New tools for the CGE analysis of PTAs in the era of non-tariff barriers and global value chains: The case of Mercosur and China

Abstract

This article explores new tools for the ex-ante analysis of PTAs using large scale CGE models. The traditional impact analysis based on tariff cuts and gross trade performance is then extended to incorporate new features of the ongoing globalization process, such as non-tariff barriers (NTBs) and the so-called trade in valueadded. Several methodological as well as conceptual issues are then readdressed, including the proper use of estimated ad-valorem equivalents of NTBs as inputs in perfect competition CGE models as well as the very concept of a "preferential trade partner" in a world where nearly 65% of global exports correspond to trade in intermediates. The article concentrates its impact analysis on the Brazilian economy-providing an overview of its trade policy over the last decades-and the likely consequences of a hypothetical PTA involving Mercosur and China.