DOES MERCOSURS TRADE PERFORMANCE RAISE CONCERNS ABOUT THE EFFECTS OF REGIONAL TRADE ARRANGEMENTS

This study employs a new methodological approach that measures product ion efficiency in changing trade patterns. It shows that the most rapi dly growing products in Mercosur's intratrade generally ave goods in w hich members do not have a comparative advantage and have nor been abl e to export competitively to outside markets. This is consistent with substantial trade diversion within the arrangement. Mercosur's discrim inatory tariffs against nonmembers, which are four to six times higher than those in arrangements such as the European Union, European Free Trade Area, or North American Free Trade Agreement, are likely the cau se. Recent further increases in Mercosur's tariffs against nonmembers are likely to exacerbate the magnitude of trade diversion.