Winners and Losers in a Free Trade Area between The United States and MERCOSUR

Abstract

This document considers an eventual Free Trade Area between the US and MERCOSUR with the objective of constructing two lists of products (HS 6 digits), one expansive (trade opportunities) and one defensive (trade perils), for each of the participants in the agreement. The theoretical model of reference is the Grossman and Helpman model of the politics of Free Trade Agreements. An original methodology for the opportunities and perils determination based on trade specialisation indexes and trade policy data has been developed. The economic size asymmetries have been introduced into the analysis through an empirical implementation of the regimes of protection typology provided by the theory (enhanced and reduced protection). The main conclusions are: i) agricultural producers in the US face a peril while agricultural producers in MERCOSUR could have opportunities (improvement in international prices); ii) there are no evident opportunities for US producers in the MERCOSUR (reduced size of the market) while producers of manufactures in the MERCOSUR face an evident peril in the regional market; and iii) MERCOSUR opportunities are concentrated in lighter manufactures.