The Impact of RCEP Tariff Concessions on Intra-Regional Trade: An Analysis of Trade Creation and Diversion

Abstract

This study delves into the economic ramifications of the Regional Comprehensive Economic Partnership (RCEP), particularly focusing on its tariff concessions and their influence on intra-regional trade dynamics within the Asia-Pacific region. By encompassing 15 East Asian and Pacific nations, RCEP stands as the world's largest trading bloc, accounting for approximately 30% of the global Gross Domestic Product (GDP). This research aims to dissect the core objectives of RCEP, emphasizing the significant tariff concessions that aim to eliminate up to 90% of the tariffs within the bloc over a stipulated timeline. Through a comprehensive analysis, this paper explores the dual phenomena of trade creation and trade diversion as intrinsic outcomes of RCEP's tariff concessions. Initial findings project an increase in intraregional exports by nearly 2%, translating to an augmentation of approximately US$42 billion. This surge in trade volume is attributed to the lowered costs of goods due to reduced tariffs, fostering economic growth and integration of regional markets. However, the study also highlights the nuanced impacts of trade diversion, where trade shifts from more efficient external sources to less efficient member states, induced by preferential treatment within the bloc. Furthermore, the paper navigates through the challenges and opportunities presented by RCEP, including the harmonization of trade policies and regulatory standards across diverse economic landscapes. The research underscores the strategic implications for RCEP member countries, advocating for a multifaceted approach to leverage the benefits of the agreement while mitigating potential downsides. This study contributes to the broader discourse on regional economic cooperation and integration, offering insights into the complex interplay between trade policies and regional dynamics in the Asia-Pacific.