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The WTO agreement includes commitments by countries to bind their tariff rates at an agreed-upon maximum rate for each import product category. The maximum tariff in a product category is called the bound tariff rate. The bound tariff rates differ across products and across countries: some countries agree to higher maximums; others agree to lower maximums. In general, less-developed countries have higher bound tariff rates than developed countries, reflecting their perception that they need greater protection from competition against the more highly developed industries in the developed markets.
However, some countries, especially those with higher bound tariffs, decide to set their actual tariffs at lower levels than their bound rates. The actual tariff rate is called the applied tariff rate. Table 1.4 "Bound versus Applied Average Tariffs" lists the average applied tariff rates compared to average bound tariffs for a selected set of WTO member countries.The averages are calculated as a simple average: namely, the ad valorem tariff rates (bound or applied) are added together and divided by the total number of tariff categories. These are not trade-weighted average tariffs. Also, when specific tariffs are assessed for a product, they are excluded from the calculations. (Note that specific tariffs are set as a dollar charge per unit of imports.) Also listed is the percentage of six-digit tariff lines that have a tariff binding. For products that have no tariff binding, the country is free to set whatever tariff it wishes. The countries are ordered from the highest to the lowest gross domestic product (GDP) per person.
Table 1.4 Bound versus Applied Average Tariffs
|Country||Applied Rate (%)||Bound Rate (%)||% Bound|
Table 1.4 "Bound versus Applied Average Tariffs" reveals the following things worth noting:
Jeopardy Questions. As in the popular television game show, you are given an answer to a question and you must respond with the question. For example, if the answer is “a tax on imports,” then the correct question is “What is a tariff?”