Abstract
Focusing on changes in agricultural policy, this paper examines the economic impacts on MERCOSUL member country economies arising from the creation of the Free Trade Area of the Americas (FTAA) and a free trade area between MERCOSUL and the European Union (MERCOEURO). Four simulations are run using the Global Trade Analysis Project’s (GTAP) applied general equilibrium model. The results suggest these new trade alliances would cause an increase in MERCOSUL agribusiness production and a decrease in MERCOSUL manufactures production. In all simulations, agricultural trade flows are greatly altered and the exportation of MERCOSUL agribusiness products expands. However, the MERCOSUL countries experience overall economic growth in only the MERCOEURO scenarios. The elimination of agriculture production and export subsidies by members of the North American Free Trade Area (NAFTA) and European Union (E.U.) would have strong economic impacts on the economies of MERCOSUL countries.
Highlights
Two new opportunities to create free trade areas are open to the South American Common Market (MERCOSUL) countries
The objective of this paper is to determine the impacts of Americas Free Trade Area (AFTA) and MERCOEURO on the MERCOSUL economies both with and without agribusiness production and export subsidies
North America Free Trade Area (NAFTA) and the European Union (EU) are major producers of most of the agricultural commodities addressed in this study
Summary
Two new opportunities to create free trade areas are open to the South American Common Market (MERCOSUL) countries. One is the Americas Free Trade Area (AFTA), which would liberalize trade between MERCOSUL, the North America Free Trade Area (NAFTA), and all the other countries in the Americas. The other is a free trade area formed by MERCOSUL and the European Union (E.U.): MERCOEURO. The objective of this paper is to determine the impacts of AFTA and MERCOEURO on the MERCOSUL economies both with and without agribusiness production and export subsidies. The U.S and the E.U. protect their agriculture sectors with import tariffs and heavy production and export subsidies, yet agriculture is an important source of export earnings and economic growth for the MERCOSUL countries. The economic impacts of these free trade areas on agribusiness, trade flow, economic growth, and welfare in the MERCOSUL countries is not well known
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