Tariff-Rate Quotas and Agricultural Trade: An Application to the Agricultural Free-Trade Negotiation between the MERCOSUR and the EU

In October 2004 the European Union and the MERCOSUR tried to reach an agreement for creating what would be the world's largest free-trade area accounting for 650 millions people. But despite five years of bilateral work to strike a deal, the two parties stayed on ropes at their meeting in Portugal the 18th of October 2004. The stumbling blocks are the MERCOSUR's demand for a greater access to EU's agricultural markets and the EU's demand for expanded access for industrial goods, services and investments. Though, both partners made great efforts to comply with each other requests, it wasn't enough. In this paper we are interested in the possible last EU's offer to enlarge access to its market through the allocation of bilateral tariff-rate quotas for some MERCOSUR's agricultural products namely corn, wheat, beef, poultry, swine and dairy products. Following the methodology of Elbehri and Pearson (Elbehri and R. 2000) we model bilateral tariff-rate quotas in GTAP using GEMPACK. We then, carry out our simulation to estimate the potential effects of expanding the MERCOSUR's access to these EU's markets