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

This paper relies on a computable general equilibrium model from the Global Trade Analysis Project (GTAP) to infer directly the impact of Mercosur on welfare in both members and non-member countries and also the existence of trade creation and trade diversion. The simulations examine the effects of the free trade area between 1991 and 1995 and the likely outcome of the establishment of the custom union arising from the implementation of the common external tariff in 2006. The results show that for all bloc members the impact of convergence to the CET is much smaller than that observed under regional liberalisation between 1991 and 1995. 1