The G-3 Free Trade Agreement: A Preliminary Empirical Assessment

The objective of the paper is to make an exploratory assessment of the impact of the G-3 free trade agreement on member countries' agricultural trade. To fulfill this objective, empirical estimates of changes in the structure of agricultural trade for four products traded between partner countries are obtained by means of a static, single-commodity, partial equilibrium trade model. Estimated variables refer to the volume of trade flows and their corresponding market shares and to economic welfare effects on producers, consumers, and tax payers. Simulations are generated for the current provisions of the agreement and for an hypothetical tariff elimination applying to the products selected for the analysis. The results of the research indicate that the current status of the agricultural provisions of the G-3 make the agreement unlikely to have a important impact on member countries agricultural trade. Furthermore, they show that even if complete tariff elimination were achieved, the potential of the agreement to produce substantial changes in member countries agricultural trade and to bring meaningful economic welfare effects is rather limited. The apparent reason for this outcome is the low level of agricultural trade that exists among partner countries in the preagreement period. Unilateral tariff reductions accomplished in each of the member countries prior to the establishment of the agreement also playa role in determining this result.