BILATERAL vs' PLURILATERAL PREFERENTIAL TRADE ARRANGEMENTS' OPTIONS FOR MERCOSUR Silvia Laens Mara I

1
BILATERAL vs. PLURILATERAL PREFERENTIAL TRADE
ARRANGEMENTS. OPTIONS FOR MERCOSURSilvia
Laens María Inés
TerraCINVE
UDELARNovember, 2002
2
INTRODUCTION

• OPTIONS FOR MERCOSUR
• TRADE SPECIALIZATION AND SENSITIVE SECTORS
• METHODOLOGY
• PRELIMINARY RESULTS
• FINAL REMARKS

3
OPTIONS FOR MERCOSUR

• FTAA
• AGREEMENT MERCOSUR - EU
• AGREEMENT MERCOSUR - CAN
• AGREEMENT MERCOSUR - NAFTA
• BILATERAL AGREEMENTS WITH US

4
TRADE SPECIALIZATION (1)
5
TRADE SPECIALIZATION (2)
6
SENSITIVE SECTORS (1)AVERAGE TARIFF BY SECTOR
7
SENSITIVE SECTORS (2)
8
METHODOLOGY the model

• Model GTAP GTAP database version 5
• Regional aggregation 10 regions (Arg, Bra, Uru,
  Chi, CAN, USA, rest of NAFTA, rest of FTAA, EU,
  rest of the world)
• Sector aggregation 10 sectors
• Factor of production capital, skilled and
  unskilled labor, land, natural resources
• Institutions households, government, producers,
  regional households

9
METHODOLOGY simulations

• Two criteria countries involved and market
  access
• FTAA (total and limited access)
• FTAA agreement Mercosur - EU
• FTAA excluding Mercosur
• Mercosur - NAFTA (total and limited access)
• Mercosur - USA
• Mercosur - CAN
• Argentina - USA (total and limited access)
• Uruguay - USA (total and limited access)

10
RESULTS effects on welfare (1)
11
RESULTS effects on welfare (2)

• Most favorable scenario for the world
  simultaneous FTAA and Mercosur - EU
• All scenarios improve welfare worldwide but the
  gains are lower if market access is restricted
• Gains not evenly distributed
• Best option for Mercosur simultaneous FTAA and
  Mercosur - EU
• Second best FTAA with no restrictions
• The larger the region involved, the greater the
  gains

12
RESULTS effects on welfare (3)

• If agriculture is excluded, welfare increase for
  Mercosur falls almost by one half
• If the FTAA is completed and Mercosur is not
  included, it would be the greatest loser
• Argentina gets larger gains in bilateral
  agreement with the US than in the FTAA, even if
  market access is restricted
• Uruguay benefits more in the FTAA than in a
  bilateral agreement with the US, but the opposite
  is true if market access is limited

13
RESULTS specialization effects

• The effects on the production structure do not
  differ significantly by country
• FTAA leads to a reallocation of resources from
  durable goods, activities that facilitate
  technical progress diffusion and manufactures
  based on natural resources and economies of scale
  to agriculture and food production
• This reallocation is stronger if the FTAA is
  implemented simultaneously with an agreement
  Mercosur - EU

14
FINAL REMARKS

• The Mercosur countries would benefit by regional
  agreements that lead to free trade areas
• However, if the agricultural sector is excluded
  from them, the gains are much lower
• Bilateral agreements of some Mercosur countries
  with the US might have larger welfare effects for
  the countries involved, under certain conditions
• Long run effects of the FTAA on Mercosur are not
  clear, as it strengthens a specialization pattern
  that does not allow the explotaition of scale
  economies and technical progress externalities