are unrelated to market power, then together with the ...ndings reported in the literature that unilateral tari¤s are strongly related to market power, this would suggest that trade agreements do indeed limit the exercise of market power. This is the approach that Broda et al. (2008) take. Focusing on the US, they ...nd that US non-tari¤ barriers and so-called “statutory” tari¤ rates – neither of which has been the subject of negotiations within the GATT/WTO –are signi...cantly and positively related to the degree of market power which the US exerts on the world prices of its import products, while the US MFN tari¤s –which have been subjected to the many rounds of GATT/WTO negotiations –exhibit no such relationship.

A related approach is taken by Nicita, Olarreaga and Silva (2014). They focus on the nature of the tari¤ commitments made by WTO member countries –commitments that as we have described above take the form of bindings de...ning the maximum allowable level for the tari¤ –and exploit the fact that countries di¤er in the degree to which their negotiated WTO tari¤ commitments constrain their applied tari¤s (i.e., the tari¤ levels that they actually set). Nicita et al. observe that tari¤s that are unconstrained by WTO bindings should exhibit a positive correlation with market power, for the reasons associated with unilateral tari¤s that we describe above. But Nicita et al. also derive a new prediction: they argue that tari¤s constrained by WTO bindings (the “cooperative tari¤s”) should exhibit a negative correlation with market power. This prediction follows under their assumptions that (a) exporters enjoy extra political economy weight in the objectives of their governments and (b) their governments lack trade instruments of their own (e.g., export subsidies) to shift surplus to these exporters. Under these assumptions, the only way for a government to help its exporters is to negotiate a tari¤ cut in the foreign markets served by its exporters, and the political payo¤ to the government from negotiating such tari¤ cuts will be higher the greater is the importer market power in the foreign market where the negotiating e¤orts are focused (and hence the greater the exporter-price e¤ect of the tari¤ cuts). On this basis, they predict that the cooperative tari¤ levels will be negatively correlated with importer market power. Examining the tari¤s of 101 WTO members, Nicita et al. ...nd that the sign of the correlation between tari¤ levels and market power indeed switches from positive to negative as the WTO tari¤ bindings vary from levels that are well above applied tari¤ rates to levels that are at the applied tari¤ rates.<sup>34</sup> Beshkar, Bond and Rho (forthcoming) derive a related prediction in an extension of the basic terms-of-trade model that emphasizes the trade-o¤ between commitments and ‡exibility. (We discuss their paper further in Section 4.2.) Within this extended model, they show that applied tari¤s are more likely to be set at their WTO-bound levels at any point in time the greater is the market power for that product possessed by the importing government; and with a su¢ ciently high level of import market power, applied tari¤s are always set at the level of the negotiated binding. Beshkar et al. ...nd strong evidence for these predicted relationships between negotiated tari¤ commitments and importer market power with data on the tari¤s of 109 WTO member countries.

> 34 Nicita, Olarreaga and Silva (2014) also report that the expected positive correlation between tari¤s and market power emerges in their data only once the WTO tari¤ commitments are su¢ ciently above the applied tari¤ levels. They view this as something of a puzzle, and suggest that it may re‡ect some form of implicit cooperation among WTO member countries.

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