A General Equilibrium Assessment of the EU-Mercosur Association Agreement

Abstract

We offer a comprehensive general equilibrium analysis of the EU-Mercosur agreement considering tariffs, quotas, non-tariff measures in goods and services, as well as a usually neglected component, namely, government procurement. We use the well-known GTAP model and cover the results for 36 sectors and 9 regions (US, EU, Argentina, Brazil, Paraguay, Uruguay, Canada, China and ROW). Our estimations are based on the negotiated tariffs and quotas at the HS 8-digit level and on a thorough analysis of the texts of the agreement. Our quantitative estimations for GDP, welfare, wages, aggregate trade and prizes show larger gains in countries with current high trade barriers and a stronger liberalization commitment. GDP increases are highest in Uruguay (0.61%), and lowest in Paraguay (0.04%) and of 0.13% (in Brazil) and 0.26% (in Argentina). The EU derives an 0.20% increase in wages. China and the US experience small losses in wages, capital remuneration and welfare.

Keywords: Simulation Modeling, International Trade, Trade Forecasting and Simulation, Welfare Economic Analysis, Public Procurement

JEL Classification: C68, D58, F14, F15, F17