Impact of the Free Trade Section of an Association Agreement between the EU and Mercosur on the German Economy

Tasks

The European Union (EU) is currently negotiating a trade agreement with the four founding members of Mercosur (Mercado Commun del Sur): Argentina, Brazil, Paraguay and Uruguay, as part of a regional association agreement. Although Venezuela has formally been a member of Mercosur since 2012, the country is not a partner in the trade negotiations with the EU but has an observer status.

Negotiations for the EU’s Association Agreement with Mercosur were launched in 2000. They were interrupted in 2004 due to widely differing positions among the negotiating parties and only resumed in 2010. In the initial negotiating phase, the Mercosur members were particularly dissatisfied with the EU’s access provisions to the agricultural sector, while the EU demanded greater concessions in the opening of individual industrial sectors. In the renewed negotiations on the Association Agreement, the EU and Mercosur have exchanged new market access proposals on goods trade, services and public procurement.

The goal of this study is a quantitative reevaluation of German trade policy interests in the context of the EU-Mercosur trade agreement. The determined economic-policy results are intended in particular to identify possible room for manoeuvre that exists in the ongoing negotiations.

A quantitative analysis of possible effects of an EU-Mercosur trade agreement is very useful due to partly unexpected international economic-policy changes. These include the recent national economic crises in individual Mercosur countries (e.g. in Brazil and Argentina) and the resulting reorientation of the respective trade policies, such as in Argentina. In addition, recent developments in regional trade agreements, such as the freezing of negotiations on the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) have enhanced the importance of regional agreements between the EU and large emerging economies, as in the case of the Mercosur countries.

Methods

The quantitative analyses in the study will be carried out using the ifo Trade Model. This is a modern CGE (Computational General Equilibrium) model that has been developed at the ifo Institute in recent years and is based on the New Quantitative Trade Theory Models (NQTT-Ms). An important advantage of this new generation of models compared to traditional simulation models, e.g. Mirage, GTAP, or others, is that the estimation of parameters (primarily trade elasticities and trade cost effects of the agreement in question) is performed on the same data used as the basis for the simulation.

Data and other sources

Trade data (UN Comtrade)
FDI data (UNCTAD, Bundesbank)
Customs data (WITS Database)