Estimating the Economic and Distributional Impacts of the RCEP Figure 24. Output in volume, percentage change relative to business-as-usual scenario, 2035 <!-- Start of picture text --> 20.00<br>15.00<br>10.00<br>5.00<br>0.00<br>-5.00<br>-10.00<br>Tariffs alone RCEP ROO liberalization Productivity kick<br>Textiles Tourist services Other manufactures Metals Trade Air transport Road transport Communications Utilities Animal products Food and beverages Crops Business services Construction Water transport Meat products Other extraction Non metallic minerals Fossil fuels Basic pharmaceuticals Total agriculture Total natural resources Total manufacturing Total services Total<br>Wearing apparel and leather Electrical equipment and... Other transport equipment Motor vehicles and parts Petroleum, coal products Chemical, rubber, plastics Public administration and... Financial services and insurance Wood and paper products<br><!-- End of picture text --> Source: World Bank Staff calculations using Envisage model The results of this paper show that the implementation of RCEP can boost Vietnam’s income. Vietnam was already well-integrated in the region prior to RCEP, and therefore most of the gains do not come from reduction of already low levels of tariffs. Most gains will occur from deeper participation, namely with the boost to intra-RCEP trade related to the common rules of origin and productivity gains related to greater openness in goods and services. This underlines the importance of considering deeper RCEP commitments. With the implementation of RCEP, the market for Vietnam will expand, particularly to China, where Vietnam does not currently possess any trade agreement. Gains in the productivity kick scenario are concentrated mostly in the manufacturing sectors, in particular wearing apparel, electrical equipment, and textiles. Some sectors will suffer losses with the implementation of the agreement, due to a redistribution of resources to more productive sectors. In terms of distributional impact, Vietnam sees 1.7 million more people entering the middle class, and wages growing the fastest of all RCEP members, both for male and female workers.

# 6 Conclusions

The COVID-19 pandemic has taken a high toll in human and economic terms. RCEP could help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains. In the medium/long run, RCEP would increase the resilience of its members, it would make them better prepared in the face of future shocks by: (i) enhancing regional collaboration, (ii) reducing trade costs, and (iii) further diversifying their economies.

RCEP offers an opportunity to boost growth and support recovery from the COVID-19 pandemic. The gains are significant, with real income gains in the region between 0.21 percent (reduction of tariffs and NTMs) and 2.5 percent (accounting for potential productivity improvements). Countries that stand to gain the most in terms of real income growth include Vietnam (4.9 percent) and Malaysia (4.6 percent) (in 2035, in the productivity kick scenario). With this deeper implementation of RCEP, its members have the potential to become a hub in attracting foreign investment, particularly from within the region, leading to potentially even higher trade and income gains. RCEP has the potential to lift up to an additional 27 million people into middle-class status. Overall, wages within the region