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Abstract
Ongoing bilateral trade negotiations between the Mercosur group and the EU since 2000 on
agricultural products served as incitement to analyse the impacts of possible outcomes. The objective
of this paper is to quantitatively assess impacts of bilateral liberalisation scenarios on EU25 and
Mercosur markets as well as their bilateral trade flows. For this purpose, the CAPRI model, which
has already been applied to several multi- and bilateral trade liberalisation scenarios in the past, has
been adopted in several ways.
(1) Trading blocks in CAPRI have been expanded so that the Mercosur countries are now represented
with country specific behavioural functions and explicit trade flows.
(2) The parameters of these behavioural functions have been calibrated using recently estimated
supply and demand elasticities (CAP, E. ET AL., 2006) as prior information in a constrained Bayesian
framework (HECKELEI, T. ET AL., 2005).
(3) Two different baselines scenarios varying in the assumed production potential of the Mercosur
countries were defined with experts from these countries. This approach reflects that developments in
Mercosur countries are very dynamic with lots of uncertainties. It also provides analysis of results
dependent on baselines which is an innovation in CAPRI (technically and qualitatively).
In this paper three selected scenarios are analysed. The first scenario reflects an unilateral partial
liberalisation between the EU25 and the Mercosur countries by allocating additional Tariff Rate
Quotas (TRQs) to the Mercosur countries for certain products based on an official EU proposal
(USDA, 2005). The second scenario combines the partial unilateral liberalisation with the multilateral
WTO G20 proposal. Sensitive products are defined according to JEAN, S. et al. (2006). The third
comprises a bilateral full liberalisation between the EU25 and the Mercosur countries by allowing
quota and duty free access in both directions for all agricultural products. The results focus on
welfare effects and the market balances of seven key commodities (wheat, maize, rice, soybeans,
bovine meat, chicken and pork).
Furthermore, a sensitivity analysis on the elasticities of substitution between foreign and domestic
produced goods that drive demand of trade flows is provided and shows that the choice of those
elasticities is very crucial with respect to model results.