that countries take on, as well as the size of the tariff binding overhang.<sup>11</sup> A final stream of recent research that I briefly highlight explores additional economic implications of countries failing to constrain their applied tariffs by leaving sufficient tariff overhang between the applied rates and their tariff bindings.<sup>12</sup> Handley and Lim ̃ao (2015) develop a dynamic, heterogeneous firms model with sunk costs of exporting and show that investment and entry into export markets is reduced when trade policy is uncertain. Furthermore, they show how a credible commitment implied by a trade agreement (e.g., reducing tariff bindings) can increase trade even if applied trade barriers are already low.<sup>13</sup> Handley (2014) provides an application of some of the key elements of this theory to the context of WTO tariff bindings and the case of Australia, finding that growth of exporter-product varieties would have been 7 percent lower between 1993 and 2001 without the binding commitments that Australia took on upon its WTO entry. While the Handley results suggest gains (to the exports) of a trading partner, one would expect that the _reciprocal_ reduction of uncertainty - i.e., two countries jointly eliminating uncertainty by simultaneously binding their applied tariffs at low levels - could lead to analogous joint gains that accrue under the distinct exercise of two countries simultaneously lowering those applied rates under a terms-of-trade neutralizing trade agreement in the first place.<sup>14</sup>

> 11To clarify, Beshkar, Bond and Rho (2015) focus on the determinants of the level tariff bindings (taking applied rates as given) whereas Nicita, Olarreaga and Silva (2013) focus on the determinants of the level of _applied_ tariffs (taking binding rates as given). Nicita, Olarreaga and Silva do not investigate the impact of import market power on either the level of tariff _bindings_ or the _amount of overhang_ between the binding and the applied tariff; an IV for the amount of overhang is interacted with the measure of importer market power.

12Separately, there is some empirical evidence related to the commitment theory of trade agreements, however, it is much less developed in the literature. Examples include Tang and Wei (2009) which finds some evidence of a positive impact of WTO accession on economic growth. Bown and Crowley (2014) find evidence for some developing countries that WTO entry has committed them to change how they implement increases to their levels of import protection (in response to macroeconomic shocks) by switching to different (and WTO-sanctioned) trade policy instruments, and this is both different from how they operated before the WTO and it is similar to the commitments and trade policy use of higher income WTO members. See also Staiger and Tabellini (1999) for evidence on the role of the GATT in allowing the United States to make trade policy commitments during the Tokyo Round of negotiations.

> 13Handley and Lim ̃ao (2015) provide a structural approach to estimating the model and apply it to Portuguese firm-level data. Their policy environment does not entail the binding of tariffs under the WTO, instead they examine the 1986 Portuguese trade agreement accession to the European Economic Community which reduced trade policy uncertainty by locking in zero import tariffs from European trading partners. Francois and Martin (2004) provide an alternative theoretical approach examining the role of tariff bindings in reducing the uncertainty associated with market access. Lim ̃ao and Maggi (2015) provide a more general theory examining when trade agreements can provide gains through the reduction of trade-policy uncertainty. Conditional on the level of income risk aversion in a country, gains from reducing trade policy uncertainty are more likely to arise for economies that are more open and specialized and that have lower export supply elasticities.

> 14See also Handley and Lim ̃ao (2014) for a an examination of the resolution of trade policy uncertainty facing Chinese firms resulting from accession to the WTO in 2001 and the reduction of uncertainty surrounding US applied tariffs that had persisted during the 1990s through the annual Senate debate on whether to renew China’s MFN treatment. They find that the effect of the WTO on reducing the threat of a trade war explains 22 percent of China’s export growth to the US, and that the reduction in policy uncertainty lowered U.S. prices and increased consumers’ income by the welfare equivalent of an 8 percentage point tariff decrease.

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