Binding overhang
Also called: Water in the tariff · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
Binding overhang is the gap between a country's bound tariff rate (the WTO ceiling it has promised not to cross) and its applied tariff rate (the duty it actually charges). This gap lets a country raise tariffs without breaking WTO rules. That gives it room to make its own policy, but its trading partners find it unpredictable.
Example
India's average bound rate is about 50% and its average applied rate is about 17%, so the overhang is about 33 percentage points. The gap is widest in agriculture, where the bound rate is about 113% and the applied rate about 39%.
Don't confuse with
- Tariff peak: this is one unusually high tariff on a sensitive product. Binding overhang is the gap between the legal ceiling and the actual rate, and it can exist even when actual tariffs are low.
Related concepts
- Tariff
- Ad valorem tariff
- Specific tariff
- Compound tariff
- Mixed tariff
- Export duties
- Duty drawback
- Tariff escalation
- Tariff peak
- Effective rate of protection