is only associated with products from countries with which the EU had PTAs in place at that time.

Changes to multilateral tari¤s need not only take place in the context of GATT/WTO negotiating rounds. It is natural, however, to analyze tari¤ changes achieved through negotiation rounds when considering the US and EU during the recent period in which detailed tari¤ data are available. This is true for two reasons. First, for most products, US and EU applied MFN tari¤s are relatively close to their legal tari¤ bindings so that the tari¤s cannot be increased without violating multilateral commitments. Second, US and EU tari¤s were relatively low to begin with during this period, and so there is also not much scope for downward variation in the form of additional unilateral reductions. However, these two conditions do not apply to a number of developing countries in the international trading system which had both i) su¢ ciently high applied MFN tari¤s at the time of PTA implementation to allow for the possibility of meaningful unilateral reductions, and ii) legal binding commitments su¢ ciently above their applied MFN rates to allow applied rates to legally increase as well without violating these commitments.

Estevadeordal, Freund and Ornelas (2008) exploit these features of the data for 10 Latin America countries over 1991-2000. They assess patterns of applied MFN tari¤ changes following the implementation of PTA tari¤ reductions, under agreements like MERCOSUR, the Andean Community, and other intra-Latin American PTAs formed in the decade. These countries exhibit, on average, a positive relationship between changes in preferential tari¤s and subsequent changes to applied MFN tari¤s –evidence that Latin America’s preferential agreements worked as a building block toward unilateral MFN liberalization during this period. Higher shares of intra-PTA imports are also associated with reductions in applied MFN tari¤s even for relatively small preference margins. However, the results are limited to the free trade areas and do not hold for Latin America’s trade agreements that were formulated as customs unions during that period, such as MERCOSUR.

In a related approach, Calvo-Pardo, Freund, and Ornelas (2011) assess multilateral tari¤changes following the preferential tari¤ reductions associated with the creation of the ASEAN Free Trade Area in 1992. ASEAN is another setting in which preferential liberalization led to applied MFN tari¤ cuts, with MFN tari¤ cuts found to be larger in products with larger preference margins and thus a greater scope for trade diversion.<sup>104</sup> What are the potential explanations for the di¤erences across settings? One potential contributor is government policy responsiveness to the threat of trade diversion. The Estevadeordal, Freund and Ornelas (2008) and Calvo-Pardo, Freund, and Ornelas (2011) settings resulted in original PTA liberalization that led to large preference margins (relative to pre-PTA applied MFN rates). Consistent with the tari¤ complementarity e¤ect, economically costly trade diversion could have arisen if governments did not subsequently also lower their applied MFN tari¤s. The US and EU en-

> 104 Tovar (2012) also studies how developing countries make unilateral changes to applied MFN tari¤s after the formation of a PTA. She examines four countries after the formation of the CAFTA-DR in 2004. The results for CAFTA-DR are di¤erent than the earlier studies as they suggest at least an initial stumbling block e¤ect. Countries increased (or decreased by less) MFN tari¤s on products that had previously been subject to larger preferential tari¤ reductions in the ...rst two years after PTA implementation, and this is somewhat o¤set in the subsequent two year period during which the countries reduced their MFN tari¤s. An interesting feature of this evolving e¤ect is that it is consistent with the pattern expected under an FTA according to the model of Bagwell and Staiger (1997a).

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