Estrades, Maliszewska, Osorio-Rodarte, and Seara E Pereira. (2021) The CGE analysis should be seen as a scenario analysis helping us understand the relative impacts of trade policy changes at the country and sectoral levels, not as a tool generating projections. It comes with several caveats. On the one hand, the results may underestimate the impacts of RCEP because they do not capture (1) new trade flows in sectors and countries that are not trading in the baseline; (2) most dynamic gains from trade (such as economies of scale, and learning by doing); and (3) foreign direct investment (FDI)—improving market conditions, competitiveness, and business sentiment will likely stimulate FDI in the member countries, thereby leading to higher investment and accelerating imports of higher-technology intermediate and capital goods and improved management practices. On the other hand, the results may overestimate the impacts of RCEP because the analysis does not capture (1) the costs of lowering non-tariff barriers; and (2) the transitional costs associated with traderelated structural change such as employment shifts and potentially stranded assets such as capital. RCEP offers big opportunities for boosting trade and growth, but implementation will be a significant challenge. This analysis identifies key priorities for the member countries’ policy makers. Lowering tariffs and especially eliminating tariff peaks will be relatively straightforward. The hard part will be reducing the non-tariff measures and creating an environment where exporters can take full advantage of the common rules of origin without incurring high administrative costs. RCEP’s full potential depends on agreeing to ratifying the agreement and implementing it in full. Partial reforms would lead to smaller effects.

# 4 Distributional impacts on poverty and gender

The World Bank estimates that in 2018, the global incidence of extreme poverty was 8.9 percent (as measured by the headcount ratio at 2001 purchasing power parity [PPP] US$1.90/day), while the incidence in the RCEP region was 1.0 percent.<sup>14</sup> Simulation results project that in 2020 and as a result of the COVID-19-induced economic depression, global extreme poverty is expected to rise for the first time in three decades, reaching 10.4 percent, and, under baseline conditions, it is expected to decline to 6.8 percent by 2035 (Figure 12). Driven by strong economic resilience and sustained growth in the RCEP region, particularly in Vietnam and China, extreme poverty under the baseline scenario is expected to decline from 0.98 percent in 2020 to 0.12 percent by 2035.

Since the RCEP member country region is formed by six high-income countries, four upper-middle-income countries and five lower-middle-income countries,<sup>15</sup> and many of these countries are expected to graduate to a higher income status by 2035, a higher-value poverty-line is more adequate to measure standards of living in these countries, such as a national line of global middle-class status at 2011 PPP of US$10.00 a day. Figure 13 shows the percentage of population that falls below middle-class status under baseline conditions. Globally, 61.7 percent of the population falls below that threshold, and the share is projected to decline to 52.8 percent by 2035. In contrast, the RCEP region would experience a more rapid decline, from 50 percent to 25.2 percent, during the same period.

> 14 World Bank (2020).

> 15 The World Bank classifies countries based on gross national income per capita using the Atlas method. For 2021, the RCEP member countries are classified as follows: high-income: Australia, Brunei Darussalam, Japan, Republic of Korea, New Zealand, and Singapore; upper-middle income: China, Indonesia, Malaysia and Thailand; lower-middle income: Cambodia, Lao  PDR, Myanmar, Philippines and Vietnam. For further details, see: https://datahelpdesk.worldbank.org/knowledgebase/articles/906519.

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