Trade liberalisation between the EU and the Mercosur countries - An economic assessment for the case of beef

Franziska Julia Junker

Abstract

 

The Mercosur countries (Argentina, Brazil, Uruguay, Paraguay and Venezuela) are the most important source of beef imports for the European Union (EU).

Despite the reductions of tariffs in the multilateral context, the EU´s tariff on beef is especially high. Argentina, Brazil, Uruguay and Paraguay however enjoy preferential access to the European beef market through multilateral and bilateral tariff rate quotas (TRQs). These TRQs are overfilled, giving rise to quota rents whose distribution is a priori unknown.

In the year 2005, the EU and the Mercosur countries exchanged their respective negotiation proposals. The Mercosur countries requested a significantly increased access to the beef markets of the EU. The EU responded with a less ambitious proposal. Both proposals have in common that expansion of the existing bilateral TRQs is envisaged. In addition, reductions of the in-quota tariffs are stipulated. The two proposals differ in the extent of both the TRQ expansions as well as the tariff reductions.

For almost any policy change, there are winners as well as losers.

The objective of this study is to provide an economic assessment of different options of beef trade liberalisation between the EU and the Mercosur countries.

Three problems of analysis arise in this context. One is the low level of product aggregation on which the TRQs are defined. The second difficulty is the distribution of the quota rents both on international as well as on national level, which can have important consequences for the distribution of welfare. The third inconvenience is related to the non-continuous reaction of the domestic price to imports that needs to be included in any model that seeks to represent TRQs as accurately as possible.

To provide an answer to the abovementioned research question, a partial equilibrium model operating at a very low degree of product aggregation was set up. Technically, the model is formulated as a mixed complementarity problem (MCP), which has the advantage of endogenously representing the quota rent.

From a consultation of experts from the beef producing and exporting industry, insight into the market structure, the administration of the TRQs and the implications for the allocation of the rents was gained.

It was found that the rents arising from the bilateral TRQs remain fully in the exporting country, whereas those from the multilateral schemes are captured by importers in the EU. The impact on trade is limited in the scenario based on the proposal made by the EU, and more pronounced in the one made by the Mercosur countries. The latter leads to de facto free trade for Argentina and Uruguay. It was found that the quota rents and their distribution are decisive for the welfare effect in some countries and for some economic agents, i.e. an alternative distribution of the quota rents would lead to a different welfare effect.

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© Universitäts- und Landesbibliothek Bonn | Published: 24.02.2010