Economic and social effects of a possible trade agreement between Latin America and Asia Pacific

In sum, the work presented here calibrates a computable general equilibrium model for 41 economies and 39 sectors, disaggregating in the first place Latin American and Asian Pacific member countries of the Asia Pacific Cooperation Forum (FOCALAE), in order to simulate the possible effects of a bi-regional agreement between Latin America and Asia Pacific. In this regard, the possible economic and social impacts at the level of economic sectors and winning and/or losing countries will be identified. The underlying study is based on bilateral trade in the year 2017, the effective tariff protection for the nearest available year (2018) and considers the state of trade policy as of December 2020. Based on that, bilateral tariff cuts between Latin American and Asia Pacific countries are modeled. Furthermore, additional analyses are conducted to evaluate derivative effects on economic agents, mainly on SMEs exporting companies. Overall, the results indicate a positive impact on output, trade and welfare. The signing of a large bi-regional agreement yields an expected change in GDP between 0.35 and 0.6% for Latin America and the Caribbean, and a change between 0.46% and 1% for Asia Pacific, whereby increases in consumer welfare depend on the assumption of full employment or unemployment. The agreement is also expected to lead to welfare gains in all the countries considered, and a reduction in unemployment of 1.7% on average among Latin American and Caribbean countries, and 3% in Asia Pacific. If the RCEP mega-agreement is signed without Latin America signing any agreement with Asia Pacific, welfare losses and trade detour in Latin America and the Caribbean are to be expected. These are likely to primarily target exports of natural resources and low- and medium-technology manufacturers based in Latin America and the Caribbean.