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Impact assessment of trade liberalisation between EU and Mercosur countries

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  • Weissleder, Lucie M.
  • Adenauer, Marcel
  • Heckelei, Thomas

Abstract

Ongoing bilateral trade negotiations between the Mercosur group and the EU since 2000 on agricultural products served as incitement to analyse the impacts of possible outcomes. The objective of this paper is to quantitatively assess impacts of bilateral liberalisation scenarios on EU25 and Mercosur markets as well as their bilateral trade flows. For this purpose, the CAPRI model, which has already been applied to several multi- and bilateral trade liberalisation scenarios in the past, has been adopted in several ways. (1) Trading blocks in CAPRI have been expanded so that the Mercosur countries are now represented with country specific behavioural functions and explicit trade flows. (2) The parameters of these behavioural functions have been calibrated using recently estimated supply and demand elasticities (CAP, E. ET AL., 2006) as prior information in a constrained Bayesian framework (HECKELEI, T. ET AL., 2005). (3) Two different baselines scenarios varying in the assumed production potential of the Mercosur countries were defined with experts from these countries. This approach reflects that developments in Mercosur countries are very dynamic with lots of uncertainties. It also provides analysis of results dependent on baselines which is an innovation in CAPRI (technically and qualitatively). In this paper three selected scenarios are analysed. The first scenario reflects an unilateral partial liberalisation between the EU25 and the Mercosur countries by allocating additional Tariff Rate Quotas (TRQs) to the Mercosur countries for certain products based on an official EU proposal (USDA, 2005). The second scenario combines the partial unilateral liberalisation with the multilateral WTO G20 proposal. Sensitive products are defined according to JEAN, S. et al. (2006). The third comprises a bilateral full liberalisation between the EU25 and the Mercosur countries by allowing quota and duty free access in both directions for all agricultural products. The results focus on welfare effects and the market balances of seven key commodities (wheat, maize, rice, soybeans, bovine meat, chicken and pork). Furthermore, a sensitivity analysis on the elasticities of substitution between foreign and domestic produced goods that drive demand of trade flows is provided and shows that the choice of those elasticities is very crucial with respect to model results.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 107th Seminar, January 30-February 1, 2008, Sevilla, Spain with number 6667.

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Date of creation: 2008
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Handle: RePEc:ags:eaa107:6667

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Keywords: Trade liberalisation; Mercosur; CAPRI; Armington.; Demand and Price Analysis; International Relations/Trade;

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  1. Heckelei, Thomas & Mittelhammer, Ronald C. & Jansson, Torbjorn, 2008. "A Bayesian Alternative To Generalized Cross Entropy Solutions For Underdetermined Econometric Models," Discussion Papers, University of Bonn, Institute for Food and Resource Economics 56973, University of Bonn, Institute for Food and Resource Economics.
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Cited by:
  1. Adenauer, Marcel, 2008. "CAPRI versus AGLINK-COSIMO: Two partial equilibrium models - Two baseline approaches," 2008 International Congress, August 26-29, 2008, Ghent, Belgium, European Association of Agricultural Economists 44120, European Association of Agricultural Economists.
  2. Revell, Brian & Saunders, John & Saunders, Caroline, 2014. "Assessing the Environmental Impact of Liberalising Agricultural Trade – With Special Reference to EU-Mercosur," 88th Annual Conference, April 9-11, 2014, AgroParisTech, Paris, France, Agricultural Economics Society 169728, Agricultural Economics Society.

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