In column (5) I estimate the model on only the subsample of data from those 14 WTO member countries. In both cases, the estimate of _γ_ 0 is negative and statistically significant.

To conclude this section, I am unable to find evidence to suggest that the applied MFN tariff levels for unbound products under the WTO are positively associated with importer market power considerations. Under the basic terms-of-trade theory of trade agreements, if countries with unbound tariffs are not applying them to exert market power and impose externalities on trading partners, this suggests little role for the WTO to facilitate applied tariff reductions in this area. While there may be other theories that would motivate welfare improvements arising from countries voluntarily binding these tariffs through the external commitment of a trade agreement - e.g., the trade policy and uncertainty literature associated with Handley and Lim ̃ao (2014, 2015), Handley (2014), or Lim ̃ao and Maggi (2015) - in this instance, the motivation may not arise from the basic terms-of-trade theory itself.

# **5 WTO members with bound tariffs but substantial tariff overhang**

A second contentious area within the WTO system involves countries that, while having taken on the legal commitments to bind their tariffs at some upper limit, have set the upper limit so high relative to the MFN tariff that the country ultimately applies that the binding level is economically meaningless. The difference between the legally binding commitment and the applied tariff is, again, defined as the amount of tariff overhang. In this section I examine whether applied import tariffs are positively associated with importer market power considerations for products which are characterized by substantial tariff _overhang._ My approach in this section follows the theoretical insights and empirical framework introduced by Nicita, Olarreaga and Silva (2013) described above. To summarize, they study the applied tariffs for roughly 100 WTO member countries and provide two key empirical results. First, when applied tariffs are constrained by WTO binding commitments - e.g., in the extreme, suppose that the applied rate is equal to the binding commitment, so there is zero tariff overhang - then there is a negative relationship between importer market power and the applied tariff. Second, when applied tariffs are unconstrained by WTO binding commitments - e.g., in the extreme, suppose that there is substantial tariff overhang because tariff bindings have _not_ been negotiated down close to applied levels - then there is a positive relationship between importer market power and the applied tariff. It is this second result in particular that I investigate in more detail.

## **5.1 The countries and the products with overhang - descriptive**

First I need to identify the set of WTO member countries with bound tariffs but with significant amounts of tariff overhang remaining between their tariff binding commitments and their applied rates. Table 7 provides the list of WTO member countries that each have at least 15 percentage points of average tariff overhang. First, it is interesting to note that almost all of the countries in 19