26 As far as other partners are concerned, the United States purchases 18 per cent of Brazilian exports and 9 per cent of Argentine exports. Sectoral intensity indices show that exports to the United States are more oriented towards heavy industrial goods than towards all exports for Brazil and more towards light industrial goods for Argentina. Mercosur purchases from the United States account for 23 per cent of the region`s total imports; Capital and intermediate goods are the main imports, which account for more than 85% of total imports from the United States. For Mercosur, the EU is the main partner. In the base year, it accounted for 23% of the bloc`s total exports and 26% of total imports. Bi-regional trade between Mercosur and the EU is very complementary. Agricultural products, including meat and processed food products, dominate Mercosur`s exports to the EU market, while industrial products, dominated by capital goods (machinery and equipment) and intermediate products (oil and chemicals), are the bloc`s main imports from the EU. Compared to the sectoral intensity of exports to the US, exports to the EU focus much more on primary goods (especially for Brazil). The composition of Mercosur imports from the EU and the US is very similar: more than 85% are heavy and about 8% are light-made; Primary imports account for 5% for imports from the US and 1% for imports from the EU. 52Mercosur is facing a difficult period in its quest for trade liberalisation and regional economic integration; a particularly crucial moment due to the persistence of internal economic instability. In the meantime, the group will have to face a full schedule of its external agenda in the coming years, which will require decisive decision-making. While it represents a huge challenge, it can also be an excellent opportunity for the bloc to harmonize internal and external policies, identify common foundations and interests, and increase global credibility and competitiveness in an increasingly globalized economy [15]. 17Ineral elasticities are key parameters that influence the results of the simulation.

We used estimates from the work of Moreira and Najberg (2000) on the productivity of Brazilian manufacturing in 1990-1997, the most expansionary phase of the Mercosur integration process. The parameters are estimated on the basis of sectoral trade data for Brazil and applied in the model to other regions of Latin America, adjusted for trade flows with industrialized countries and regions. [6] In all regions, estimates of foreign trade units are higher in manufacturing than in agricultural sectors. . . .