Trade Types of Tariffs


Most-favored nation (MFN) tariffs are tariff rates a country applies to imports from all trading partners that are members of the World Trade Organization (WTO), unless the country has a preferential trade agreement, like NAFTA, that stipulates different (lower) duties on imports from specific countries. Under WTO rules, MFN tariffs are the same for all non-preferential partners (those not part of a preferential trade agreement). 


Countries also have bound tariffs, which are (sometimes much) higher rates than MFN tariffs. Bound tariffs are the maximum tariff rate for a given product that a country has committed not to exceed. WTO members have the flexibility to apply tariffs at any level up to their bound level. 

Under WTO rules, while a WTO member can raise its applied tariff to the bound tariff, it cannot apply different tariffs against different countries. In the absence of an FTA, the same tariff rate must be applied against all WTO members. In other words, each member qualifies for the best rate on offer, or the MFN rate. If bound tariffs apply to one partner, they apply to all. 

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