the difference between the tariff binding rate and the MFN applied rate is frequently referred to as the tariff binding ‘overhang’ or alternatively, the ‘water’ in the tariff binding.

The first column of Table 1 presents the simple average of the MFN applied ad valorem import tariff rate for our sample of major economies in 2013, only two of which were not members of the WTO.<sup>9</sup> The United States, for example, applied an MFN tariff to imports from other WTO members at a simple average rate across the roughly 5200 6-digit Harmonized System (HS06) products of 3.4 percent in 2013. Among the high-income G20 members, Australia had the lowest average MFN applied tariff (2.7 percent) and Korea had the highest (13.3 percent). The emerging economy members of the G20 tend to have slightly higher MFN applied import tariffs, ranging from Indonesia (6.9 percent) to India (13.5 percent). The other developing countries in the sample that were WTO members by 2013 had applied MFN tariffs that were even slightly higher than the typical G20 rates, ranging from an average of 5.6 percent (Burma) to 16.8 percent (Egypt). Finally, the WTO non-member countries, such as Ethiopia and Iran, had average MFN applied rates that were substantially higher.<sup>10</sup> Overall, applied ad valorem import tariffs exhibit substantial heterogeneity across countries. High-income economies apply much lower tariffs than middle income countries. Furthermore, poor countries apply tariffs that are even higher than the middle income countries.

The MFN tariff rates that countries apply are not necessarily the same as the tariffs that countries have legally committed to under the WTO; they can be lower. The third column in Table 1 lists the share of imported products over which the country has agreed to take on a tariff commitment. The US, the EU, Saudi Arabia, Argentina, Brazil, China, Mexico, Russia, Democratic Republic of Congo, and Vietnam have agreed to bind tariffs for 100 percent of their of well-defined exceptions that we describe below. On the other hand, WTO members establish their second (set of products with any cap) and third (level of the binding tariff) commitments individually. These second and third commitments have resulted from either decades of interaction with other WTO members under GATT negotiating rounds or the negotiated process of accession.

> 9More details on these data are described in the Data Appendix. First, the applied tariffs are the tariffs that governments set, and the measure derives from policy data that either the government reports itself (to the WTO) or which are collected via official government publications by other international organizations; typically these are reported on an annual basis. Put differently, these measures of tariffs are _not_ imputed from data on customs revenue collections. Furthermore, these applied tariff measures do _not_ include other border charges or taxes, including safeguards tariffs and antidumping duties that we describe in Section 3.1 below. Second, throughout this analysis we only utilize simple average tariffs; the alternative of constructing trade-weighted average tariffs can lead to the well-known problem of downward bias due to products with high tariffs receiving low weights (because of small import volumes). The intuition is provided by the limiting example of a prohibitive tariff level which receives zero weight in the averaging calculation. Third, the calculations in Table 1 derive from data that does include consideration of ad valorem equivalent estimates for products over which the import tariff that the country applies is a specific duty. We describe data on the prevalence of import tariffs applied as specific duties in Section 2.2 below. In other areas of this chapter - such as when we wish to focus on changes in tariffs arising from _policy decisions_ - we deliberately drop from consideration the products for which tariffs are applied as specific duties.

> 10We note that an MFN tariff is somewhat of a legally meaningless concept for countries such as Ethiopia and Iran as they are not WTO members and are thus not bound by the multilateral agreement. This similarly holds for the ‘MFN’ tariffs (reported below) applied prior to GATT/WTO membership for countries that ultimately become members. An open research question is the extent to which countries impose tariffs on an MFN basis when they are not legally bound to do so. Furthermore, our use of the word ‘legal’ to describe WTO tariff commitments refers to treaty obligations that countries voluntarily assume, as enforcement of WTO ‘law’ is by the mutual agreement of all parties, as is described in greater detail elsewhere in this volume (Mavroidis, forthcoming).

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