Bound Tariff

A bound tariff is a ceiling rate of customs duty that a World Trade Organization (WTO) member has formally committed not to exceed for a specific product line. These ceilings are listed in each member's Schedule of Concessions, annexed to the GATT 1994, and are legally binding under WTO law. Raising a duty above the bound rate without compensation to affected trading partners constitutes a violation of Article II of the GATT.

Bound tariffs are distinct from applied tariffs, which are the duties actually charged at the border. Applied rates are frequently lower than bound rates, and the gap between them is called the tariff overhang or "water in the tariff." This overhang gives governments policy space to raise applied tariffs in response to domestic pressures without breaching WTO obligations — a flexibility many developing countries rely on.

Key features:

• Negotiated, not unilateral. Bindings are the product of multilateral rounds (the Uruguay Round, 1986–1994, dramatically expanded coverage) and accession negotiations for new members.
• Coverage varies sharply. Developed economies bind nearly 100% of their tariff lines; many developing members bind a smaller share, and least-developed countries often have high ceiling bindings well above applied rates.
• Modification is possible under GATT Article XXVIII, but the member must negotiate compensation with principal suppliers or face authorized retaliation.
• Agricultural tariffication. Under the Uruguay Round Agreement on Agriculture, non-tariff barriers were converted into bound tariff equivalents.

Bound tariffs are central to the predictability function of the trading system: importers, exporters, and investors can plan against a known legal maximum. They are also a recurring flashpoint — disputes over India's bound rates on ICT products (DS582, brought by the EU in 2019) and the long-running debate over US Section 232 steel duties illustrate how bindings constrain — or fail to constrain — modern trade policy.