Impacts of AFTA and MERCOEURO on Agribusiness in the MERCOSUL Countries

Two new opportunities to create free trade areas are open to the MERCOSUL member countries. One free trade area, AFTA, is made up of the countries forming MERCOSUL, NAFTA, and the other countries of the Americas; the second, MERCOEURO, is made up of the countries forming MERCOSUL and the European Union. Both NAFTA and the European Union, two very large economic blocks, allow their member countries to subsidize agriculture production and exports. Focusing on changes in agricultural policy, this paper examines the economic impacts on MERCOSUL member country economies arising from the creation of AFTA and of MERCOEURO. Four simulations are run using the Global Trade Analysis Project’s (GTAP) applied general equilibrium model. The results suggest that these new trade alliances would cause a slight increase in MERCOSUL agribusiness production. In all scenarios, agricultural trade flows are greatly altered while manufactures’ production suffers a small negative impact. Economic growth increases the most in the MERCOEURO scenarios, and the elimination of agriculture production and export subsidies by NAFTA and E.U. has only a small economic impact on the MERCOSUL member countries.