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A comprehensive short and long-run assessment on the impact of the EU-Mercosur agreement on Brazil

Author

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  • González, Javier
  • Latorre, María C.
  • Valverde, Gabriela Ortiz

Abstract

After 20 years of negotiations, the European Union (EU27) and Mercosur (made up of Argentina, Brazil, Paraguay, and Uruguay) signed an "Association Agreement" that not only liberalizes trade in goods and services, but also expands into other aspects such as sustainability and respect for human rights. Thanks to its scope and the market size of its member economies, it is one of the largest trade agreements in the world. As far as trade in goods is concerned, the EU27 undertakes to liberalize 92% of imports coming from Mercosur over a period of up to 10 years. Concerning Mercosur members, they commit themselves to liberalize 91% of imports coming from the EU over a period of up to 15 years. Regarding services, the agreement comprises all modes of supply, including the liberalization of investment (establishment) both in the services sector and in other sectors. It also embodies the elimination of unnecessary technical barriers to trade (TBTs). The latter leads to creating a framework within which technical regulations and standards can converge. We employ a Computable General Equilibrium (CGE) methodology, namely, the static and dynamic setting of the Global Trade Analysis Project (GTAP) (Hertel and Tsigas, 1997; Corong et al., 2017; Aguiar et al., 2019a), using GEMPACK (General Equilibrium Modelling Package) software. The combination of both the static and the dynamic model allows to estimate the effect of the agreement in the short and long run. It also offers a way to explore the potential effects of capital flows related to the agreement (Ortiz-Valverde and Latorre, 2020). Moreover, it allows to better estimate the subsequent reduction in tariffs and the evolution of quotas, which are further liberalized as the years pass by. Dynamic estimations also constitute a novelty in the analysis of this agreement since most studies have focused on the outcomes after the agreement is fully implemented.

Suggested Citation

  • González, Javier & Latorre, María C. & Valverde, Gabriela Ortiz, 2022. "A comprehensive short and long-run assessment on the impact of the EU-Mercosur agreement on Brazil," Conference papers 333391, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333391
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    References listed on IDEAS

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