New EU-MERCOSUR Association Agreement: Quantitative Assessment of its Impacts on Global Trade in Agricultural Commodities

On 28 June 2019, the European Union (EU) and Mercosur countries announced the conclusion of the Association Agreement between the two regions, after over 20 years of negotiations. The trade pillar of the agreement draws our interest because of the systemic implications it may have on global trade of goods, particularly on agricultural markets, and services. To evaluate the impacts of the EU-Mercosur AA, we use a standard Computable General Equilibrium (CGE) model with 8 regions and 36 sectors aggregated from the GTAP10 sectoral and regional classifications, which incorporate non-tariff measures and tariff-rate quotas. We expect a trade creation effect between the EU and Mercosur countries, which will be associated with welfare gains in both sides. The agreement will also have significant impacts on third parties: suppliers of agricultural commodities on the EU market and suppliers of manufactured products on the Mercosur markets will suffer from trade diversion.