TARIFF BINDINGS OF THE PHILIPPINES ON INDUSTRIAL PRODUCTS UNDER THE WTO

1.  What does the term "tariff binding" in international trade mean?

Under the World Trade Organization, when members open their markets through the removal of barriers to trade, they "bind" their commitments. Thus, when they remove or reduce their tariffs through negotiations, they commit to bind the tariff reduction/ elimination at a fixed level negotiated with their trading partners beyond which tariffs may not be increased.

2. How does the binding of tariffs under the WTO work?

The WTO process requires that bound tariffs which are so listed for each country in tariff schedules which form an integral part of the WTO Agreements may not be exceeded at any given time. Such bound tariffs may be reduced but they cannot go beyond the levels committed in the tariff schedule.

The binding of tariffs in the WTO provides a stable and predictable basis for trade, a fundamental principle underlying the operation of the institution. Although provision is made for the renegotiation of bound tariffs, a return to higher tariffs is discouraged by the requirement that any increase be compensated for.

3. What was the outcome of the tariff negotiations in the Uruguay Round?

The Uruguay Round achieved an across-the-board reduction in tariffs of at least a third (33%) of their 1986 levels. Japan cut its overall tariffs by a weighted 61%, the European Union by 37% and the U.S. by 34%.

For certain sectors such as construction and agricultural equipment, medical equipment, steel, beer, distilled spirits, paper, toys, pharmaceuticals and furniture, industrialized countries have committed to eliminate tariffs over 5 to 10 years.

For semi-conductors, computer parts and chip making equipment, tariff cuts will be anywhere from 50% to 100% .

4. Did the Philippines cut its tariffs for concessions in the Uruguay Round?

With very few exceptions, the Philippines did not reduce tariffs. Instead, a commitment to bind the tariff on some 2,800 industrial tariff lines at ceiling rates was undertaken. This represents around 50% of total tariff lines. (If the commitment to bind agricultural tariff lines were included, numbering some 744 lines, the scope of bindings would reach 63%.)

5. What is a binding commitment? tariff ceiling rate?

A "binding commitment" is a promise not to raise tariffs beyond a specified rate, and a "tariff ceiling rate" is a level that is higher than the applied (or existing) tariff. As a general rule, the Philippines bound tariffs on these tariff lines at a ceiling rate of 10 percentage points above the 1995 applied rate.

The only exceptions were for 66 tariff lines (or 0.01% of total tariff lines): 42 agricultural and 24 textiles and clothing products whose tariffs will be reduced by the year 2004.

6. With the Philippines’ commitment to reduce tariffs, will the domestic market be flooded by cheap imports?

The Uruguay Round required actual reductions in tariffs of at least 33% on all tradeable products. The Philippines, however, negotiated as a developing country and emphasized that it could neither reciprocate the tariff cuts of the industrialized countries nor match the reduction commitments of other developing but more advanced countries.

The tariff binding commitment will not mean that the domestic market will be flooded by cheap imports. Neither will the reduction commitments on the 66 tariff lines lead to a deluge of cheap imports since the reduction rates only range from 10% to 30% of the 1995 applied rates, and will be effected over 10 years. It may also be said that the reductions on the 66 tariff lines (out of 5,691) is a small price to pay in exchange for the tariff concessions the Philippines received on its major exports

7. How are domestic industries affected by the tariff bindings committed in the Uruguay Round?

Since the applied rates on imports are already way below the bound ceiling rates under the WTO because of the tariff reductions being effected under the Tariff Reform Program, such commitments have no effect at all on the competitiveness of local industries in the domestic market.

However, insofar as the tariff reductions of the Philippine trading partners are concerned affecting products of major export interest to us, the tariff bindings directly translate into wider foreign markets for local products and increased export earnings for the country.

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