Regional Trade Agreements And Member Countries Brazil



-October 3, 2021-

Regional Trade Agreements And Member Countries Brazil

Mike Burroughs

5As in most studies dealing with trade liberalization, we use tariff elimination as the main trade policy variable. The customs protection contained in the document includes both ad valorem and ad-valorem equivalents of specific and mixed tariffs as well as tariff quotas (TRQ). The inclusion of non-ad valorem protection is an important issue to have a model as close as possible to reality, since almost 45% of agricultural customs lines in the US and eu are specified in non-ad valorem terms. 32 Table 5 shows the aggregate impact on all countries and Table 6 shows the impact on Mercosur countries` exports and imports by macroeconomic sector. 19 To model the presence of economies of scale in manufacturers, we apply a countervailable market structure. This is the easiest way to deal with the increase in returns to scale in a CGE model, as it involves a structure that corresponds to the perfect competition at constant returns to scale. The countervailable market expects inexpensive entry or exit and that the risk of market entry will encourage established firms to behave competitively, allowing them to set the price at an average cost. Therefore, the average cost pricing, below the countervailable market, implies that no company will enter or leave the sector. Since the number of enterprises is constant in a sector, efficiency gains are directly influenced by industrial production when each enterprise is down in its average cost curve and by the external trade effects of trade resulting from increased trade. Therefore, if trade liberalization leads to an increase in production, established firms will increase output while reducing their average costs. 30We simulate three integration scenarios: Scenario 1 examines the establishment of the Free Trade Agreement, in which the countries of the Western Hemisphere remove all tariff barriers to internal trade, while maintaining their individual protection structures with third parties, namely the EU and the rest of the world.

Scenario 2 simulates the establishment of a free trade agreement between Mercosur and the EU, with both blocs maintaining their protection from their third-party partners. Finally, scenario 3 aims to measure the impact of the simultaneous creation of the Free Trade Agreement and the Free Trade Agreement with the EU, with Mercosur serving as a hub for both integration processes. A second extension of the model is the integration of economies of scale into manufacturing. After harris` pioneering work (1984), the nature of industrial organization - economies of scale, imperfect competition and product differentiation - was introduced into the static framework and applied to the assessment of trade liberalization (Rodrik, 1988); Norman, 1990; Melo and Tarr, 1992). [7] The level of economies of scale is indicated in the model with one parameter, the cost-disadvantage ratio (RDC), defined as the difference between the average cost and the marginal cost compared to the average costs for the representative sector or enterprise in each sector, namely the ratio between fixed and total costs. Thus, economies of scale are modeled by insequentially a fixed cost component in the cost function, in which the fixed cost component is directly estimated by multiplying the RDC by the total cost. Assuming a uniform share of factors between fixed components and value-creating components in benchmark, we deduce the factor requirements for each component.. . . .