The Effects of the Regional Comprehensive Economic Partnership on China’s Trade, Tariff Revenue and Welfare
Abstract
Increasing attention is being paid to the role of regional economic integration in facilitating a country's trade. This is especially true for the state like China, which has the second largest GDP in the world. This study explores the effects of the Regional Comprehensive Economic Partnership (RCEP) on China, looking at changes in welfare, trade creation, trade diversion, and tariff revenue under four tariff reduction scenarios with RCEP members. The study evaluates how RCEP affects China's trade relations with Japan, Korea, ASEAN, Australia, and New Zealand by using the World Bank's World Integrated Trade Solution Software for Market Analysis and Restrictions on Trade (WITS-SMART) tool. The findings demonstrate increased market accessibility and competitiveness of commodities in the Chinese market, with notable increases in trade creation and diversion, especially with Korea and Japan. RCEP considerably increases welfare even though it results in lower tariff revenues, indicating that the advantages of lower trade costs and more effective supply chains exceed the fiscal drawbacks. The paper concludes with policy recommendations that emphasize the need for strategic adaptations in China’s trade policies to fully capitalize on the economic opportunities presented by RCEP, ensuring sustainable growth and the equitable distribution of trade benefits among all member states.
References
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[39] Timsina, K., and Culas, R. (2021). Australia’s free trade agreements (FTAs) and potentiality of wheat exports: A panel gravity model approach. Journal of East-West Business, 28: 61 - 88. DOI:https://doi.org/10.1080/10669868.2021.1974640
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[41] Vo, T., and Nguyen, D. (2020). Impact of trade liberlization on household welfare: an analysis using household exposure-to-trade indices. Social Indicators Research, 153. DOI: http://doi.org/10.1007/s11205-020002499-1
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[43] Wang, C. (2023). Study on the prospects for the development of China, Japan and Korea economic and trade cooperation under RCEP. SHS Web of Conferences. DOI:https://doi.org/10.1051/shsconf/202316303035
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[2] Balassa, B. (1961). The theory of economic integration. Homewood, IL: Richard D. Irwin. Inc. XIII.
[3] Berlingieri, G., Breinlich, H., and Dhingra, S. (2016). The impact of trade agreements on consumer welfare. Macroeconomics: Prices. DOI: https://doi.org/10.1093/JEEA/JVX053
[4] Biyik, O. (2020). Winner and loser in terms of the FTAs and the trade war: Case study of the Japanese market. DOI: https://doi.org/10.21203/rs.3.rs-777952/v1
[5] Breinlich, H., Dhingra, S., and Ottaviano, G. (2016). How have EU's trade agreements impacted consumers? Research Papers in Economics.
[6] Chun, B., Kim, E., and Lee, J. (2016). The effects of FTAs on intra-firm trade of Korean firms. Journal of Social Sciences, 56: 187-234. DOI: https://doi.org/10.22418/JSS.2017.12.56.2.187
[7] Cui, L., Song, M., and Zhu, L. (2019). Economic evaluation of the trilateral FTA among China, Japan, and South Korea with big data analytics. Comput. Ind. Eng., 128: 1040-1051. DOI:https://doi.org/10.1016/j.cie.2018.04.029
[8] Deswal, P. (2020). Predicting the effects of services trade liberalization. International Economic Journal, 34: 185 - 201. DOI: https://doi.org/10.1080/10168737.2019.1704822
[9] Fathelrahman, E., Davies, S., and Muhammad, S. (2021). Food Trade Openness and Enhancement of Food Security- Partial Equilibrium Model Simulations for Selected Countries. Sustainability, 13: 4107. DOI:https://doi.org/10.3390/SU13084107
[10] Franco-Bedoya, S., and Frohm, E. (2021). Reduced "Border effects", FTAs and international trade. The World Economy. DOI: https://doi.org/10.1111/twec.13211
[11] Gaurav, K., and Bharti, N. (2019). Some common lessons from uncommon FTAs. South Asia Economic Journal, 20: 138 - 157. DOI: https://10.1177/1391561418824479
[12] Guei, K., Mugano, G., and Roux, P. (2017). Revenue, welfare and trade effects of European Union Free Trade Agreement on South Africa. South African Journal of Economic and Management Sciences, 20: 11. DOI:https://doi.org/10.4102/SAJEMS.V20I1.1655
[13] Hayakawa, K., and Kimura, F. (2015). How much do free trade agreements reduce impediments to trade? Open Economies Review, 26: 711-729. DOI: https://doi.org/10.1007/S11079-014-9332-X
[14] Heng, D., Senghor, S., Ear, S., and Em, K. (2015). Impacts of Cambodia's tariff elimination on household welfare and labor market: A CGE approach. Trade Policy. DOI: https://doi.org/10.2139/ssrn.2577959
[15] Ji, S., and Yoo, J. (2018). A study on the changes of agricultural import structure according to implementation of FTAs in South Korea. Journal of Korea Trade, 22: 2-16. DOI: https://doi.org/10.1108/JKT-01-2018-0001
[16] Karacaovali, B. (2010). Free Trade Agreements and External Tariffs. Political Economy: Taxation.
[17] Karacaovali, B. (2013). Trade-diverting free trade agreements, external tariffs, and feasibility. The Journal of International Trade and Economic Development, 25: 1 - 22. DOI: https://doi.org/10.2139/ssrn.2372226
[18] Kawabata, Y. (2014). The effects of cross-regional free trade agreements under a vertical industry structure. The Journal of International Trade and Economic Development, 23(6): 906-922. DOI:https://doi.org/10.1080/09638199.2012.745587
[19] Khorana, S., and Narayanan, B. G. (2017). Modelling effects of tariff liberalisation on India’s key export sectors: Analysis of the EU–India free trade agreement. Margin: The Journal of Applied Economic Research, 11(1): 1-22. DOI: https://doi.org/10.1177/0973801016676016
[20] Lakatos, C., and Nilsson, L. (2017). The EU-Korea FTA: anticipation, trade policy uncertainty and impact. Review of World Economics, 153: 179-198. DOI: https://doi.org/10.1007/S10290-016-0261-1
[21] Lee, H. (2016). Do preferential rules of origin reverse trade creation and trade diversion? International Economic Journal, 30: 429 - 449. DOI: https://doi.org/10.1080/10168737.2016.1204344
[22] Lee, H., Park, D., Park, D., and Tian, S. (2022). RCEP’s financial integration before and after the global financial crisis: an empirical analysis. The Journal of International Trade and Economic Development, 32: 429 - 460. DOI: https://doi.org/10.1080/09638199.2022.2115106
[23] Li, T., Xue, Y., Lu, J., and Li, A. (2018). Cross-border mergers and acquisitions and the role of free trade agreements. Emerging Markets Finance and Trade, 54. DOI: 10.1080/1540496X.2018.1436437
[24] Lipsey, R. G. (1960). The theory of customs unions: A general survey. The economic journal, 70(279): 496-513. DOI: https://doi.org/10.2307/2228805
[25] Magee, C. S. (2008). New measures of trade creation and trade diversion. Journal of International Economics, 75(2): 349-362. DOI: https://doi.org/10.1016/j.jinteco.2008.03.006
[26] Mandal, A. (2019). Welfare effect of free trade agreements: A theoretical note. Foreign Trade Review, 54: 115 - 125. DOI: https://doi.org/10.1177/0015732519831806
[27] Mitsuyo, A., Shujiro, U., and Kenta, Y. (2019). Do Japan's Free Trade Agreements (FTAs) Increase Its International Trade? Research Papers in Economics.
[28] Mukunoki, H. (2017). The Welfare Effect of a Free Trade Agreement in the Presence of Foreign Direct Investment and Rules of Origin. Monetary Economics eJournal. DOI: https://doi.org/10.1111/roie.12282
[29] Mukunoki, H., and Okoshi, H. (2020). Tariff elimination versus tax avoidance: free trade agreements and transfer pricing. International Tax and Public Finance, 28. DOI: https://doi.org/10.1007/s10797-021-09689-8
[30] Parra, M. D., Martinez-Zarzoso, I., and Suárez-Burguet, C. (2016). The impact of FTAs on MENA trade in agricultural and industrial products. Applied Economics, 48(25): 2341-2353. DOI:https://doi:10.1080/00036846.2015.1119792
[31] Pham, U., Vo, U., Trinh, Q., and Le, H. (2024). Impact of Hong Kong-ASEAN Free Trade Agreement: an assessment from the trade creation and trade diversion perspectives. Cogent Social Sciences, 10(1): 2338501. DOI: https://doi.org/10.1080/23311886.2024.2338501
[32] Phan, T., and Jeong, J. Y. (2016). Potential economic impacts of the Vietnam-Korea free trade agreement on Vietnam. Journal of East Asian Economic Integration, 20(1): 67-90. DOI:https://doi.org/10.11644/KIEP.JEAI.2016.20.1.305
[33] Rahman, N., and Sharma, K. (2023). Exploring the impact of RCEP on Malaysia: insights from select manufacturing industries. Journal of Economic and Administrative Sciences. DOI:https://doi.org/10.1108/jeas-11-2022-0258
[34] Safuan, S. (2017). ASEAN-China free trade area: An assessment of tariff elimination effect on welfare. European Research Studies Journal, 27-37. DOI: https://doi.org/10.35808/ERSJ/872
[35] Saggi, K., Stoyanov, A., and Yildiz, H. (2018). Do free trade agreements affect tariffs of nonmember countries? A theoretical and empirical investigation. World Scientific Studies in International Economics. DOI:https://doi.org/10.1257/APP.20150360
[36] Suslov, D. V. (2020). Estimating the effects of free trade agreements on trade flows in East Asia. In Smart Technologies and Innovations in Design for Control of Technological Processes and Objects: Economy and Production: Proceeding of the International Science and Technology Conference" FarEastСon-2018" Volume 1 (pp. 511-527). Springer International Publishing. DOI: https://doi.org/10.1007/978-3-030-15577-3_49
[37] Taguchi, H. (2015). Trade creation and diversion effects of ASEAN-plus-one free trade agreements. Economics Bulletin, 35: 1856-1866.
[38] Timsina, K., and Culas, R. (2020). Impacts of Australia’s free trade agreements on trade in agricultural products: an aggregative and disaggregative analysis. Australian Journal of Agricultural and Resource Economics, 64: 889-919. DOI: https://doi.org/10.1111/1467-8489.12377
[39] Timsina, K., and Culas, R. (2021). Australia’s free trade agreements (FTAs) and potentiality of wheat exports: A panel gravity model approach. Journal of East-West Business, 28: 61 - 88. DOI:https://doi.org/10.1080/10669868.2021.1974640
[40] Venables, A. J. (2003). Winners and losers from regional integration agreements. Economic Journal, 113(490): 747-761. DOI: https://doi.org/10.1111/1468-0297.t01-1-00155
[41] Vo, T., and Nguyen, D. (2020). Impact of trade liberlization on household welfare: an analysis using household exposure-to-trade indices. Social Indicators Research, 153. DOI: http://doi.org/10.1007/s11205-020002499-1
[42] Walter, T. (2018). Trade and welfare effects of a potential free trade agreement between Japan and the United States. Review of World Economics, 158. DOI: https://doi.org/10.1007/s10290-022-00459-0
[43] Wang, C. (2023). Study on the prospects for the development of China, Japan and Korea economic and trade cooperation under RCEP. SHS Web of Conferences. DOI:https://doi.org/10.1051/shsconf/202316303035
[44] World Bank. (2024). WITS User’s Manual. Available at: https://wits.worldbank.org
[45] Yi, C. (2020. The computable general equilibrium analysis of the reduction in tariffs and non-tariff measures within the Korea-Japan-European Union free trade agreement. Japan and the World Economy, 56: 101037. DOI: https://doi.org/10.1016/j.japwor.2020.101037
Published
2024-09-30
How to Cite
ZHANG, Wenjie; ABD RAHMAN, Muhammad Daaniyall; MUHAMAD SENAN, Mohamad Khair Afham.
The Effects of the Regional Comprehensive Economic Partnership on China’s Trade, Tariff Revenue and Welfare.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 15, n. 3, p. 566 - 578, sep. 2024.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/8588>. Date accessed: 14 nov. 2024.
doi: https://doi.org/10.14505/tpref.v15.3(31).05.
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