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BACKGROUND MATERIAL

This summary has been prepared by the Secretariat under its ownresponsibility. The summary is for general information only and is not

intended to affect the rights and obligations of Members.

World Trade Organization, 2004

With written permission of the WTO Secretariat, reproduction and use of thematerial contained in this document for non-commercial educational and

training purposes is encouraged.

WTO Institute for Training and Technical Cooperation,Centre William Rappard, 154 Rue de Lausanne, 1211 Geneva 21

Tel: (41 22) 739 56 31 , Fax: (41 22) 739 57 81

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MARKET ACCESS (Goods) MA1

Background / Rules

Definitions

Market access is one of the most basic

concepts in international trade. It describes the

extent to which a good or service can compete

with locally-made products in another market.

In the WTO framework the term stands for the

totality of government-imposed conditions

under which a product may enter a countryunder non-discriminatory conditions.

Tariffs and non-tariff measures

Market access in the WTO sense, in the case

of goods, is regulated through border

measures, i.e. tariffs, quantitative restrictions

and other non-tariff measures. The aim of

multilateral trade negotiations has been to

make market access more liberal as well as

more predictable.

Tariffs - bindings

Tariffs are the oldest and probably the most

familiar of all trade measures. Tariffs have

been the GATT's traditional and most

successful field of activity and represent, in

principle, the only instrument of protection

allowed generally by the General Agreement.

Under Article II, contracting parties can "bind"

their tariffs; the rates bound after reduction or

at a low level without reduction are referred toas "tariff concessions" and are contained in

schedules of tariff concessions. Each Member

of the WTO has a schedule, except when they

have one schedule for a customs union as in

the case of the member States of the European

Communities, which have one schedule. A

"binding" is a commitment not to raise the

tariff rate above the levels specified in the

schedules of concessions. Although eight

rounds of negotiations held in GATT since

1947 have lowered the level of average tariff

protection in industrialized countries

considerably, there are still some peaks in the

case of sensitive products in which the tariff

levels are significantly high.

3.2

TARIFF

A tariff is a duty or a levy levied at the

border on goods going from one customs

territory to another.

Ad valorem duty

An ad valorem duty is a customs duty

expressed as a percentage of the value of

the imported goods.

Specific duty

A specific duty is a customs duty which is

not related to the value of the imported

goods, but to the weight, volume, etc. ofthe goods. It is levied as a fixed sum per

unit of quantity, e.g. 2 dollars per

kilogram.

Compound and mixed

A compound duty is a customs duty

comprising an ad valorem duty to which is

added or, less frequently, subtracted a

specific duty, e.g. 10% + 2 dollars per

kilogram. A mixed duty is a duty where a

minimum or a maximum tariff protectionis ensured by the choice between, in

general, an ad valorem duty and a specific

duty as in the following examples: 10%

minimum 2 dollars per kilogram; 10% or 2

dollars per kilogram whichever is less;

10% maximum 2 dollars per kilogram.

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MARKET ACCESS (Goods) MA

Non-tariff measures

Non-tariff measures include all measures,

other than tariffs, used to protect domestic

industry. One of the main principles of GATT

is that protection to domestic industries should

be given through tariffs and not through

imposition of quantitative restrictions andother non-tariff measures restricting imports.

While reduction or elimination of tariff takes

place through specific commitments, non-tariff

measures are dealt with by developing rules

and disciplines to limit their trade restrictive

effect.

Quantitative restrictions

Article XI of the GATT 1994 prohibits the use

of quantitative restrictions in both imports and

exports. Exceptions to the general prohibition

of the use of QRs contained in Article XI, as

well as in Articles XII, XVIII, XX and XXI

govern the precise conditions under whichsuch measures can be used. Additionally,

several WTO Agreements contain provisions

governing the use of quantitative restrictions

in certain other circumstances.

In Brief

Predictable and growing access to markets for

goods and services is an essential principle of

the WTO. This principle is fulfilled throughvarious provisions so as to guarantee security,

predictability and continued liberalization of

trade.

In the case of goods, a basic GATT postulate

is that tariffs should normally be the only

instrument used to protect domestic industry.

Furthermore, tariffs should be predictable and

stable.

Security and predictability in trade in goods

are achieved through the commitments

embodied in the "binding of tariffs". A

"bound" tariff is a tariff in respect of which

there is a legal commitment not to raise it

beyond the bound level. The binding of a tariff

at a level higher than the tariff actually applied

is considered as a legitimate concession. In

this case, the concession is the binding itself,

that is, the commitment not to raise the tariff

beyond that level. The developed countries

have normally bound their tariffs at the applied

levels. By contrast, and consistently with openmarket policies, developing countries have

adopted commitments on "ceiling bindings",

that is, bindings at levels higher than the

applied rates. This has allowed developing

countries to substantially increase their bound

commitments, thus underpinning their open

markets policies, while keeping a certain

margin for protection in case of need.

In the past, tariff negotiations were launched

periodically under the auspices of the GATT.

3.3

OTHER DUTIES AND CHARGES

(ODCs)

"Other duties and charges" include all

taxes levied on imports in addition to the

customs duties which are not in conformity

with Article VIII (Fees and Formalities) of

GATT 1994. Article II:1 (b) stipulates that

the products described in the schedules

"shall be exempt from other duties or

charges of any kind imposed in excess of

those imposed at the time a concession was

granted". Such other duties may include a

"development tax", a "stamp tax", a "fiscal

tax" etc.

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

by governments of other duties and

charges. This Understanding, which is

legally part of the GATT 1994 itself,

requires Members to indicate in their

schedules any other duty or charge existingon 15 April 1994. Any duties and charges

not notified by then had

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MARKET ACCESS (Goods) MAThese negotiations served to reduce

progressively the level of tariff protection in

many countries now Members of the WTO.

Tariff negotiations will remain important inthe future, particularly in relation to

agricultural products, where all non-tariff

barriers have been eliminated and substituted

by tariffs, in many cases at very high levels.

The contractual nature of a bound tariff

concession lies in the fact that the tariff rate

cannot be increased beyond the bound level.

However, countries would not enter into this

kind of commitment without the possibility of

revision when the situation of a domestic

industry so requires. The GATT 1994 allows

for the possibility of renegotiations. A

Member desiring to withdraw or modify tariff

bindings has to renegotiate them with other

interested Members and provide

compensation, that is, substantially equivalent

tariff concessions on other products.

Historical Background

Tariffs, or customs duties on imports, are the

oldest and probably the most familiar of all

trade measures. While they raise revenues for

the State, their usual underlying aim is to give

a price advantage to locally-produced goods.

Protection through tariffs reached its height in

the 1930s when many nations erected high

tariff walls - in the process, stifling world

commerce and production, and deepening the

worst economic depression of modern times.

The first rounds

Geneva Round (April to October 1947)

The very first round of multilateral trade

negotiations was held in Geneva in 1947 while

the Havana Charter was being drafted.

Twenty-three countries which accepted the

Havana Charter negotiated tariff cuts covering

a trade volume which represented half of

world trade; over 45,000 concessions were

exchanged.

Annecy (1949), Torquay (1950-51) and

Geneva (1955-56)

Three additional rounds of tariff negotiationswere held in the period 1949 to 1956. Only the

Torquay Round yielded appreciable tariff

reductions (around 25 per cent in relation to

1948 levels).

Dillon Round (May 1961-March 1962)

Following the establishment of the European

Economic Community in 1957, large-scale

negotiations were held between September

1960 and May 1961 under Article XXIV:6 ofthe General Agreement. These negotiations

were supplemented by a round of tariff

negotiations, proposed by Douglas Dillon,

Under Secretary of State of the United States.

The Dillon Round yielded modest results: only

4,400 tariff concessions were exchanged, and

agriculture and certain sensitive products were

not covered.

Kennedy Round (November 1963-May

1967)

For the Kennedy Round, a new approach to

tariff negotiations was introduced. This was

the adoption of a linear reduction formula, by

which most industrialized countries agreed to

reduce their tariffs on industrial products by 50

per cent. Because of exceptions to the formula,

an average reduction of 35 per cent was

obtained. This approach was not applied to

agricultural products, which were subject to

product specific concessions on the basis of

requests and offers.

During the Kennedy Round, the negotiations

went beyond MFN tariffs for the first time,

leading in particular to the conclusion of the

Anti-Dumping Code, the first multilateral

GATT agreement on non-tariff measures. This

Round was also the starting-point for the

recognition of the concept of non-reciprocity

in trade negotiations between developed and

developing countries and of the commitment

by the developed countries to accord high

priority to granting improved market access in

3.4

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MARKET ACCESS (Goods) MAproducts of export interest to the developing

countries. These aspects were subsequently

embodied in Part IV of GATT 1947.

Tokyo Round (September 1973-

November 1979)

A Ministerial Meeting held in Tokyo in

September 1973 launched a further round of

negotiations on the basis of the Tokyo

Declaration adopted by the 102 developed and

developing countries. The results of the Tokyo

Round went far beyond the scope of previous

negotiations, particularly in the field of non-

tariff measures. In the tariff negotiations,

industrialized countries applied a

harmonization reduction formula for industrial

products which resulted in a 34 per cent cut in

the trade-weighted average (i.e., the rate of

duty weighted according to the value of trade)

of these duties.

The Uruguay Round

Procedures for negotiations

For industrial products the only mandate wasto reach the objective agreed at the Montreal

Ministerial meeting in December 1988, of

obtaining a reduction equivalent to that

secured during the Tokyo Round. This

translated itself into an overall reduction by

one-third. The choice of modalities to reach

this aim was left to each individual country (or

group of countries). The base rates for the

reductions were the bound rates or, for

unbound items, those rates applied in

September 1986. For agricultural products the

norm was to be a reduction by a simpleaverage of 36 per cent, with a reduction on

individual products of at least 15 per cent.

Submission of final schedules

The process of tabling preliminary offers

started in 1990. Due to continuing bilateral

and plurilateral negotiations, few countries

submitted offers. Participants were invited to

table draft comprehensive schedules, including

commitments for both agricultural and

industrial products, only in March 1992.

QUAD Tokyo Meeting

After the submission of schedules there was no

visible progress in the multilateral negotiations

as negotiations were being pursued bilaterally

and plurilaterally. The negotiations received a

big impulse, however, in July 1993 from a

Tokyo meeting of the "Quad" countries

(Canada, European Communities, Japan and

the United States). The meeting decided on:

(1) elimination of duties on a series of sectors

(20 sectors were proposed); (2) harmonization

in other sectors; (3) a 50 per cent reduction in

tariff peaks (15 per cent and above); and (4) a

one-third reduction in residual items.

On the basis of the Tokyo agreement, some

other participants, particularly developed

countries, agreed to eliminate duties affecting

agricultural equipment, beer, construction

equipment, distilled spirits (brown), furniture,

medical equipment, paper, pharmaceuticals,

steel and toys. Harmonization of duties was

agreed only for chemicals, with theharmonization levels fixed at 0, 5.5 or 6.5 per

cent. It was agreed that duties between 5.5 and

10 per cent would be reduced to 5.5 or 6.5 per

cent over five years, those between 10.1 and

25 per cent to 6.5 per cent over 10 years, and

duties above 25 per cent to 6.5 per cent over

15 years. The agreement for reduction of

peaks by 50 per cent was not put fully into

effect even by the Quad countries, and for

many products the duty remained above 15 per

cent.

15 December 1993

Further extensive bilateral negotiations took

place, and participants submitted draft offers

up to 15 December 1993, when it was decided

that while scope for improvement of schedules

remained the negotiations were substantially

concluded. The draft offers became draft final

schedules by 15 February 1994.

3.5

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The Marrakesh Protocol was signed, as an

integral part of the (Uruguay Round) Final

Act, in Marrakesh on 15 April 1994. It entered

into force, together with the Agreement

establishing the WTO on 1st January 1995.

Schedules of concessionsEighty-nine schedules were annexed to the

Marrakesh Protocol, including the schedule of

the European Communities on behalf of the

twelve States which at that time made up its

membership. The schedules total up to 23,000

pages, contained in 31 volumes.

Staging and other technicalities

Unless a participant has offered a ceiling

binding across the board, concessions areexpressed on a line-by-line basis, in the

Harmonized System nomenclature. In the case

of industrial products, if no special staging is

clearly specified in the schedule of a

participant, the provisions of the Marrakesh

Protocol in this regard apply, and the

concessions are to be put into effect over a

period of five years, in five equal stages of

reduction, starting on the date of

implementation for that participant.

For agricultural products, as defined in Article

2 of the Agreement on Agriculture, the

required staging of reductions is specified in

the relevant parts of the schedules.Implementation periods starting in 1995 of six

and nine years were agreed as reflected under

Article I (f) of the Agreement.

A schedule annexed to the Protocol became a

Schedule of GATT 1994 relating to the

Member concerned on the day on which the

Agreement Establishing the WTO entered into

force for that Member.

Schedules submitted after Marrakesh

Least-developed countries were allowed to

submit their schedules of concessions and

commitments on goods and on services by

April 1995, i.e. one year after the date of the

Marrakesh Protocol. Thus, 26 additional

schedules, submitted after Marrakesh, are also

considered (by certification of the Director-

General) as annexed to the Marrakesh

Protocol.

Negotiating techniques

The history of the GATT is also the history of

techniques of tariff negotiation. The

bilateralism of the 1930's was replaced by

multilateral item-by-item negotiation from

1947 to 1962.

Bilateral item-by-item/country-by-

country technique

This is the oldest traditional negotiating

technique, whereby submission of request listsis followed by offer lists. This was the only

technique used in GATT negotiations until and

including the Dillon Round (1961-1962); it is

still being used for any bilateral negotiations

during a Round, for Article XXVIII

renegotiations, and in the process of accession

of new WTO Members.

3.6

MARRAKESH PROTOCOL

The Marrakesh Protocol forms an integral

part of the Marrakesh Agreement which

constitutes the legal instrument embodying

the results of the Uruguay Round.

Schedules of concessions annexed to the

Protocol record the commitments made by

participants in the Round's market access

negotiations on trade in goods.

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Linear reduction

This is the method whereby all tariffs,

regardless of their levels, are reduced by an

agreed percentage. This method was applied

for industrial products in the 1960s during the

Kennedy Round (50 per cent reduction, but

because of the exceptions, the final average

was only 35 per cent reduction).

Harmonization formula

The purpose of applying a harmonizationformula is to reduce high tariffs more than

those that are relatively low. Such a reduction

formula was used during the Tokyo Round of

the 1970s.

Sector approach

This approach aims at the complete

elimination (or harmonization) in a given

sector and has been applied during the

Uruguay Round negotiations, and also morerecently, in the 1996 Ministerial Declaration

on Trade in Information Technology Products.

The practice has been for the elimination or

harmonization to be agreed only among the

Members with significant shares in

international trade. In the Information

Technology Agreement it was decided that the

Agreement would come into effect once

Members or States or customs territories with

a share of 90 per cent of world trade had

joined it. The concessions are, however,

applied on an MFN basis.

Reciprocity in trade negotiations

Central to the negotiating framework for

reduction of tariff since the inception of GATT

1947 is the principle of reciprocity. It implies

that during rounds of negotiations for

reduction of tariffs each country will make

equivalent tariff concessions.

Measurement of reciprocity

No provision in GATT provides guidance on

how reciprocity is to be established, and it has

been left to each government to determine for

itself the economic benefits and advantages of

the exchange of concessions. During early

negotiations a crude method was used. Each

participating government was expected to

offer tariff concessions measured in terms of

the trade coverage of imports and the depth of

tariff out, equal to what it received from other

3.7

STRUCTURE OF A GOODSSCHEDULE

Part I

Most-favoured-nation Tariff (list of

concessions, i.e. bound rates)

Section I - Agricultural Products

Section IA Tariffs

Section IB - Tariff Quotas

Section II - Other Products

Part II

Preferential Tariff (according to

Article I of the General Agreement, if

applicable)

Part III

Concessions on Non-Tariff Measures

Part IV

Commitments Limiting Subsidization

Section I Domestic Support

Section II Export Subsidies -

Budgetary Outlay and Quantity

Reduction Commitments

Section III Commitments Limiting

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MARKET ACCESS (Goods) MAparticipating governments. For measuring the

value of concessions received by them, the

participating governments generally took only

those products into consideration of whichthey were principal or substantial suppliers. In

other words, payment (through reciprocal

concessions) was made by a government

benefitting from tariff concession on a product

only if it was a principal or substantial supplier

of that product. The smaller suppliers got a

free ride by virtue of the application of the

MFN clause.

Reciprocity in last three rounds

The principle of reciprocity remained valid

even after the adoption of the linear or formula

basis for tariff cuts during the Kennedy and

Tokyo Rounds and the reciprocity test was

applied for exclusions from, or exceptions to,

the applications of the formula. Even for the

technique of elimination or harmonization of

tariffs in specific sectors the principle is

substantially applicable. Sectoral agreements

generally ensure that most if not all

governments with significant shares of the

world export market join the agreement.

Concept of non-reciprocity

Since the early 1960s the concept of non-

reciprocity has been accepted in respect of

trade negotiations among developed and

developing countries. It is elaborated in Part

IV of GATT 1994 as well as in the 1979

Decision of the CONTRACTING PARTIES

known as the Enabling Clause. It means that

developing countries should not be expected,

in the course of trade negotiations, to makecontributions which are inconsistent with their

individual development, financial and trade

needs.

Modification of Schedules

Concessions: modification vs.

temporary action

Where a tariff rate is bound under the GATT,

each WTO Member has the obligation not to

raise this rate above the bound level contained

in its schedule. The GATT contains a number

of exceptions to this rule. Tariffs may be

raised above the bound level, for instance, inthe course of temporary safeguard action

under Article XIX or for balance-of-payments

reasons. Anti-dumping and countervailing

duties are other examples. In such cases, the

obligations contained in the schedule remain

unchanged. The modification of a tariff

concession, on the other hand, entails a

permanent change of a negotiated maximum

tariff rate and is incorporated in the Schedule.

Modification - compensation

Temporary suspension of concessions can be

invoked unilaterally. The permanent

modification of a concession, on the other

hand, is based on the principle of renegotiation

and compensation. If a concession is

withdrawn, compensation in the form of new

concessions needs to be granted. The overall

level of concessions should not be less

favourable than before the modification of the

concession (Article XXVIII:2).

Scope of Article XXVIII

The provisions of Article XXVIII prescribe:

- the period for negotiation of withdrawal or

modification of a concession;

- the Members that are involved in

negotiations and/or consultations;

- the actions that should be taken after the

negotiations, whether or not an agreement is

reached among the interested members.

Members are of course free to reduce tariff

rates below the GATT bindings at any time

without recourse to Article XXVIII. If a

reduction of a tariff rate is agreed, a Member

is obliged, by the MFN clause of Article I, to

extend the reduced rate to all WTO Members.

3.8

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MARKET ACCESS (Goods) MARenegotiation of Schedules

Original Article XXVIII

The original Article XXVIII provided that on

1 January 1951 (three years after the GATT

1947 came into effect) or thereafter, any

Member could renegotiate its concessions in

accordance with certain rules. This provision

made the validity of schedules temporary. The

validity of the schedules was in stages

extended until 1 January 1958. In 1955 Article

XXVIII was amended, giving schedules

indefinite application and establishing fixed

periods for renegotiations.

Triennial period for renegotiation

There are several possibilities for renegotiation

of concessions. Article XXVIII:1 stipulates

that a Member may renegotiate a concession

after the termination of successive three-year

period. The first three-year period started on 1

January 1958. The latest three-year period

started on 1 January 2000.

A Member wishing to renegotiate a concession

must notify the Members of its intention not

earlier than six months before, and no later

than three months before the expiration of a

legal period (Ad Article XXVIII para 1:3). For

the period starting on 1 January 2000, a

notification must have been received between

1 July 1999 and 1 October 1999.

Renegotiation in special circumstances

Article XXVIII:4 provides for renegotiationsat any time in special circumstances, when

authorized by the General Council. Up to

1997, this provision had been used 66 times.

Reservation of the right to renegotiate

Each Member can reserve its right to

renegotiate a concession at any time during a

three-year period by notifying the Members

before the end of a three-year period. For the

last period that started on 1 January 2000, 43

Members reserved their rights under paragraph

5 of Article XXVIII.

Renegotiation due to formation of a

Customs Union

If a customs unions is formed, a common

external tariff replaces the individual national

tariffs. Where this common external tariff

requires an increase in a tariff rate above that

bound in a previous national tariff, GATT

Article XXIV:6 requires compensatory

adjustment according to the procedures of

Article XXVIII. Negotiations on

compensations have to take into account the

compensation that is gained through

introduction of the common external tariff,

through reduction of previously higher

national tariffs, that may have been applied to

the same product by other members of the

customs union.

Renegotiations by Developing Countries

A developing country can renegotiateconcessions under Article XVIII:7, to promote

the establishment of a particular industry with

a view to raising the general standard of living

of its people. The country has to notify the

Members of its desire to do so, and must enter

into negotiations with the Members with initial

negotiating rights as well as those with a

substantial interest.

(Re)Negotiations and consultations

(Re)Negotiations with Members whohave initial Negotiating Rights (INRs)

For each concession, the Member with whom

a concession was initially bilaterally

negotiated holds an Initial Negotiating Right.

INRs should be specified in the schedule of

the Member which granted the concession, and

can also be determined by reference to the

negotiation records.

3.9

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MARKET ACCESS (Goods) MAIn the Kennedy Round, as well as the Uruguay

Round, it was agreed that where a tariff

concession is not the result of bilateral

negotiations, a Member has an InitialNegotiating Right if during a representative

period prior to the time when the question

arises, it had a principal supplying interest in

the product concerned. A period of three years

is generally considered representative in this

respect (floating INR).

Members can also grant an INR to other

members during negotiations (negotiated

INR).

(Re)Negotiations with Members who

have a Principal Supplying Interest

A Member has a principal supplying interest in

a concession, if it had, over a reasonable

period of time before the negotiations, a larger

share in the market of the applicant Member

than another Member with which the

concession was initially negotiated, or who

would have had such a larger market share in

the absence of discriminative quantitative

restrictions (Ad Article XXVIII, para 1:4).Unless two Members have an almost equally

large market share, only one can have a

principal supplying interest. For the

determination of the market share, only MFN

trade is taken into account. (Understanding on

the Interpretation of Article XXVIII of the

GATT 1994, para 3).

Exceptionally, an additional supplying country

can be recognized as a principal supplier if the

concession in question affects trade which

constitutes a major part of the total exports ofthat country (Ad Article XXVIII, para 1:5).

The Understanding on the Interpretation of

Article XXVIII of the GATT 1994 grants an

additional principal supplying interest to the

Member who has the highest ratio of exports

affected by the concession to total exports

(para 1). The objective of this supplementary

right is to allow access to negotiating rights for

a wider range of countries, particularly small

and medium-sized exporting Members.

Consultations with Members withsubstantial interest

While negotiations have to be held with a view

to reaching an agreement by the Member

proposing modification or withdrawal of a

concession with Members having initial

negotiating rights and principal supplying

interest (referred to as Members primarily

concerned), the requirement in respect of

Members with substantial interest is only for

consultations. However, in practice,

consultations/negotiations usually occur with

principal and substantial suppliers.

A substantial interest is generally assumed

when a Member has (or could be expected to

have in the absence of discriminatory

quantitative restrictions) a significant share of

the market of the Member who is asking for

renegotiations. A 10 per cent share has been

customarily considered sufficient to fulfil this

requirement.

Results of (Re)Negotiations

3.10

Scenario A

Agreement can be reached among all

parties

The Members primarily concerned, and the

Members having a substantial interest, all

reach agreement: WTO Members are

informed of the agreement and theschedules are modified accordingly. The

negotiations under Article XXVIII need to

be concluded before the new tariff rates

can be implemented. A Member with a

principal supplying interest in a concession

which is modified or withdrawn has to be

accorded an INR in the compensatory

concessions, unless agreed otherwise by

the Members involved.

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Product Classification

Background

Before 1987, many countries and territories

used the Customs Cooperation Council

Nomenclature (CCCN), as a classification

basis for their customs tariffs. However, some

countries, notably including the United States

and Canada used different nomenclatures. In

1970, a Study Group was established in the

Customs Cooperation Council to examine the

possibility of preparing a new system of

nomenclature capable of meeting the principal

requirements of Customs authorities,

statisticians, carriers and producers.

CCC/WCO Harmonized System Convention

The "Harmonized Commodity Description and

Coding System" (Harmonized System) is an

international product nomenclature which has

been developed as a result of the above-mentioned study under the auspices of the

World Customs Organization (WCO)

(formerly the Customs Cooperation Council

(CCC)) in Brussels. This nomenclature is

broadly based on the CCC (Customs

Cooperation Council Nomenclature, used by

the European Communities and many other

countries) and the SITC (Standard

International Trade Classification) revised

(which was the statistical nomenclature used

by the United Nations), but it also takes into

account some aspect of the TSUS (nationaltariff of the United States) and the Canadian

nomenclature. The Harmonized System was

developed not only for customs purposes but

also for the collection of trade statistics and for

all kinds of transactions in international trade

(transport, insurance, etc).

For the purpose of tariff classification, the

Harmonized System also provides a legal and

logical structure within which a total of 1,241

headings are grouped in 96 chapters,

3.11

Scenario B

Agreement only with primarily

concerned parties

If Agreement can be reached among the

Members primarily concerned, but not

with the Members having a substantial

interest, the latter are free to retaliate by

withdrawing (...) substantially equivalent

concessions initially negotiated with theapplicant Member not later than six

months after such action is taken, upon the

expiration of thirty days from the days on

which written notice of such withdrawal is

received by the WTO Members (Article

XXVIII:3 (b)).

Scenario C

No Agreement can be reached

If the Members primarily concerned cannot

reach an agreement, the applicant Member

is free to withdraw or modify its

concession, but all other Members that

were involved in the negotiations and/or

consultations are also allowed, not later

than six months after the action is taken, to

withdraw substantially equivalent

concessions initially negotiated with theapplicant party upon the expiration of

thirty days from the day on which written

notice of such withdrawal is received by

the WTO Members (Article XXVIII:3 (a)).

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MARKET ACCESS (Goods) MAthemselves divided into 21 sections. Thus, the

Harmonized System comprised in 1988 a total

of 5,018 separate groups of goods identified

by a 6-digit code. The first four digitscorrespond to the relevant heading number,

while the fifth and sixth digits identify the

one- and two-dash subheadings respectively.

The HS constitutes a coherent set of headings

and subheadings which, together with the

Interpretative Rules, and Section, Chapter and

Subheading Notes, provide for the systematic

and uniform classification of goods.

Consequences for schedules

There was no obligation under the GATT, nor

is there now under WTO, for Members to

adopt the Harmonized System or to implement

subsequent changes. The only obligation for

WTO Members is to keep the authentic texts

of their schedules of tariff concessions up to

date and in conformity with their national

tariffs.

The Harmonized System has not been

developed under the responsibility of the

WTO, but the fact that practically all WTOMembers use this customs nomenclature in

their national tariffs, and have established their

schedules of concessions on goods in the

Harmonized System, means that all the issues

related to the HS have a direct impact on the

WTO schedules. This is even more obvious if

one takes into account the fact that, as a result

of the Uruguay Round, industrialized countries

have bound practically 100 per cent of their

tariff lines and that tariffs on 88 per cent of all

WTO Members' trade are bound. Although it

was agreed that the main principle to beobserved in the introduction of the

Harmonized System in national tariffs was that

existing bindings should remain unchanged,

the introduction of the Harmonized System on

1 January 1988 implied considerable changes

in the schedules of tariff concessions. It led to

intensive negotiations in 1986 and 1987 for the

countries which decided to adopt this new

system, in order to establish new consolidated

schedules in the Harmonized System

nomenclature. Special procedures were drawn

up to carry out these negotiations.

Negotiations are still under way for those

members which have not yet transposed their

pre-Uruguay Round schedules into theHarmonized System and for those members

that have implemented the amendments to the

Harmonized System in their national tariffs

but not incorporated those changes into their

WTO schedules.

Modifications of the Harmonized System

Article 16 of the HS Convention foresees

periodic revision of the Harmonized System.

To keep the Harmonized System up to date,

and to take into account changes in

technology, new products and developments in

international trade, two sets of amendments to

the Harmonized System have already taken

place on 1 January 1992 and 1 January 1996.

The changes introduced the Harmonized

System on 1 January 1996 involved numerous

modifications in the WTO schedules. A third

set of amendments is to be introduced on

1 January 2002.

Cooperation between WTO and WCO

Close cooperation exists between the two

organizations on the questions related to the

Harmonized System. The WTO participates as

an observer at the sessions of the Harmonized

System Committee (HSC) and usually a

representative of the WCO's Nomenclature

and Classification Division participates as an

observer in the meetings of the WTO Market

Access Committee.

Loose-leaf schedules (LLS)

The practice in GATT 1947 has been that the

changes in the schedules resulting from rounds

of negotiations or from renegotiations are

attached to separate protocols or other legal

instruments. Thus information on concessions

made by a GATT contracting party was spread

out in about forty 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

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MARKET ACCESS (Goods) MAnegotiating records with respect to each

contracting party. It was also decided that such

consolidated schedules should be in a loose

leaf format, so that they could be updated asand when necessary. 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. In 1999 the Market Access

Committee commenced work on the

consolidated tariff schedules (CTS) project so

that all WTO schedules would be complete in

loose-leaf format.

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2

Monitoring Bodies

Surveillance and Monitoring

The Committee on Market Access was

established by the General Council in January

1995 with the following terms of reference:

(a) in relation to market access issues not

covered by any other WTO body:

supervise the implementation of

concessions relating to tariffs and non-

tariff measures

provide a forum for consultation on

matters relating to tariffs and non-tariff

measures

(b) oversee the application of procedures for

modification or withdrawal of tariff

concessions;

(c) ensure that GATT schedules are kept up to

date, and that modifications, including those

resulting from changes in tariff nomenclature,

are effected;

(d) conduct the updating and analysis of the

documentation on quantitative restrictions and

other non-tariff measures, in accordance with

the timetable and agreed procedures;

(e) oversee the content and operation of, andaccess to, the Integrated Data Base (IDB);

(f) report periodically - and in any case not

less than once a year - to the Council for Trade

in Goods.

3.14

Ministerial ConferenceMinisterial Conference

General CouncilGeneral Council

Council for Trade in GoodsCouncil for Trade in Goods

Committee on Market AccessCommittee on Market Access

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3

NotificationRequirements

1. Tariffs

Bound tariff rates can only beincreased (or withdrawn) undercertain rules, which are specified inArticle XXVIII. The basic principle ofmodifications of tariff concessions

(paragraph 2) is that a compensatoryadjustment should be made withrespect to other products, and that"(...) the members concerned shallendeavour to maintain a general levelof reciprocal and mutuallyadvantageous concessions", thuspreserving at least the samefavourable trade environment. Theprovisions of Article XXVIII relate to:

the period to negotiate awithdrawal or a modification of aconcession;

the members that are involved in

negotiations and/or consultations;

the actions that should be taken

after the negotiations, whether anagreement is reached or not amongthe interested members.

This Article also foresees thatnegotiations and consultations shouldbe conducted with "(...) the greatestpossible secrecy in order to avoidpremature disclosure of details ofprospective tariff changes (Ad. ArticleXXVIII), and that only the results ofthese negotiations need to becommunicated to the WTO Members.

a) Procedures for Notificationand Renegotiation

The original Article XXVIII providedthat on 1 January 1951 or thereafter,any member could renegotiate itsconcessions according to certainrules. This provision, which made the

schedules and the renegotiationrights temporary, was extended twomore times. In 1955, at the GATTReview Session, a new Article XXVIIIand an Article XXVIIIbis were adoptedgiving the schedules an indefiniteapplication, and establishing fixedperiods for renegotiations, while thelatter settles rules for multilateralrounds of tariff negotiations.

Periods of three years, the first periodbeginning on 1.1.1958, constitute thelegal time-frame to renegotiatemodifications of schedules. Memberscan also renegotiate at any othertime requesting authorization from

the Council. In practice, a Memberwanting to withdraw or modify itsSchedule should, according to:

"Article XXVIII, para.1(Ad.Article XXVIII), notify theMembers of its intention not earlierthan six months, nor later than threemonths prior to the termination dateof a legal period (for example,between 1.7.87 and 30.9.87 before athree-year period starts, i.e. 1

January), or,

Article XXVIII, para.4, request

an authorization to the Members toenter into negotiations at any othertime than the legal period; or,

Article XXVIII, para.5, reservesits right to do so in the next legalperiod by a notification to theMembers before the end of a three-

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MARKET ACCESS (Goods) MAyear period (commencing in 2000 43Members reserved their rights)."

The notification should indicate theitem and the tariff line number forwhich modifications are envisaged inbound tariffs, and the countries thathave initial negotiating rightsregarding this product. It should beindicated whether the intention is towithdraw or modify a concession. If aconcession is to be modified, theproposed modification should be alsostated in the notification (orcirculated as soon as possible to theconcerned contracting parties).Statistics regarding the imports byorigin of the product for the last threeyears for which statistics areavailable should be annexed to thenotification, as the countries to beinvolved in negotiations and/orconsultations should be identifiedthrough import data. (If relevantimport statistics cannot be suppliedby the applicant contracting party, it

shall give due consideration to exportstatistics provided by contractingparties claiming an interest in theconcession concerned.) Also, ifspecific or mixed duties are affected,both values and quantities should beindicated, if possible. From the dateof circulation of statistics, othercountries have ninety days to notifytheir interest to renegotiate.

Paragraph 1 of this Article indicates

that the applicant member should (a)negotiate with members that haveinitial negotiating rights (INRs)and with those that have a "principalsupplying interest", this group beingcalled "contracting parties primarilyconcerned" and (b) enter intoconsultation with any other memberthat has a "substantial interest" onthe concession. The definitions ofthese expressions are as follows:

Initial negotiating rights aregenerally the results of bilateral

negotiations - thus being determinedbe reference to negotiation records -and should be specified in theSchedules -as well as to multilateralnegotiations (floating INRs). In thelatter case, when the question arises,the member deemed to have initialnegotiator rights shall be the one thathad, during a representative periodprior to the time when the questionarises, a principal supplying interest

in the product concerned. (A periodof three years is considered to be a"representative" or a "reasonable"period of time).

A member has a principalsupplying interest in a concessionif it has had, over a reasonable periodof time prior to the negotiations, alarger share in the market of theapplicant member than another partywith which the concession was

initially negotiated, or would havehad it in the absence of discriminatory quantitativerestrictions. The Members canexceptionally determine that anadditional supplying country can berecognized to be a principal supplierif to this contracting party theconcession in question affects tradewhich constitutes a major part of thetotal exports of such party

(Paragraph 7 of Ad. Article XXVIIIp.74).

A member has a substantialinterest in a concession only if ithas, or could be expected to have inthe absence of discriminatoryquantitative restrictions, a significantshare in the market of the applicantcontracting party. In the GATT, a 10per cent share rule has been

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MARKET ACCESS (Goods) MAgenerally applied for the definition ofa "substantial supplier".

Any member which considers that ithas a principal or a substantialinterest in the concession in questionand wanting to negotiate or consultunder Article XXVIII should, in aperiod of ninety days following thecirculation of the statistics,communicate its claim in writing tothe applicant contracting party andinform the GATT secretariat. If theclaim is accepted by the applicantmember, the parties involved in theArticle XXVIII negotiations aredetermined, otherwise the membermaking the claim may refer thematter to the Council.

b) Understanding on theinterpretation of Article XXVIII ofthe GATT 1994

Some new provisions and/or

clarifications of Article XXVIII werediscussed in the GATT Articles Groupin the Uruguay Round. They refer to(a) the additional definition ofmembers having a principal supplyinginterest, (b) the basis of tradebetween the affected members, (c)the modifications of concessionsrelating to new products, (d) thereplacement of a tariff concession bya tariff rate quota, and (e) thegranting of initial negotiating rights.

Agreement was reached in all thefollowing items:

(i) Additional principal supplyinginterest - An additional principalsupplying interest is accorded to theMember which has the highest ratioof exports affected by the concession(i.e. exports of the product to themarket of the Member modifying orwithdrawing the concession) to its

total exports if it does not alreadyhave an initial negotiating right or aprincipal supplying interest as

provided for in paragraph 2 of ArticleXXVIII. The objective of this"supplementary" right is to allowaccess to negotiating rights for awider range of countries, particularlythe small and medium-sizedexporting contracting parties.

(ii) MFN trade - only trade on a MFNbasis should be taken into account inthe determination of countries with aprincipal supplying interest. Thisprovision should not apply if, at thetime of the renegotiation, the tradebetween concerned members (a) hasceased to benefit from preferentialtreatment or (b) will do so by itsconclusion.

(iii) New products - when a tariffconcession is modified or withdrawnon a product for which three years'trade statistics are not available,

initial negotiating rights should begiven the country that had it whenthe previous classification was used:some clarification is also given inorder to establish countries havingprincipal supplying and substantialinterests in the concession.

(iv) Tariff rate quota - when a tariffis replaced by a tariff rate quota, theamount of compensation shouldexceed the amount of trade actually

affected by this replacement, but itshould not exceed the amount ofcompensation entailed by completewithdrawal of the concession.

(v) New initial negotiating rights a member having a principalsupplying interest in a concessionwhich is modified or withdrawn shallbe accorded an initial negotiatingright in the compensatory

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MARKET ACCESS (Goods) MAconcessions, unless some other kindof compensation is agreed betweenthe members involved.

2. Quantitative Restrictions

At its meeting on 1 December 1995,the Council for Trade in Goodsadopted the" Decision on NotificationProcedures for QuantitativeRestrictions" contained in documentG/L/59. This Decision wastransmitted to the Council for Tradein Goods from the Committee onMarket Access which has a mandate"to conduct the updating and analysisof the documentation on quantitativerestrictions and other non-tariffmeasures, in accordance with thetimetable and procedures agreed bythe CONTRACTING PARTIES in 1984and 1985."

The Decision on QRs requires WTOMembers to notify, by 31 January1996, QRs which they maintain and

any changes to their QRs as andwhen these changes occur. Theyshall make such notifications at two-yearly intervals thereafter. Thenotifications must contain thefollowing information:

a full description of the productsand tariff lines (or parts of tariff lines)affected and the relevant heading orsub-heading in the HarmonisedSystem nomenclature;

a precise indication of the type of

restriction, using the symbols agreedin the annex to the Decision;

an indication of the grounds andWTO justification for the measures,including citation of the preciseprovisions for justification;

a statement on the trade effects

of the measure, including informationon the quantity of permissible

imports, on the degree of quotautilization (in the case of existingquotas) and, on the level ofproduction or consumption whereavailable.

With respect to the last item, thenotification should include adescription of the administrativemechanism associated with themeasure, unless the mechanism has

been notified under another WTOAgreement. With respect tonotifications of QRs made under otherWTO provisions (such as theAgreement on Import LicensingProcedures or the GATT TechnicalGroup on QRs and Other Non-TariffMeasures) which are up-to-date,Members must notify this fact to theMarket Access Division so that theSecretariat will input suchnotifications into the QR data base.

This data base will be newly created,identical to the existing QR data basewhich officially ceased to exist whenthe GATT 1947 was terminated.However, on request, the Secretariatcan provide extracts from the olddata base pertaining to Members'own restrictions to assist them inpreparing their notifications.Members are also allowed to makereverse notifications, in other words,notifications of third party QRs, wherethey deem appropriate.

According to the Decision, theSecretariat will publish periodically adocument listing the WTO Membershaving made a notification. Membersare free to request from theSecretariat at any time detailedextracts, either printouts or on disk,of the QR data base, and thenotifications will be available for

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MARKET ACCESS (Goods) MAconsultation in the Secretariat. TheCommittee on Market Access will, attwo-yearly intervals after receipt of

the complete notifications, reviewthem on the basis of summaries to beprepared by the Secretariat.

3. Reverse Notification of Non-Tariff Measures

At its meeting on 1 December 1995,the Council for Trade in Goodsadopted the "Decision on ReverseNotification of Non-Tariff Measures"contained in document G/L/60. ThisDecision was transmitted to theCouncil for Trade in Goods from theCommittee on Market Access whichhas a mandate "to conduct theupdating and analysis of thedocumentation on quantitativerestrictions and other non-tariffmeasures, in accordance with thetimetable and procedures agreed bythe CONTRACTING PARTIES in 1984and 1985."

This Decision allows WTO Membersthe possibility of making notificationsof non-tariff measures maintained byother Members in so far as suchmeasures are neither subject to anyexisting WTO notification obligationsnor to any other reverse notificationpossibilities under the WTOAgreement. This differs from theDecision on QRs which requiresMembers to notify their own QRs and

allows them the possibility to makereverse notifications where theydeem appropriate. Here, provision ismade for only reverse notificationprocedures.

The reverse notifications shall containthe following information:

an indication of the precise

nature of the measures;

where applicable, a full

description of the products affected,

including the corresponding HSheadings or sub-headings;

where appropriate, a reference

to the relevant WTO provisions; and

a statement on the trade effectsof the measure.

The Member maintaining themeasures is required to comment on

each point contained in thenotification. These comments andthe notification will be included in anew Inventory of Non-Tariff Measureswhich will replace the existingInventory of NTMs which ceased toexist when the GATT 1947 wasterminated. It is important to notethat the new Inventory will cover allnon-tariff measures relating to allproducts (chapters 1-97 of the HSnomenclature) whereas the old

Inventory related only to industrialproducts. In cases where theinclusion or the contents of thenotification is challenged, furtherinformation will be sought from thenotifying Member. In these cases,the Members concerned might holdbilateral consultations with the aim ofverifying the existence of themeasure and its precise andcomplete description. The result of

these consultations shall betransmitted to the Secretariat toinform whether or not to include theinformation in the Inventory.

Additionally, when a measure whichhas been the subject of a reversenotification is notified by themaintaining Member under anotherWTO provision, the maintainingMember shall so notify theSecretariat. Upon receipt of such

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MARKET ACCESS (Goods) MAnotification, the Secretariat, satisfiedthat the subject of the twonotifications is the same, delete the

reverse notification from theInventory and inform Members of theaction taken.

The Inventory of NTMs will be madeavailable to WTO Members in a loose-leaf format in the three WTOlanguages and amendments will becirculated to all Members by theSecretariat. The Committee onMarket Access shall, at two-yearlyintervals on the occasion of thereview of the notifications of QRs,review the reverse notifications ofNTMs received, on the basis ofSecretariat analyses similar to thoseprepared for the GATT TechnicalGroup on QRs and Other NTMs.

3.20

All Notifications are to be sent only to theCentral Registry of Notifications:

WTO Central Registry of Notifications

Centre William Rappard

CH-1211 Geneva 21

Switzerland

Telephone: (41-22) 739 55 69

Telefax: (41-22) 739 56 38

E-mail: [email protected]

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