the implementation of the proposed modification or withdrawal
by the requesting Member. In practice, the period can be extended by agreement between the
requesting Member and the retaliating Member.
