Effects of the EU–Mercosur free trade agreement on the Dutch economy

The study
SEO Amsterdam Economics was commissioned by the Dutch Ministry of Foreign Affairs to assess the economic impact of the upcoming EU–Mercosur Agreement on the Dutch economy. The resulting report provides input to the Dutch policy debate by estimating expected effects on trade and GDP. In addition, we produced a series of trade profiles for the four Mercosur countries, as well as for Canada, Mexico and Chile. These provide an in-depth analysis of trade in goods and services with the EU and the Netherlands, with a focus on critical raw materials (CRMs).

Method
For this study we employed SEO’s structural gravity model of international trade, a standard framework in trade economics. This model accounts for both trade creation and trade diversion, and allows us to estimate not only trade effects and price effects, but also predicted changes in GDP.

Findings
The EU–Mercosur Agreement is expected to increase Dutch exports by +0.18% (USD1.1 billion) and imports by +0.21% (USD1.2 billion). For the wider EU26, effects are somewhat larger: +0.43% for exports and +0.47% for imports. Trade between the EU and Brazil drives most of the change, with trade flows forecasted to rise by around 9 to 10 billion dollars. Trade growth is expected to be strongest in manufacturing and services, with agriculture showing smaller but notable changes.

Overall, we estimate welfare gains for the Netherlands of +0.02% of real GDP. For Mercosur countries, welfare gains range between +0.09% (Brazil) and +0.52% (Argentina), with particularly large effects in agriculture. For the Netherlands, agricultural welfare effects are modest (+0.06% of agricultural real GDP), but consumers benefit from lower price levels. Manufacturing and services are predicted to have small positive welfare effects.