Dynamic Amazonia: The EU-Mercosur Trade Agreement and Deforestation

The trade agreement between the European Union and the Mercosur countries will increase deforestation in the Mercosur countries and Brazil, in particular, if ratified by member countries. We use a computable general equilibrium model to analyze how trade, land use, and agricultural production will change as a result of the agreement. We then use a statistical model to spatially allocate the predicted deforestation within the Brazilian Amazon. The models estimate that the agreement will cause additional deforestation in Brazil ranging from 56 to 173 thousand ha to accommodate increases in cropland area, depending on the level of governance, use of double-cropping techniques, and trade elasticity parameters. Most additional deforestation in Amazonia would be clustered near current deforestation hotspot areas. Some hotspots threaten the integrity of Indigenous lands and conservation units. Although a low deforestation scenario with gains in welfare is theoretically possible when high governance and multiple-cropping systems are in place, political challenges remain and cast doubt on Brazil's ability to rein on illegal deforestation.