Regional Trade Agreements: Effects of the Andean and Mercosur Packs on the Venezuelan Soybean Trade and U.S. Exports

Since the mid-1990s, the two regional trade agreements in South America, the southern Mercosur Pact (among Brazil, Argentina, Paraguay and Uruguay), and the northern Andean Pact (among Venezuela, Colombia, Ecuador, Bolivia, and Peru) noticeably affected certain trade patterns between the two pacts' members and with the United States for various reasons discussed herein. The effect of trade diversion owing to the Andean Pact with its common external tariff and price band system against non-Andean products was examined for soybean and soybean meal imports into Venezuela historically an important market for U.S. products. As well, the recent combining of Mercosur and Andean nations into a single regional trade agreement is likely to further adversely affect U.S. soy product sales to Venezuela. In 2003/04, the United States and Mercosur members of Brazil, Argentina, and Paraguay accounted for 94 percent of the $30 billion of world soybean and meal exports, but supplied little to Venezuela. A partial equilibrium, deterministic, and Armington-type model of the Venezuelan market for soybeans and meal was formulated by combining tariffs and the Andean price band variable levy into a single price wedge. Model results suggest that a combined Mercosur and Andean customs union under either a high or a low world soybean product price scenario would noticeably benefit Mercosur suppliers at the expense of the United States as well as adversely affect domestic Venezuelan producers (soybean processors) and fellow Andean member Bolivia.