Mercosur: The impact of Preferential Liberalisation and prospects for Customs Union

Abstract

This paper uses a computable general equilibrium (CGE) model from the Global Trade Analysis Project (GTAP) to infer the impact of Mercosur on welfare for both members and non-members countries and also to evaluate the existence of trade creation or trade diversion. The simulations estimate the effects of the bloc formation, between 1991 and 1995, distinguishing them from the unilateral liberalization that occurred simultaneously, and the likely outcome from the full implementation of the common external tariff (CET). The results show that the net effect of Mercosur on welfare seems to be much smaller than that from previous studies. This disparity may be explained by the fact that these previous simulations appear to attribute to Mercosur benefits generated by the unilateral liberalization.