39 With regard to products or sectors, the free trade agreement between Mercosur and the EU generates more heterogeneous export growth between sectors than the free trade agreement, which has a smaller growth gap between sectors. Under the Mercosur-EU free trade agreement, the sectors with the most dynamic export growth are «meat products» which are growing by more than 30 percentage points above the Argentine average and «grains» which are growing by about 40 percentage points above the Brazilian average. [13] In Brazil, exports of «meat products» are also growing by 20 percentage points above the average. Agricultural products account for more than 75% of the increase in exports to Argentina and 65% to Brazil (Chart 2). On the other hand, «machinery and equipment» is the slowest growing export sector in both countries; Indeed, it decreases by 2.2% in Argentina. The regional market is suffering from increasing competition in the EU in heavy industries, due to the decline in intra-regional trade in machinery and equipment; However, it is interesting to note that Brazilian exports of these products to countries outside the agreement are increasing slightly, showing that one sector is well equipped to compete with international arenas. 28Tableaux 3 shows Mercosur`s internal and MFN rates during the reference year. Almost all intra-regional trade was already liberalized and even a sector as sensitive as the automobile has only a tariff of about 3% in Argentina. As a result, average tariffs weighted by intra-eu trade are similar and low in both countries. On the other hand, MFN fees are higher in Brazil (16%) Argentina (14%). By sector, both countries applied the higher level of protection to product production. 18A second extension of the model is the integration of economies of scale into manufacturing.

After Harris` pioneering work (1984), the type of industrial organization – economies of scale, imperfect competition and product differentiation – was introduced in the static framework and applied to the evaluation of trade liberalization (Rodrik 1988; Norman, 1990; Melo and Tarr, 1992[7] The degree of economies of scale is indicated in the model by a parameter, the cost-to-cost ratio (CDR), defined by the difference between average and marginal costs versus the average costs for industry or representative enterprise in each sector, i.e. the ratio between fixed costs and total cost. As a result, economies of scale are modelled by the introduction of a fixed cost element into the cost function, which allows the fixed cost component to be directly estimated by multiplying the CDR by the total cost. Assuming a single share of the factors between the solid components and the value-added components in the benchmark, we will deduce the factor requirements for each component. The larger the CDRs, the greater the potential benefits of trade liberalization through economies of scale. For four countries: Brazil, Mexico, the United States and the European Union, industrial data are available for the estimate of CDRs (or direct estimates from the literature). Parametric values for other Latin American countries are obtained from this industrial data from countries in the Western Hemisphere. 10The model contains essential elements for an accurate evaluation of Mercosur`s integration policy. It identifies key industries and partners in the bloc`s external agenda and includes key trade agreements in force in the Western Hemisphere: preferential trade agreements with Latin American countries (APS, Caribbean Basin Initiative, Andean Trade Preferences Act), bilateral agreements (Mercosur-Chile, Chile-Canada, Mexico-Chile) and regional agreements (Mercosur, NAFTA, CACM and CARICOM, andean Community and G3 under Mexico). , the model also includes the EU.