New EU-MERCOSUR Association Agreement: Quantitative Impact Assessment of the Liberalization through Tariff Rate Quotas

On 15 July 2021, the European Commission made publicly available the tariff elimination schedules of the Association Agreement between the European Union (EU) and Mercosur countries, a mega-regional trade agreement that were concluded on 28 June 2019. Tariff reductions under the EU-Mercosur AA often take the form of linear cuts where both Parties will eliminate or reduce base rates in equal stages from the date of entry into force until the final years of implementation. Tariff-rate quotas (TRQ), either reciprocal or transitional, and specific treatments for some sensitive agri-food products are exceptions to these staging. Although they concern relatively smaller number of national tariff line, liberalization through TRQ is a key element of the EU-Mercosur AA. To evaluate the impacts of the EU-Mercosur AA, we use a standard Computable General Equilibrium (CGE) model with 8 regions and 36 sectors aggregated from the GTAP10 sectoral and regional classifications, which incorporate tariff-rate quotas. We expect a trade creation effect between the EU and Mercosur countries, which will be associated with welfare gains in both sides. The agreement will also have significant impacts on third parties: suppliers of agricultural commodities on the EU market and suppliers of manufactured products on the Mercosur markets will suffer from trade diversion.