The Impact of Non-tariff Measures within the EU-Mercosur Agreement on Member Countries and the United States

In June 2019, the European Union (EU) and Mercosur – the South American trading bloc comprised of Argentina, Brazil, Paraguay, and Uruguay – reached a political agreement regarding the trade part of the EU-Mercosur Association Agreement. Although the EU-Mercosur Association Agreement has been under negotiation since 1999, there have been few computable general equilibrium (CGE) analyses undertaken that have provided an analysis of the agreement’s non-tariff measures generally, or their potential effects on the U.S. economy. In addition to providing an update to the existing CGE literature on this agreement, and its potential effects on the U.S. economy, this paper will also analyze concurrent trade policy issues. For example, this agreement has garnered press recently as European civil society groups and some government representatives have threatened the ratification of the agreement for failing to protect the Amazon rainforest with enforceable environmental provisions. This paper aims to update the existing, yet somewhat outdated literature on this particular agreement, with additional qualitative information on the nature and coverage of non-tariff provisions related to the security and protection of health and the environment—provisions that are currently serving as a barrier to ratification in the EU. This paper aims to assess the impact of the non-tariff measures contained in the EU-Mercosur Agreement on the member countries and important third-country trade partners (the United States and China) using the comparative static CGE model Global Trade Analysis (GTAP) framework. Consistent with other studies, the results show that both Mercosur and the EU see small gains in real GDP and welfare, with Mercosur gaining relatively more than the EU.