The Trade Effects of MERCOSUR and The Andean Community on U.S. Cotton Exports to CBI countries

The ANDEAN dummy variable in the import demand model was insignificant
and did not provide any additional information in estimating the model. Conversely, the
coefficient of the MERCOSUR dummy variable is negative and significant, which was
expected. These results indicate that MERCOSUR has a negative impact on U.S. cotton
exports to the CBI i.e., a one percent increase in cotton exports by MERCOSUR to the
CBI would result in a 9.33 percent decrease in U.S. cotton exports to the CBI.

Trade Creation and Trade Diversion

Calculated trade creation, trade diversion, and trade expansion effects are shown
in table 3. The elimination of tariffs by the eight CBI countries would increase U.S.
cotton exports by $2.3 million. About 88 percent of the increased U.S. cotton exports are
due to trade creation, and the remaining 12 percent is due to trade diversion.

The insignificant trade diversion effects on U.S. exports, indicates that
MERCOSUR and the Andean Community pose an insubstantial treat to U.S. exports to
the top eight importing CBI countries.

These results are congruent with the empirical findings of other researchers.
Burfisher and Jones (1998), e.g., found that the regional free trade agreements have both
trade creation and trade diversion effects in agriculture, but trade creation dominates in
most regional agreements. This study finds that the trade creation effects of the U.S. -
CBI agreement would be greater than the trade diversion effects of MERCOSUR and the
Andean Community.

VI — Conclusions

This study indicates that U.S. cotton exports to the top eight importers area

positively influenced by real GDP in the importing country and negatively influenced by

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