Estimating the Economic and Distributional Impacts of the RCEP simulates the main policy changes expected under the agreement. This analysis builds on an earlier study by Ferrantino et. al. (2019),<sup>7</sup> and the full details of the CGE model are presented in van der Mensbrugghe (2019).

The model was calibrated with the latest available information, using the GTAP database v.10 (Aguiar et. al., 2019). The aggregation of regions and sectors for the model is presented in tables AI.3 and AI.4 in Appendix I. We included most RCEP members and their relevant partners outside the region, i.e., Europe, the United States and India. Tariffs are from the MacMap<sup>8</sup> database and are reduced over time in the baseline considering all agreements in force. It includes agreements in force in the region, such as CPTPP, China-Korea FTA, and ASEAN. Finally, tariffs were also adjusted in order to include the tariff increases implemented between China and the US starting in 2018 (Li, 2018). The information was taken from Li (2018). The model was calibrated with ad valorem equivalents of nontariff measures from Cadot, Gourdon, and van Tongeren (2018) for goods and Hoekman and Shepherd (2019) for services. However, we also run the model with AVEs of non-tariff measures for goods from Kee and Nicita (2018) in a sensitivity analysis.

The baseline, or Business-as-Usual (BaU) scenario, runs from 2014 through 2035. The baseline targets real GDP growth and calibrates labor productivity, which is then fixed in the simulation scenarios. GDP projections are taken from the World Economic Outlook database, November 2019 (IMF 2019). Thus, the BaU does not consider the contraction in GDP due to the COVID-19 pandemic. While for most countries the GDP per capita growth rates are quite stable in the long run, some quickly aging economies or those with slowing population growth rates are expected to experience lower GDP growth rates after 2030. Also, higher income is associated with an increased share of services in household demand and since productivity growth in services is usually lower than in manufacturing, some economies experience slower GDP per capita growth rates due to slower productivity growth.<sup>9</sup> The baseline also targets population growth following the latest UN population projections (UN 2020), as well as the GIDD projections, available by broad age group (we use the 15-64 age cohort for labor force), gender, and education (primary, secondary and tertiary). Growth of skilled labor is equated with the growth of specific education categories. For low- and lower-middle income countries, skilled workers are equated with secondary and tertiary levels. For upper-middle and high-income countries, skilled workers are equated with tertiary levels only.

We simulated different scenarios that reflect the depth of the RCEP agreement. The first scenario simulates the expected tariff reduction among RCEP members as scheduled in the agreement.<sup>10</sup> A second scenario also includes non-tariff measure reductions among goods and services. We follow Petri and Plummer’s (2020) assumptions and simulate a 35 percentage reduction of ad valorem equivalents of non-tariff measures on agricultural goods, a 25 percentage reduction on manufacturing goods, and a 25 percentage on services among RCEP members countries, and a 10 percentage of non-tariff measures applied by RCEP members to imports from countries outside RCEP, as it is assumed that some of the reforms carried out in the agreement are applied on a non-preferential basis. Third, we also assume that the Rules of Origin (ROO) regime in RCEP reduces trade costs among its members by 1% over the period of implementation (2022-2035). The resulting trade cost reduction is modeled as a lowering of iceberg trade costs (ad valorem tax equivalent of costs associated with trade) , using the lower bound of Dib, Huang and Poulou’s (2020) estimates, who find that a common rule of origin could reduce export transaction costs between 1.4% and 5.9%.<sup>11</sup> In other words, we believe that when tariff reductions are combined with lower NTBs, only then exporters are able to take full advantage of the preferential rates under liberal RoO. In our simulations, implementation of

> 7 See Appendix III for a Comparison of CGE assessments of RCEP.

> 8 The information on tariff reduction schemes bilaterally and by GTAP product is available at:  https://www.macmap.org/.

> 9 See China 2030 : Building a Modern, Harmonious, and Creative Society (2013).

> 10 For the tariff reduction schedules for RCEP members, see https://www.dfat.gov.au/trade/agreements/not-yet-in-force/rcep/rceptext-and-associated-documents.

> 11 Park, Petri and Plummer (2022) also model the benefits associated with a more liberal RoO regime and increased utilization rates as iceberg trade cost reductions, but also allow for the RoO to impose a small administrative cost on intra-regional exports.