The Economic and Trade Effects of RCEP Agreement in China and

Other Member Countries: An Empirical Study Based on GTAP Model

Xiaofei Luo

and Xiaonan Shen

Faculty of Logistics, Guangdong Mechanical and Electrical Technical College, Guangzhou, Guangdong, China

Guangdong Institute for International Strategies, Guangdong University of Foreign Studies, Guangzhou, China

Keywords: RCEP, GTAP Model, Economic Effects, Investment Cooperation.

Abstract: Based on GTAP model, this paper analyzes the impact of RCEP on the economic effects and trade cooperation

in China and other member countries. We build a global trade analysis model (GTAP) to simulate and forecast

the economic effects of the tariff and non-tariff barrier reduction measures of the RCEP agreement. We divide

the industries into 8 groups according to their roles in the industry chain and predict the future trend of eco-

nomic cooperation between China and other RCEP member countries. The results show that China will meet

a higher increasing status in labor-intensive industries, especially in low and medium-tech manufacturing and

livestock. RCEP will donate an increase in global investment by 1.03%, and China shall take the opportunity

of the RCEP to expand and enhance its foreign trade and investment cooperation.

1 INTRODUCTION

On January 1, 2022, the Regional Comprehensive

Economic Partnership Agreement (RCEP) came into

force. It adopted the rules of origin accumulated in

the region, which greatly reduced the tariffs on trade

in goods, while promoting investment liberalization

and facilitation using negative lists. The traditional

economic and trade relations between China and

RCEP member countries are close (see Fig.1), RCEP

member countries are also the main destinations for

Chinese enterprises to "go out" for investment. Effi-

cient docking of RCEP agreements will help to con-

tinuously inject new momentum into China's dual cir-

culation, and advance China opening-up in the new

era.

It has been half a year since the formal implemen-

tation of RCEP, can the terms and rules provide sup-

port and consolidation for the multilateral trade and

investment system of the RCEP region? If it promotes

the development of regional economic integration?

What strategies should China use to seize the oppor-

tunities for regional cooperation and prevent eco-

nomic shocks from other member countries? In order

to answer the above questions, this paper will build a

global trade analysis model (GTAP) to simulate and

forecast the economic effects of the tariff and non-

tariff barrier reduction measures of the RCEP agree-

ment. We divide the industries into Crop, Husbandry,

Forestry and Fishery, Low-Manufacturing, Middle

Low-Manufacturing, Middle High-Manufacturing,

Service, predicting the future trend of GDP and im-

port, export, investment cooperation between China

and RCEP member countries.

2 METHODOLOGY

The signing of the RCEP has received widespread at-

tention from many scholars, who have used a variety

of analytical tools to analyze and predict the possible

economic impact of the RCEP. The research mainly

focuses on two aspects: First, the scholars' prospects

for the future development of RCEP, as well as the

analysis and deduction of its possible problems.

Scholars use the GTAP model to analyze ASEAN,

Japan, China, and so on. They discuss the impact of

RCEP on its welfare, GDP, import and export and

other trade effects (Itakura K, 2014; Ratna R S, 2016;

Li, 2018; Wen, 2021). The Second is a comparative

analysis of RCEP and TPP and other regional coop

eration. They analyze the relationship between RCEP

and other regional organizations, and explore

whether it is a competitive or complementary relation

Luo, X. and Shen, X.

The Economic and Trade Effects of RCEP Agreement in China and Other Member Countries: An Empirical Study Based on GTAP Model.

DOI: 10.5220/0011740200003607

In Proceedings of the 1st International Conference on Public Management, Digital Economy and Internet Technology (ICPDI 2022), pages 463-468

ISBN: 978-989-758-620-0

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

463

Data resource: China Bureau of Statistics.

Figure 1: China's imports and exports to RCEP members (Billions of dollars, %).

Table 1: GTAP model industry group division.

code abbreviations industries

initial industry numbers

of the GTAP model

HS2 code

Cro crop Grains, fruits, vegetables, nuts, etc 1~8 7~14, 52, 53

Hus Husbandry

Cattle, sheep and horses, animal

products, etc

9~12

1, 2, 4, 5, 41,

Fofi Forestry and Fishery Forestry and Fishery 13, 14 3, 6

LM Low-Manufacturing

Food, tobacco, textiles, furs, wood,

paper and other products

19~31, 45

15~24, 42~49,

54~67, 97

MLM

Middle

Low-Manufacturing

Rubber and plastic products,

mineral products

15~18, 32, 35~39

25~27, 39, 49,

68~83

MHM

Middle

High-Manufacturing

Chemical products, essential

medicines, electronic machinery and

equipment, transportation equipment, etc

33, 34, 40~44

28~38, 84~89,

90~96

Util Utilities Service water, electricity, gas 46~48 /

Otse Other service Tourism, communications, finance, etc 49~65 /

ship (Ye, 2015; Yamamoto, 2018). However, to our

knowledge, there is no systematic quantitative analy-

sis of the effect of RCEP. Our principal objective in

this paper is to fill this void by quantifying the econ-

omy and trade effect caused by the RCEP, giving pre-

dict to the future RCEP cooperation.

To be specific, we use software of RunGTAP 3.75

to run simulations of the RCEP cooperation. GTAP is

formulated and solved using GEMPACK, a flexible

system for solving AGE models. RunGTAP allows us

to run simulations interactively in a Windows envi-

ronment using the GTAP general equilibrium model.

We run the standard GTAP Model with GTAP Data

Base 10.0, and use other programs such as

AnalyseGE and GTAPView to analyze the economic

variables.

2.1 Model Settings

We divide the 141 countries into 11 regional groups

based on the GTAP10.0 database, namely China

(CHI), Japan (JAP), South Korea (KOR), Australia

(AUS), New Zealand (NZL), ASEAN (ASEAN), Eu-

ropean Union (EU_27), the United States (USA),

Russia (RUS), India (IND), and other countries in the

world (rest) (Table 1).

According to the RCEP agreement, the export

subsidy measures for agriculture will be completely

abolished. The service industry does not involve tariff

reduction, and the Utilities Service does not partici-

pate in any non-tariff reduction. As a result, we fully

consider the key role of manufacturing industry in

China's economic development, and refer to Rahman

and Rahman (Rahman M M, 2015), dividing the 65

industries of the GTAP model into 8 industrial

groups. The codes, abbreviations, industries in-

cluded, initial industry numbers of the GTAP model

and HS2 codes for each industry group are shown in

Table 1.

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

2000

4000

6000

8000

10000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

import export Proportion of import Proportion of export

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464

2.2 Simulation Scheme Settings

Since the RCEP agreement was officially imple-

mented in 2022, we set 2021 as the base year for sim-

ulation predictions, and refer to the study of Ahmed

et al. (Ahmed Y N, 2020) to update the database to

2021. In this paper, the import tariff tax intensity

(tms) and the implementation of non-tariff measures

(ams) are used as policy shock variables to simulate

and predict.

In the setting of tariff shock, this paper uses the

weighted average method with the weight of imports

to quantify the tariff commitment table with reference

to the research of Petri&Plummer (Petri P A,

2019).The first step is to correct the tariff data of the

GTAP10.0 database according to the base rate listed

in the RCEP tariff commitment table: First, calculate

the base rate of the HS8 code by arithmetic average,

and then calculate the base rate for HS2 code of

China, Japan, South Korea, Australia, New Zealand

and ASEAN to other RCEP member countries on the

basis of the import volume in 2021. The second step

is to calculate the tariff reduction of the member

countries after the full implementation of the RCEP

agreement according to the tariff rates listed in the

tariff commitment table for the first 20 years of the

agreement's entry into force. That is to calculate the

tariff change rate of HS8-bit coded goods in the 20th

year, and then calculate the tariff change rate of HS6-

bit coded goods by arithmetic average. The third step

is to take the import volume in 2021 as the weight to

calculate the tariff reduction rates of China, Japan,

South Korea, Australia, New Zealand and ASEAN to

other RCEP member countries in the 8 industrial

groups as shown in Table 1.

In the setting of non-tariff shock, it is mainly di-

vided into two parts: trade in goods and trade in ser-

vices. According to the agreement of RCEP, this arti-

cle sets up that within the RCEP region, export sub-

sidies for agricultural products will be reduced by

100%, quantitative restrictions by 100%, sanitary and

phytosanitary measures by 10%, technical barriers to

trade by 10%, safeguard measures by 10%, and anti-

dumping, countervailing and tariff quotas remain un-

changed. Based on the number of non-tariff barrier

measures implemented by RCEP member countries

in the six major industries of agriculture, animal hus-

bandry, forest fishery, low-tech manufacturing, low-

and low-tech manufacturing, medium-and high-tech

and high-tech manufacturing in 2020, the reduction

degree of non-tariff barriers in the six major goods

trade industries is calculated.

As for the reduction of non-tariff barriers to trade

in services, after the full implementation of RCEP,

the reduction of non-tariff barriers to trade in services

among member countries will tend to be consistent.

According to the commitment table, the member

countries of RCEP do not make any commitment to

the field of public services, and there are basically no

restrictions on cross-border provision, overseas con-

sumption and commercial existence in other service

areas, but there are restrictions on the movement of

natural persons. Accordingly, there is no reduction in

non-tariff barriers in public services in the RCEP re-

gion, and a 30% reduction in other service sectors.

3 EMPIRICAL RESULTS

3.1 Economic Effect

After the RCEP taking effect, the change rates of

GDP and import and export-related indicators of

countries are shown in Table 2. The simulation results

show that, the per GDP of China, Japan, South Korea

and Australia will increase, while that of New Zea-

land and ASEAN will decrease. It indicates that cur-

rent economies with a higher level of gross national

income and a better degree of economic development

and foundation have a greater degree of improvement

in their income level after enjoying RCEP trade bar-

rier reduction measures. On the contrary, if the eco-

nomic foundation is worse than others, the smaller the

degree of improvement, and may produce trade sub-

stitution effect, the GDP will slightly decrease.

3.2 Trade Effect

First, the scale of import and export has increased.

After the implementation of RCEP, China, Japan,

South Korea, Australia, New Zealand, ASEAN im-

ports and exports and trade dependence have all in-

creased. China's import and export can be greatly in-

creased, and the degree of trade dependence will also

increase, but it is lower than that of other member

countries.

The Economic and Trade Effects of RCEP Agreement in China and Other Member Countries: An Empirical Study Based on GTAP Model

465

Table 2: Economic and Trade Effect (%).

Country GDP import export

trade

dependence

Country GDP import export

Trade

dependence

CHI 0.54 34.40 22.10 0.26 EU_27 -0.14 -3.61 -1.64 0.00

JAP 0.39 38.50 29.50 0.28 USA -0.06 -8.33 -0.59 -0.03

KOR 0.43 56.30 37.80 0.43 RUS 0.01 -6.50 -3.63 -0.02

AUS 0.34 45.40 28.60 0.37 IND -0.19 -6.30 -3.03 -0.02

NZL -0.34 49.50 39.10 0.39 REST -0.19 -5.87 -2.82 -0.01

ASEAN -0.10 38.70 29.90 0.34

Table 3: Rate of change in imports and exports of products (%).

Country Cro Hus Fofi LM MLM MHM Util OtseOtse

import

CHI 39.24 51.55 31.38 46.79 43.49 32.40 12.33 13.30

JAP 19.98 23.78 16.42 57.78 39.19 29.97 36.07 37.56

KOR 20.16 37.34 33.05 101.20 51.43 60.86 25.94 36.72

AUS 44.38 50.71 23.11 99.58 42.80 43.36 1.49 5.62

NZL 42.43 63.18 35.23 89.70 48.12 41.59 38.60 31.04

ASEAN 47.84 85.79 52.94 72.72 42.81 33.62 12.47 14.97

27 -3.53 -4.31 -3.69 -3.71 -3.96 -3.14 -2.99 -3.99

USA -5.41 -5.69 -5.14 -9.45 -4.31 -10.58 -5.07 -6.98

RUS -3.39 -5.34 -4.59 -7.31 -7.34 -6.33 -4.60 -6.24

IND -8.68 -14.60 -10.08 -10.54 -4.36 -8.80 -5.31 -6.82

REST -4.96 -6.20 -5.33 -6.70 -6.14 -5.18 -5.15 -6.49

export

CHI 93.50 28.40 23.30 26.40 75.60 11.50 -23.80 0.01

JAP 104.00 82.00 70.90 64.10 179.00 3.35 -58.00 -8.63

KOR 184.00 159.00 80.40 137.00 171.00 6.64 -34.20 -9.62

AUS 71.2.0 89.80 143.00 115.00 -0.10 144.00 -5.81 23.90

NZL 156.00 174.00 40.30 28.40 20.40 130.00 -70.40 -8.67

ASEAN 107.00 69.60 86.40 34.90 64.80 25.20 -29.70 -2.57

EU_27 -3.93 -7.01 -4.92 -4.86 -9.76

-0.13 -4.19 2.65

USA -6.57 -17.90 -8.73 -11.00 -7.37 1.39 3.05 5.40

RUS -4.97 -14.30 -11.50 -6.95 -5.50 5.32 -0.50 4.80

IND -4.71 -3.01 -5.46 -9.17 -13.1 0.47 7.15 5.70

REST -5.11 -6.70 -6.63 -3.30 -10.00 5.30 0.47 5.28

Second, there are differences in products in im-

port and export in different countries, and the scale of

China's labor-intensive industries trade is increasing

faster. China will increase the import of husbandry,

Low-Manufacturing and Middle Low-Manufactur-

ing. Making full use of the advantages of RCEP co-

operation can help China to further expand its coop-

eration in animal husbandry. In addition, imports of

Middle Low-Manufacturing and Low-Manufacturing

industries have also increased significantly. With the

RCEP investment and trade liberalization and facili-

tation measures, the production links of some labor-

intensive industries will be further transferred to

countries such as Vietnam, where land and labor costs

are lower, and importing Low-Manufacturing from

RCEP member countries is more in line with compar-

ative advantages. Therefore, RCEP may also acceler-

ate the transfer of labor-intensive industries to

ASEAN countries with lower land and labor costs,

posing new challenges to the value chain status of

China's industrial chain. About service industry,

China still has a long way to go in service trade. In

terms of export products, China's exports of agricul-

ture and Middle Low-Manufacturing industries will

be greatly improved. The simulation results show that

Southeast Asia will become an important export mar-

ket for labor-intensive, resource-intensive and simple

technology-intensive manufactured goods, and there

is increased competition between Southeast Asia and

China in labor-intensive and simple technology-

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466

Table 4: The rate change of China's imports and exports (%).

import

qxs JAP KOR AUS NZL ASEAN EU_27 USA RUS IND REST

Cro

21.20 25.60 18.30 37.90 38.40 -1.12 -0.62 -1.07 -0.37 -0.79

Hus

41.50 37.70 10.20 38.70 46.90 -2.95 -2.54 -2.93 -2.06 -2.69

Fofi

12.40 20.60 5.61 3.97 21.10 -1.45 -1.18 -1.28 -1.05 -1.20

21.20 24.00 30.00 6.05 23.30 -2.09 -1.42 -1.71 -1.24 -1.47

MLM

48.20 51.00 -2.78 5.30 43.70 -5.38

-4.68 -4.54 -4.84 -4.21

MHM

9.90 2.59 61.10 55.30 10.40 -0.67 0.04 -0.13 -0.18 -0.10

Util

-5.32 -2.93 0.93 -6.63 -1.37 2.01 2.61 2.46 2.60 2.55

Otse

2.34 2.03 8.28 3.65 5.66 0.86 1.30 1.16 1.35 1.29

export

qxs 14.90 5.02 22.60 7.06 28.90 -3.19 -3.39 -2.98 -3.41 -3.26

Cro 1.79 15.70 13.00 9.64 28.70 -3.15 -3.45 -2.86 -1.94 -3.11

Hus 1.72 8.14 3.82 3.58 13.40 -2.28 -2.05 -2.25 -1.35 -2.29

Fofi 4.09 20.60 34.60 23.40 30.10 -3.42 -3.12 -3.11 -3.21 -3.35

LM 23.40 28.20 48.00 39.40 41.40 -4.01 -3.85 -3.44 -3.96 -3.95

MLM -0.93 13.20 11.3 12.60 19.50 -2.77

-2.31 -2.45 -2.07 -2.51

MHM 0.39 -0.51 -3.11 1.05 -1.56 -3.49 -3.82 -3.67 -3.76 -3.74

Util 8.12 7.90 5.10 6.99 6.48 -2.50 -2.58 -2.64 -2.69 -2.73

intensive manufactured goods industries.

Third, in terms of product structure, the coopera-

tion between China and Japan will increase signifi-

cantly in animal husbandry and Low-Manufacturing,

while cooperation with South Korea will increase sig-

nificantly in forest and fishery, Low-Manufacturing

and Middle Low-Manufacturing. Cooperation with

Australia in Low-Manufacturing and Middle High-

Manufacturing and other services increases, while co-

operation with New Zealand is in agriculture and

high-tech manufacturing. There are more imports

from ASEAN countries in agriculture, animal hus-

bandry, forest fisheries and Middle Low-Manufactur-

ing industries. It can be seen that the industries of

China and RCEP member countries complement each

other, and further strengthening the cooperation of

key industries between China and other countries will

help to further enhance the overall international com-

petitiveness of regional industries.

3.3 Investment Effect

From the perspective of global investment, after the

implementation of RCEP, the total global investment

will rise by 1.03%, and the average price of global

investment goods will reduce by 0.294%. It will in-

crease the price of investment goods in China, which

will increase investment expenditure, and the growth

rate of regional trade and investment, and bring sig-

nificant marginal improvement to the long-term mo-

mentum of China's economic growth. RCEP coun-

tries are the main destinations for Chinese enterprises

to "go out" for investment. Under the role of "tariff

concessions" and "rules of origin", China will usher

in great opportunities for development and opening

up a new situation for enterprises to "go out".

4 CONCLUSIONS

Based on GTAP database variables, this paper ex-

plores the impact of RCEP on China, and predicts the

impact of economic and trade cooperation between

China and RCEP member countries in the future. The

study found that: first, the effective implementation

of RCEP can bring positive economic and trade ef-

fects to member countries, such as general growth in

economic indicators such as GDP and import and ex-

port volume. Second, China has differences in the

changes in import and export products from different

countries. Third, the signing of RCEP will increase

total global investment by 1.03%, and China shall

also make good use of RCEP to expand its foreign

investment cooperation.

In order to comprehensively improve the level of

bilateral economic and trade cooperation and effec-

tively deal with the negative impact accompanied by

integration, this paper puts forward the following

The Economic and Trade Effects of RCEP Agreement in China and Other Member Countries: An Empirical Study Based on GTAP Model

467

countermeasures and suggestions from the perspec-

tive of China: First, we should jointly implemented

the RCEP and accelerate connectivity, creating "a

highland for development". Second, we should ad-

vance China's industrial upgrading and strengthen the

status of the supply chain value chain. Third, to build

a new open and cooperative platform for high-quality

implementation of RCEP.

ACKNOWLEDGEMENTS

This work is supported by Major Program of National

Social Science Foundation of China (21&ZD074),

National Natural Science Foundation of China

(71873041; 72073037), Natural Science Foundation

of Guangdong Province (2021A1515011814), 2021

Program of Guangdong Philosophy and Social Sci-

ences (GD21CYJ02; GD21YYJ05).

Xiaonan Shen is the corresponding author, the

email is 744104541@qq.com.

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