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Navigating LDC graduation: modelling the impact of RCEP and CPTPP on Bangladesh
Abstract
Bangladesh will graduate from the LDC list by 2026. Currently, Bangladesh's exports of readymade garments (RMG) benefit from international support measures which allow preferential trade in major export destinations, such as the EU. After graduation, Bangladesh's exports, particularly RMG, will face competition from mega trading blocs, such as RCEP and CPTPP. This article employs the GTAP model to estimate the impact of Bangladesh's graduation from the LDC category and how mega FTAs are likely to affect Bangladesh's exports and potential welfare. The model also considers the scenarios of either United States or the UK or both joining the CPTPP. The model results show that Bangladesh's graduation will lead to a fall in GDP and RMG exports by 1.53% and 11.8%, respectively. The negative impact is magnified when we factor in the mega-trading blocs. Further negative impacts are observed when either United States or the UK or both join the CPTPP.
... They did not, however, discuss how joining RCEP would generally affect trade and the economy. The LDC graduation of Bangladesh and major trade agreements like the RCEP and CPTPP were modeled using the CGE model by Raihan et al. (2022). They discovered that the graduation of LDCs will result in a drop in exports of 11.8% and a potential loss in welfare amounting to 1.5% of GDP. ...
... This analysis provides the overall trade scenario of Bangladesh with the RCEP member and non-member countries. Based on some previous research such as ADB (2020); Maliszewska et al. (2020); and Raihan et al. (2022), this study then applies the computable general equilibrium (CGE) model using the GTAP database to quantify the effect of RCEP membership on the trade and economy of Bangladesh. However, the economic literature has been quite critical of CGE models. ...
... To better assist policymakers dealing with a wide range of possible FTAs, evaluation of their economic implications has become crucial as FTAs increase in both number and depth. However, several studies on the effect evaluation of RCEP that is accessible makes use of computational general equilibrium (CGE) models, such as Raihan et al. (2022), Li and Moon (2018), and Itakura and Lee (2019). Economic literature has harshly criticized CGE models for their irrational presumptions of perfect competition, full employment, balanced budgets for the government, and unrealistic economic circumstances. ...
This study is an extensive analysis to identify the potential effect of the membership of a mega trade bloc called RCEP on the trade and overall economy of Bangladesh to cope with the challenges of LDC graduation. This study applies both partial equilibrium SMART simulation and computable general equilibrium (CGE) models to analyze the trade and economic effect of RCEP on Bangladesh. The partial equilibrium SMART simulation results suggest that the tariff facility due to RCEP membership will substantially increase the export of Bangladesh to RCEP member countries. The CGE simulation analysis results suggest that the apparel sector will experience the highest increase in exports by 290.03 and leather at $223.74 million after joining RCEP. Most of the sectors will have substantial export gains. The results also show that exports of different sectors especially the apparel sector will fall if Bangladesh does not join RCEP. The findings of the study provide crucial policy directives on joining Bangladesh to the mega-trade bloc like RCEP.
... While the effect of LDC graduation on Bangladesh's export growth has been well-studied (Rahman and Bari, 2019;Raihan, Khorana, and Uddin, 2022;Rahman and Strutt, 2022), the impact on private sector investment expansion remains largely unexplored. This study bridges this gap by focusing on avenues for expanding private investment in Bangladesh in the context of LDC graduation. ...
... Annexe 8 presents a summary table on the pre and post LDC schemes. Decline by 18% Sectors Impact Apparel export Decline by 14.7 % Agro-processing export Decline by 11.3 % Leather and leather goods export Decline by 3.1 % Source: Rahman and Bari, 2019; Raihan, Khorana, and Uddin, 2022 The consequence of the aforementioned changes will negatively impact Bangladesh's exports and GDP growth rates, at least in the short run. According to recent studies, Bangladesh's exports are predicted to decline by 8% to 12% (Rahman and Bari, 2019;Raihan, Khorana, and Uddin, 2022). ...
... Decline by 18% Sectors Impact Apparel export Decline by 14.7 % Agro-processing export Decline by 11.3 % Leather and leather goods export Decline by 3.1 % Source: Rahman and Bari, 2019; Raihan, Khorana, and Uddin, 2022 The consequence of the aforementioned changes will negatively impact Bangladesh's exports and GDP growth rates, at least in the short run. According to recent studies, Bangladesh's exports are predicted to decline by 8% to 12% (Rahman and Bari, 2019;Raihan, Khorana, and Uddin, 2022). If the impact of the covid-19 pandemic is taken into consideration, the fall may deepen to 14.3% . ...
Private sector investment expansion is one of the fundamental catalysts for achieving high economic growth and obtaining sustainable development. However, Bangladesh’s private sector investment growth has remained almost stagnant over the decades, beset with numerous obstacles. In this context, Bangladesh’s graduation from the Least Developed Country (LDC) status by November 2026 could impose additional challenges for robust private sector expansion. This report explores the challenges related to expanding private investment in Bangladesh in the context of the LDC graduation and identifies key policies as a way forward.
... Gaur (2022) argued that India was invited to join the RCEP to balance China and that some agreement content was unsuitable for India. Other players have differing attitudes (Calì et al. 2019;Jung and Kim 2019;Khan et al. 2018;Raihan et al. 2022). ...
As a central hub for global commodity trade, the Asia-Pacific region has increasingly contributed to global economic growth. This study examines the impact of recently enacted mega Free Trade Agreements (FTAs) in the region, namely, the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Employing the Poisson pseudo-maximum likelihood (PPML) estimator and Poisson generalized estimating equations (GEE) within an Augmented Gravity Model with four-way fixed effects, this study analyzes trade data from 2003 to 2023 across 19 member countries and conducts endogeneity and robustness tests on the results. The empirical findings are unable to demonstrate that the main effects of RCEP and CPTPP have statistically significant impact on trade flows. However, the interaction effects of RCEP and CPTPP significantly boosted the bilateral trade flows (excluding non-agricultural exports) of overlapping member countries, particularly in agricultural exports, which increased by 21.81%. These results underscore the critical role of Asia-Pacific economic integration in facilitating trade cooperation and highlight the complexities that mega FTAs encounter in facing geopolitical issues. Despite political challenges, the RCEP and CPTPP positively affect trade relations and economic development.
As a testimony to its impressive economic performance, sustained over the past decades, Bangladesh is officially set to graduate from the group of least developed countries (LDCs) by 2024. Against overwhelming odds, it is a tremendous achievement, featuring international recognition of the country’s ongoing development transition. As an LDC, Bangladesh has been a bene ciary of certain international support measures (ISMs) that are generally not available to other developing countries. These include unilateral trade preferences and more favourable conditions or exibilities granted under various agreements of the World Trade Organization (WTO). Furthermore, the development partners have provided special attention and undertaken commitments to support LDCs with financial and technical assistance from which Bangladesh has also benefitted. The impending graduation is likely to have certain implications mainly for the export-oriented enterprises, as it gives rise to concerns about potentially sizeable economic costs due to the loss of access to various LDC-specific support measures. This chapter attempts to identify major issues arising from the changed circumstances associated with LDC graduation where the private sector has important stakes. It also discusses various policy options that can be pursued to ease the transition process into the post-graduation era. The graduation issues have been analysed under three broad likely implications: (i) preference erosion in international trade, potentially affecting exporting firms; (ii) reduced policy space, constricting the scope of supporting exporters and domestic market-oriented industries; and (iii) unfavourable impact on the prospects for development financing. While not exhaustive, these are likely to be the major avenues through which the private sector might get affected. This chapter assesses the relevant provisions in international trade agreements and development nancing to consider possible implications.
Bangladesh is likely to graduate out of the group of least developed countries (LDCs) by 2024. While this represents a major transition in terms of its development, demonstrating the country’s impressive socio-economic achievements, it also gives rise to concern about potentially sizeable costs due to the resulting loss of access to various support measures associated with LDC status. The most important consequence will be forgone EU trade preferences, taking advantage of which, among others, Bangladesh’s export-oriented apparel industry flourished, creating direct employment opportunities for 4 million people – most of whom are women. This paper focuses on the EU market to analyse the potential implications of LDC graduation for Bangladesh’s apparel exports. By using a partial equilibrium model, it estimates that discontinuing tariff preferences could lead to a potential export loss of more than US$1.6 billion. While the methodological approach employed in this paper has certain caveats, there is no denying that terminating duty-free access in the EU, resulting in a tariff hike of 9.6 per cent, will put serious pressure on Bangladesh’s export competitiveness. This paper gathers several buyers and exporters’ perceptions to provide insights into the issues and offers some broad recommendations to mitigate any adverse effects.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is one of the recently negotiated multilateral free trade agreements which aims to establish a free trade agreement between 11 economies (after US exit) on both sides of the Pacific. The formation and implementation of this proposed partnership is a valid threat for other economies, particularly for Pakistan. Pakistan will likely to suffer from this agreement due to trade diversion of textile and apparels in favor of the CPTPP members. The reason can be extended in terms of the likely ‘yarn forward rule,’ according to which, it is obligatory for the CPTPP member economies to import all the components of manufactured products from other CPTPP member economies. So, the implementation of the CPTPP will have an impact on global supply chain of textile and apparels. With this backdrop, this study evaluates the likely impacts of the CPTPP on the regional trade flows and other macroeconomic aggregates of Pakistan using a global computable general equilibrium model. The economy-wide results show the proposed CPTPP will have a negative impact on Pakistan’s real GDP, sectoral exports and imports and at household level. However, if Pakistan joins CPTPP, there is an overall positive impact on Pakistan’s economy. Thus, keeping in view Pakistan’s ideal geographical and strategic location and its potential to be a transit economy with a junction of south Asia, west Asia and central Asia, this study suggests that Pakistan’s proposed entry to CPTPP will not only yield a wide gain to the region but will reduce the gap between poor and rich in Pakistan and hence will have a positive impact on overall income inequality in Pakistan.
The plethora of Regional Trade Agreements, especially in Asia, has created a complex web of noodle bowl, which has made trade more difficult. Many countries of Asia are now trying to be part of mega-free trade agreements (FTAs). While Association of Southeast Asian Nations (ASEAN) is consolidating through ASEAN+1 initiative leading to Regional Cooperation and Economic Partnership (RCEP), no such effort has been initiated so far by the South Asian Association for Regional Cooperation (SAARC). This study thus examines the possible effects of regional integration between ASEAN and SAARC on various sectors, as well as on macro-economic and trade areas by using the Global Trade Analysis Project (GTAP) model and database. A scenario of a complete integration between ASEAN and SAARC is simulated using the GTAP model, where the tariffs between ASEAN and SAARC are eliminated on all items but maintained for other trading partners. This article suggests for, among others, consolidation of ASEAN and SAARC FTAs, which will have a greater welfare enhancement, though some sectors will require adjustments due to their sensitivities. The article recommends for a policy dialogue between ASEAN and SAARC as such a process can only be initiated through a political engagement. It also recommends that the developing countries shall eliminate their tariffs in 5 years and allow longer time frame for the LDCs.
The Transatlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) could be the biggest trade deals in history. As the European Union (EU), the United States (US) and RCEP countries are the biggest trading partner of all South Asian countries, such preferential tariff arrangements could lead to a significant erosion of preferences enjoyed currently by the South Asian countries. Against this backdrop, the main objective of the present study is to investigate the potential economic impacts of tariff eliminations under TPP, TTIP and RCEP on South Asian countries using a standard computable general equilibrium model. The analysis evinces that under complete integration, in terms of tariff elimination, under these three mega deals, the excluded South Asian countries could face a tremendous negative impact on their economies. The analysis also suggests that South Asia may consider joining the TPP to minimize the negative economic impact due to arise from these mega deals.
Using ex‐post tariff schedules for the first time, it was found that the global gains provided by the RCEP are not enough to overcome the negative impacts of the US‐China trade dispute. While trade tensions cause China's welfare loss to be more than twice as large as the US, they provide some trade diversion to RCEP members. But of concern is if India successfully delays the conclusion of the RCEP even by a year, there will be a global loss of US$17.7 billion. The RCEP is also beneficial for the emerging economy of Vietnam and the high tariff imposing Korean economy. The results obtained here are however conservative as reduction in non‐tariff barriers and other positive spill over effects of trade liberalisation related to investment and productivity improvements due to competition or increased intra‐industry trade could not be accounted for. This article is protected by copyright. All rights reserved.
Purpose
The purpose of this paper is to simulate the effects of the Regional Comprehensive Economic Partnership (RCEP) on trade and income, with a particular interest in the effect on China and Korea.
Design/methodology/approach
This paper adopts a Computable General Equilibrium (CGE) model developed by Li et al. (2017) to simulate the effect of RCEP. The CGE model is grounded in the firm heterogeneity theory. Within this framework, the feature of dynamic movements of firms allows the CGE model to capture the extensive margin of trade increase. Aside from that, the CGE model separates foreign direct investment (FDI) from domestic investment, which helps to explain the effect of the removal of FDI barriers.
Findings
Results show that RCEP will increase trade of China by 1.5 percent. The income of China will increase by 2.5 percent. The trade increase of Korea will be 214bn and Korea will gain $23~35bn, taking 2~3 percent of Korea’s GDP. Also, the reduction of behind-the-border barriers presents very significant effects.
Originality/value
The main contribution of this paper is to quantitatively assess the potential effects of RCEP on trade and income. The positive findings would propel RCEP parties, especially China and Korea, to reach an agreement as soon as possible.
This study examines the impacts on India of three mega external preferential trading agreements (PTAs) from which the country is excluded using the Global Trade Analysis Project (GTAP) model combined with POVCAL poverty analysis tool. The simulation results show that each of these PTAs cause considerable trade diversion. However, the impacts on India’s trade flows, domestic output, returns to factors, aggregate welfare, inequality and poverty levels are rather small. In contrast, multilateral trade liberalization has significantly large and favourable impacts on all these variables. In particular, welfare improves by 1.7 per cent of GDP, inequality falls by over half percentage point and poverty head count lowers by 12.3 per cent over base levels under a multilateral free trade scenario. These results suggest that the country should continue with its efforts for achieving a multilateral trade agreement. At the same time, the country should hedge against the possibility that a global trade agreement does not materialize. One way to protect the country’s interest is to aggressively pursue preferential trading arrangements in parallel with key members of these three mega PTAs. This is likely to ensure that the country does not lose market share due to preference erosion.
This paper analyzes the relative significance of regional Economic Partnership Agreements (EPAs) in Asia-Pacific. The economy-wide impacts of tariff removals and reductions in non-tariff measures (NTMs) are estimated by using a Computable General Equilibrium (CGE) model of global trade. The Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) are shown to complement each other rather than be competitors. The income gains of Asia-Pacific Economic Cooperation (APEC) economies as a whole account for 1.2 per cent of regional GDP by the TPP, 2.1 per cent by the RCEP, and 4.3 per cent by the Free Trade Area of the Asia-Pacific (FTAAP). Meanwhile, larger economic benefits are expected from NTMs reductions in addition to tariff removals. It is thus essential to reform domestic markets in order to enjoy greater economic benefits from international EPAs.
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