The agreement came after twenty years of negotiations. Talks began in 1999, but stopped before resuming in 2016.  Discussions have been unsuccessful for years due to opposition from European beef producers, particularly small farmers, who feared being underestimated by imports from Brazil, the world`s largest beef producer.  Many governments in South America preferred “South-South cooperation” for the development of relations with Europe at that time, while European governments also had other priorities.  6In the simulations, it is considered that all barriers to trade in the model have been completely eliminated, including in agricultural products from developed countries. However, it is likely that a final agreement could exclude sensitive agricultural products, particularly in the case of the EU`s E FREI trade agreement; This is why our simulation results must be carefully interpreted and conditioned to full liberalisation in all sectors. The results show the enormous commercial creation generated by the two agreements, although we also see some trade branch of non-conventional partners when tariffs are abolished. While free trade with the EU leads to stronger growth in trade and GDP for Mercosur, hemispheric integration favours capital and technology-intensive industrial exports more than integration into the EU market. In relative terms, exports to Latin American partners under the ESTV agreement are more focused on industrial exports than on exports to the U.S. market (particularly for Brazil). Given that countries may be interested in increasing net exports of technologically intensive goods, this knowledge can be extremely useful.
Sectoral results also identify the impact on sensitive sectors and target dynamic key industries. The combined net profits, the simultaneous completion of the two agreements, are greater than the sum of the individual effect, due to the increase in trading production and the decrease in trade diversion. The observed increase in trade creation is due to greater economies of scale resulting from an expanded export market. 24The traditional Heckscher-Ohlin theory, based on different relative factor endowments, may explain much of the trade patterns between countries. Compared to the United States and the EU, which are relatively capital-intensive and have a comparative advantage in the production and export of capital-intensive goods, Mercosur countries have a comparative advantage in the production of labour-intensive goods. Within Mercosur, Brazil is more capital-intensive than Argentina, and its exports with heavy industries account for about 40 per cent, compared to 28 per cent in Argentina. However, Argentina and Brazil are more capital-intensive than Central America and the Caribbean (CA) and the Andean Community and provide on average more capital and technology-intensive industrial goods. 25 In terms of trade models, Brazil is the main target market for Argentine exports, a trend that has increased since the creation of Mercosur. In 1997, Argentina`s exports to Brazil accounted for almost one-third of its total exports; and imports from Brazil accounted for about 20% of the country`s total imports. On the other hand, Brazil`s dependence on the Argentine market is lower (Argentina`s share of Brazilian exports and imports was about 10%). Intra-regional trade between Argentina and Brazil is strongly marked by intra-industrial trade in manufactured goods, which accounts for more than 70% of intra-regional trade.
After the product, automotive and parts are the main sectors (nearly 30%), followed by machinery and equipment, as well as oil and chemicals, mainly in Brazil.