# **3.2 Tariffs and Imports Data**

In the empirical part, we consider the effect of PECS, which relaxed EU-RoO among participating countries, on changes in Spokes’ import flows from non-participating countries (RoW) relative to Spokes themselves. For this purpose, we use trade data from the World Integrated Trade Solution (WITS) for 1995 and 2002, which correspond to pre- and post-PECS years. Using these years also allows us to exploit the available tariff information.<sup>9</sup> Our main group of importing countries is composed of the BAFTA and CEFTA members. After eliminating those countries with missing tariff observations for the pre-PECS period, i.e. Bulgaria, the Slovak Republic and Slovenia, we are left with 7 Spoke countries: Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland and Romania. The set of exporting countries is divided into non-participating countries (RoW), EU15 countries, and Spoke countries. In the period under study, members of EFTA (Iceland, Norway, and Switzerland) and Turkey (for the subset of industrial goods) also joined the PECS. To assess the impact of diagonal cumulation on a more homogeneous group of countries, our benchmark regression does not include EFTA and Turkey in the set of Spokes exporting countries. Nevertheless, these will be included in robustness checks.<sup>10</sup> Table 2 presents descriptive statistics of Spoke countries’ imports from RoW and among themselves. Looking at the total amounts, Spoke countries’ imports from non-participating countries (RoW) increased by 77%. The increase in imports among Spoke countries is much larger, at about 161%.

In the empirical specification, our dependent variable captures product-level changes in each Spoke country’s imports from RoW relative to imports from the Spokes themselves, ∆ _impj,srow −_ ∆ _impj,ss_ . In our data set, imports from RoW retain the by-product’s bilateral dimension, i.e. imports to Estonia at the HS6 level from each of the non-participating countries. Meanwhile, imports to each Spoke from the other Spokes lose the bilateral dimension and are aggregated at the HS6 level, i.e. total imports into Estonia of a particular HS6 line from all the other 6 Spokes. Tables 8 and 9 in Appendix A provide a complete list of countries included in our analysis.

We combine trade data with tariff-level data from UNCTAD Trade Analysis Information System (TRAINS), which provides HS-based tariff line level (HS 6-digit). When tariff data are missing, we use the nearest data point available favoring earlier years when possible (both for pre- and post-PECS). Our tariff measure captures by how much Spoke countries lowered tariffs on imports among themselves compared to tariffs on products from non-participating countries. We compute the tariff change using both preferential tariffs and most favored nation (MFN) tariffs. Specifically, we use MFN tariff every time that we have a missing preferential tariff. Table 2 presents descriptive statistics on tariffs applied by Spoke countries with respect to other Spokes and RoW countries. Notice that the change in tariff between Spoke countries and RoW, ∆ _τj,srow_ , keeps a bilateral dimension (at the six-digit level of the HS), while the change in tariff among Spokes, ∆ _τj,ss_ , is constructed as a simple average of the HS6 tariff applied by each Spoke country to all the other Spoke countries.

> 9More details on tariffs data are provided below.

> 10Notice that we never include EFTA and Turkey in the Spokes importing group.

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