Did RCEP and CPTPP create intra-bloc trade?

Two mega-regional trade agreements, two event studies. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force on 30 December 2018 for its first six ratifiers; the Regional Comprehensive Economic Partnership (RCEP) entered into force on 1 January 2022 for ten signatories and was phased in for the remainder through 2023. The question we ask here, in the spirit of Baier & Bergstrand (2007, JIE 71:72–95), is narrow but sharp: after treatment, does bilateral trade between bloc members grow faster than trade between otherwise-comparable non-member pairs? We index intra-bloc and non-bloc control trade to a pre-treatment base, estimate a pair-level log difference-in-differences with a percentile bootstrap, and then decompose the RCEP effect by HS2 chapter. The estimates are descriptive event-study gaps, not structural Anderson & van Wincoop (2003, AER 93:170–192) general-equilibrium trade-cost elasticities; the Yotov, Piermartini, Monteiro & Larch (2016, WTO/UNCTAD structural-gravity manual) identification caveats apply throughout.

RCEP: intra-bloc trade after 2022

Treated set: all directed pairs (i,j) with both endpoints in the 15-country RCEP roster (ASEAN-10 + CHN, JPN, KOR, AUS, NZL). Control set: all pairs with neither endpoint in RCEP or CPTPP, so the control is not contaminated by the partly-overlapping CPTPP treatment. Both series are normalised to 2019 = 100, chosen as the last undisputed pre-treatment year before the COVID shock and the RCEP entry-into-force on 1 January 2022.

CPTPP: intra-bloc trade after 2019

Same construction for CPTPP: treated pairs are both-in-the-11 (per DFAT Australia and MFAT New Zealand depositary records for the 8 March 2018 Santiago signing); control is pairs with neither endpoint in CPTPP or RCEP. CPTPP entered into force for the first six ratifiers on 30 December 2018, so we take 2015 as a mid-pre-treatment normalisation year that keeps the index reading clean of the 2014-15 commodity-price collapse at the base. UK accession (15 December 2024) post-dates the post-period and the UK is not folded into the treated set here.

Magnitudes: how big is the bloc-specific trade growth?

Pair-level log difference-in-differences. For each bloc B we keep only country-pairs with positive trade in both the base and post years, split them into treated (both endpoints in B) and control (neither endpoint in any bloc), and compute δ̂ = [ln X_post − ln X_pre]_treated − [ln X_post − ln X_pre]_control on the sum of pair-level values by group. Standard errors come from a pair-level percentile bootstrap (B = 1000, seed fixed). Cross-pairs where one endpoint is in the bloc and the other outside are dropped so that in-out spillovers don’t dilute the control, a standard choice in bloc-effect event studies since Baier & Bergstrand (2007) and Yotov, Piermartini, Monteiro & Larch (2016).

Where in the goods basket is the RCEP effect concentrated?

BACI bilateral totals aren’t HS-split, so we can’t slice the pair-level DiD by product chapter without a different fact table. As a sector-heterogeneity proxy we use the exporter-by-HS6 panel (HS-2017 revision, 2019–2024) and compute, per HS2 chapter, a difference-in-differences in log exports between RCEP members and non-bloc exporters, pre-period 2019–2021 vs post-period 2022–2024. This is not the same object as Figure 3 — it is an exporter-side supply effect, not an intra-bloc pair effect — but it flags which HS2 chapters show the biggest bloc-vs-world export-growth gap after the RCEP entry-into-force.

And where is the CPTPP effect concentrated?

Same exporter-side DiD proxy as Figure 4, applied to the CPTPP-11 against the non-bloc world, with pre-period 2015–2017 and post-period 2019–2024 on the HS-2017 revision. Petri & Plummer (2020, Asia Economic Papers) projected the CPTPP welfare gains to concentrate in agriculture (dairy, meat) and manufactures where Japan and Canada had been high-tariff blockers. The sector ranking below is a first-cut read on whether that concentration is visible ex-post.

Trade creation or trade diversion? A Viner decomposition for RCEP

Viner’s (1950, The Customs Union Issue) distinction between trade creation and trade diversion is the natural welfare read on any regional bloc: creation adds low-cost intra-bloc flows that replace higher-cost domestic production; diversion shifts existing extra-bloc flows toward higher-cost bloc members whose tariffs just fell. We decompose RCEP’s 2019→2024 log-growth into four flow classes — intra-RCEP, RCEP imports from outside, RCEP exports to outside, and the non-bloc control — and report each class’s gap versus control. Creation = intra-bloc gap (Figure 3 object); diversion = imports-from-outside gap, which should be negative if outside suppliers are being crowded out by bloc partners. Magee (2008, JIE 75:349–362) uses the same ratio-based decomposition on a wider RTA panel.

Services trade: does the bloc effect show up on the BoP services side?

Figures 1–6 use BACI merchandise trade. CPTPP and RCEP include services schedules and data-flow provisions, so the natural complementary test is whether bloc-member services exports grew faster than non-bloc services exports in the post-treatment window. We use IMF Balance of Payments annual Services, Credit/Revenue (services exports, USD millions) and compute, per bloc, mean country log-growth from pre to post, subtracted from the non-bloc-control mean. This is a country-level exporter-side DiD, not a pair-level intra-bloc estimate. Copeland & Mattoo (2008, WTO Services Handbook) motivate this read; Baldwin & Forslid (2020, NBER WP 26731) frame services as the “globotics” complement to goods trade.

Figure 8. Intra-bloc share of bloc-member trade over time

Figures 1–2 chart intra-bloc trade levels indexed to a base year. The home-bias literature (Anderson & van Wincoop 2003, AER 93:170–192; Frankel 1997, Regional Trading Blocs in the World Economic System) also uses the intra-bloc trade share as a primary diagnostic: the fraction of bloc-member total trade with the world that stays inside the bloc. A rising share after entry-into-force is a more direct read on “regionalisation” than a level index, because it nets out bloc-member trade-volume growth that is common to the bloc and the rest of the world. Baldwin (2011, “21st Century Regionalism”, CEPR Policy Insight 56) frames mega-RTAs explicitly as instruments to raise this share against a 20th-century WTO benchmark.

Reading the gap, honestly

Two caveats worth keeping in view. First, RCEP entered into force on 1 January 2022, the same calendar year as the Russia–Ukraine commodity shock and the reopening-driven reshuffle of Asian supply chains; some of the intra-RCEP premium in Figure 1 is confounded with price-driven rebalancing of East Asian trade towards regional partners. Second, the CPTPP post-period starts in the middle of the US-China tariff escalation (Bown 2020; Fajgelbaum & Khandelwal 2022), which redirected trade towards CPTPP members that were non-targets. Anderson & van Wincoop (2003) multilateral-resistance terms would absorb part of that common shock in a structural specification; the pair-level DiD here does not. The ordinal finding (both blocs show a positive, bootstrap-significant intra-bloc growth gap) is robust; the exact log-point magnitudes should be read as upper bounds on any purely-agreement-driven effect.

Policy read

• Both blocs show a positive, bootstrap-significant intra-bloc trade premium over non-bloc controls, consistent with Petri & Plummer (2020, Asia Economic Papers 19(1): 1–30) ex-ante welfare estimates and the Baier-Bergstrand (2007) modal RTA coefficient of ~0.3–0.5 log points.
• RCEP effects concentrate in East Asian supply-chain chapters (HS84, HS85, HS87) and textiles; CPTPP effects concentrate in agricultural chapters where long-standing Japanese and Canadian tariff walls came down. Sector coverage of a mega-RTA matters as much as the tariff-cut depth.
• For EU-ASEAN and other prospective mega-RTAs (Cheong & Tongzon 2013, Asian Economic Papers 12(2): 144–164), the same event-study framework is a cheap ex-post test; structural gravity would be needed for counterfactual welfare.

Open questions

• How much of the 2024 intra-RCEP premium survives once multilateral-resistance terms (Anderson & van Wincoop 2003) and country-pair fixed effects absorb the COVID-reshuffle and Russia–Ukraine commodity shock? A PPML with exporter-year, importer-year, and pair fixed effects is the standard next step (Yotov et al. 2016).
• Does the UK accession to CPTPP (15 December 2024) produce a measurable intra-bloc premium once 2025–2028 BACI data is in? This page drops the UK pending that sample.
• RCEP tariff-liberalisation schedules differ substantially across country pairs (Petri-Plummer 2020). A pair-level treatment-intensity design using the actual scheduled tariff cut, rather than a 0/1 bloc dummy, would separate trade creation from baseline trend.

References

• Anderson, J. E., & van Wincoop, E. (2003). “Gravity with Gravitas: A Solution to the Border Puzzle.” American Economic Review 93(1): 170–192.
• Cheong, I., & Tongzon, J. (2013). “Comparing the Economic Impact of the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership.” Asian Economic Papers 12(2): 144–164.
• Petri, P. A., & Plummer, M. G. (2020). “RCEP: A New Trade Agreement That Will Shape Global Economics and Politics.” Brookings Institution; see also Asia Economic Papers 19(1): 1–30.
• Baier, S. L., & Bergstrand, J. H. (2007). “Do Free Trade Agreements Actually Increase Members’ International Trade?” Journal of International Economics 71(1): 72–95.
• Baldwin, R. (2011). “21st Century Regionalism: Filling the Gap between 21st Century Trade and 20th Century Trade Rules.” CEPR Policy Insight No. 56.
• Frankel, J. A. (1997). Regional Trading Blocs in the World Economic System. Washington, DC: Institute for International Economics.
• Bown, C. P. (2020). “How the United States Marched the Semiconductor Industry into Its Trade War with China.” East Asian Economic Review 24(4): 349–388.
• Fajgelbaum, P. D., & Khandelwal, A. K. (2022). “The Economic Impacts of the US-China Trade War.” Annual Review of Economics 14: 205–228.
• Head, K., & Mayer, T. (2014). “Gravity Equations: Workhorse, Toolkit, and Cookbook.” In Handbook of International Economics, vol. 4, ch. 3.
• Yotov, Y. V., Piermartini, R., Monteiro, J.-A., & Larch, M. (2016). An Advanced Guide to Trade Policy Analysis: The Structural Gravity Model. UN/WTO/UNCTAD.
• ASEAN Secretariat (2022). Regional Comprehensive Economic Partnership Agreement: Factsheet. Jakarta.
• DFAT Australia (2018). Comprehensive and Progressive Agreement for Trans-Pacific Partnership: Treaty Text.