Chinese application submitted on September 2021 to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) has drawn global attention from government and media. (Tiezzi 2021). The popular media has extensively reported the issue. Commentators from across the world have given forwarded their opinion on this subject. Among the commentators, many believe that if China succeeds in joining CPTPP it would potentially destabilise the region (Palit 2021). Many others look at it as positive news for global trade (Solis 2021). Considering the size and the significance of the trade agreement, there is a need to analyse this crucial issue in detail. This article is an attempt in this direction. This issue brief examines this issue from two important perspectives. First, it tries to understand the background and the significance of the CPTPP, and second, it investigates if China will really challenge the status-quo of the CPTPP. It highlights the factors that would favour Chinese accession and also outlines the challenges that China might face during the process of joining the trade block.
Why CPTPP is so important?
The CPTPP was originally conceived as Trans Pacific Partnership or TPP by 12 countries, namely Australia Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States (US). The negotiation for the pact began in March 2010 and concluded on October 2015[i]. The agreement was signed in February 2016 but could not be implemented as the US withdrew itself from the agreement immediately after Donald Trump assumed office as the President. TPP was set to become the world’s largest free trade deal, covering 40 percent of the global economy (McBride et al. 2021).
The remaining members re-negotiated the agreement renaming it as CPTPP and enforced it in 2018. Now there are 11 signatories to this agreement with a shared vision of a platform that is open to others to join if they fulfil its pre-requisites. Collectively these economies contribute 13 percent of the global GDP, 15 percent of global trade, with market size of 500 million people (Matsuura, 2021).
The present agreement through 30 chapters covers a range of topics. It is one of the most comprehensive and well-defined trade agreements, which along with reducing tariffs for merchandise trade set rules in areas such as services, investment, intellectual property, environment, digital trade and state-owned enterprises. The deal reduced tariffs and other trade barriers on a vast range of items, such as automotive and other manufactured products, textiles and apparel, dairy and agricultural products. It is estimated that the CPTPP reduces tariffs by 98 percent among its members (McBride et al. 2021). It is one of the primary agreements that have dedicated a chapter to the emerging issue of digital trade. The CPTPP recognises the challenges faced by Small and Medium-sized Enterprises (SMEs) in establishing export markets, and aims to help them to make this task easier in the CPTPP region. CPTPP commitments are in general broader than those under the World Trade Organisation (WTO) General Agreement on Trade in Services.[ii]
Potential of Chinese accession
On 16 September 2021, China formally submitted its application to join the CPTPP. It happened within one year of the announcement of favourably considering the option in joining the CPTPP by Chinese President Xi Jinping at the 2020 Asia-Pacific Economic Cooperation (APEC) Summit (Tiezzi 2021). After Regional Comprehensive Economic Partnership (RCEP), it would be China’s second participation in one of the biggest trade blocks in the world. Given the current condition and its trade relationship with the existing members, there are numerous factors that would favour Chinese inclusion in the group.
China shares deep trade ties with all the members of the CPTPP. It also has preferential or free trade agreements with all the countries except Mexico and Canada. The majority of the members are also connected to China through RCEP. As per the United Nations COMTRADE data, 6 out of the 11 CPTPP countries, China accounts for more than 20 percent of bilateral merchandise trade. Economies like Australia, Chile and Peru have above 25 percent of bilateral merchandise trade (Schott, 2021). China is the biggest trading nation among all these economies and can further offer them a market of more than 1.5 billion consumers with preferential terms after joining CPTPP.
Chinese diplomatic and economic influence in the Pacific region is also well documented. China has created immense economic and diplomatic influence through its significant control in the Asian Infrastructure Investment Bank (AIIB) and mega infrastructure development scheme ‘Belt and Road Initiative’. These actions challenged the supremacy of the traditional powers like the US in the region. Many experts believe that China uses trade agreements as a tool to expand its influence. China’s regional trade agreements are more political than economic. (Sampson, 2020)
For China, it is an opportunity to delimit the US influence in the region, where it is desperately trying to tighten its grip through arrangements such as Quadrilateral Security Dialogue (QUAD), AUKUS[iii] etc.
Analysing the factors described above, one can comment that Chinese inclusion in this mega trade deal would undoubtedly affect the regional trade landscape. There may be a rebalancing of the power in the region. Due to deep economic ties, their dependence on China for trade and the Chinese influence on the member countries, it is less likely that China will face much objection from the existing CPTPP signatories.
Possible Challenges to Chinese Accession
Though there are several factors that would facilitate Chinese application, China is still likely to face several hurdles in the process of accession to the CPTPP. Despite having a deep-rooted trade relationship with majority of the CPTPP members, China has strained bilateral relationships with many of them. China is going through a trade war like situation with Australia since 2019 when it imposed import restrictions on Australian wine. It was retaliated by Australia by imposing restrictions on Chinese beef import. This followed a series of incidents and a tense situation still continues.
Diplomatic tension is also at a peak between these two nations. The Chinese intention of joining the trade pact was announced within 24 hours of the formation of AUKUS[iv]. AUKUS is a defence arrangement jointly entered by Australia, the USA and the United Kingdom to collectively counter China’s rising military prowess in the Asia Pacific region. China made strong reactions against this arrangement blaming it would bring security imbalance in the region.
Japan has strongly opposed China’s boycott of Japanese goods especially automobiles in the Chinese market. Interestingly, Japan has already expressed its reservations about Chinese inclusion in the group. Moreover, Japan is already a member of RCEP and availing benefits of a large Chinese market. Similarly, along with Japan six other countries who are also signatories to RCEP will not find it very tempting to have another trade deal with China.
Two South American economies, Peru and Chile already have bilateral agreements with China. For them also, it will be an overlapping of the trade deal, even though the existing deals have a much narrow scope as compared to CPTPP.
Canada and Mexico have a different reason for potential opposition. Both of them are part of the United States–Mexico–Canada Agreement (USMCA), which requires its members to consult in advance with the other members before engaging in FTA talks with a nonmarket economy (Schott, 2021). But it is yet to be clear how the clause would apply to a multilateral deal.
Along with these external challenges China would also face some domestic hurdles. CPTPP requires a high standard of commitment from its participants. Chinese accession would require it to revise its policies towards State Owned Enterprise (SOE). SOEs are notorious for misusing industrial subsidies and bring distortions in the market. Members may have a fear of those distortions to spilling over into international markets. China further needs to maintain a transparent labour law, higher environmental standards and open the government procurement rights to foreign players. Maintaining strict IPR policies and allowing free flow of data are crucial mandates for the CPTPP members where China would probably face difficulty.
Concluding remarks
It is clear from the above observations that CPTPP would immensely impact the global trade scenario. Their prowess to reshape the global trade comes from the size of the group and their economic significance and their share in the world trade. It is undoubtedly a far-reaching trade deal, aiming to dismantle tariff and non-tariff barriers to trade and investment between the participant countries. It also foresees streamlining regulations, and the implementation of common standards for the protection of foreign investment and intellectual property, among other things. Currently, CPTPP is the third largest free-trade agreement with about $13.5 trillion or 13 percent of the global GDP trailing only the RCEP with $26 trillion and the $21.1 trillion US-Mexico-Canada Agreement.[v] China’s addition to the CPTPP would make it the largest free-trade agreement ever signed. This group would certainly have the potential to reshape the global trade outlook and China being the largest economy in the group would be the leading force behind it.
But for this to happen, China needs to wait. There is a cumbersome mechanism in place for the accession of a new member. It is time-consuming and goes through a rigorous process. It would also require China to bring reforms in its domestic policies to align them with the CPTPP norms. It would be interesting to see how China convinces the existing member to support its bid. Tackling opposition to its membership both at the diplomatic and economic fronts would also be interesting to watch.
Most importantly, the entire discussion may take an exciting turn if the US decides to join the group again.
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*Dr. Rahul Nath Choudhury is a Research Fellow at the Indian Council of World Affairs, New Delhi.
Disclaimer: The views are of the author.
References
Bloomberg (September 17, 2021) China Formally Applies to Join Asian Trade Deal That Donald Trump Abandoned. Available at: https://time.com/6099049/china-tpp-trade-deal/Accessed on 24.9.21
Matsuura,H. (March 19, 2021). Why joining the CPTPP is a smart move for the UK. Chatham House, London, UK
McBride et al. (September 20, 2021) what’s Next for the Trans-Pacific Partnership (TPP)? Council on Foreign Relations. The Washington DC
Palit, A. (September 23, 2021). China in CPTPP will change regional balance. The Financial Express. New Delhi Edition. Available at: https://www.financialexpress.com/opinion/china-in-cptpp-will-change-regional-balance/2335563/Accessed on 27.9.21
Sampson, M. (February 05, 2020) Expanding Influence: China’s Evolving Trade Agreements in the Asia-Pacific – The Diplomat.
Schott Jeffrey J. (September 23, 2021) China’s CPTPP bid puts Biden on the spot. Peterson Institute of International Economics.
Shannon Tiezzi (September 17, 2021) Will China Actually Join the CPTPP? The Diplomat.
Solis Mireya (2021) China moves to join the CPTPP, but don’t expect a fast pass. Brookings Institute. Available at:https://www.brookings.edu/blog/order-from-chaos/2021/09/23/china-moves-to-join-the-cptpp-but-dont-expect-a-fast-pass/ Accessed on 25.9.21
WTO members review CPTPP at 100th session of Committee on Regional Trade Agreements. Available at: https://www.wto.org/english/news_e/news21_e/rta_22jun21_e.htm Accessed on 28.9.21
[i] See Institute for government. Available at https://www.instituteforgovernment.org.ukAccessed on 26-09-21
[ii] WTO members review CPTPP at 100th session of Committee on Regional Trade Agreements. Available at: https://www.wto.org/english/news_e/news21_e/rta_22jun21_e.htm Accessed on 26-09-21
[iii] AUKUS is a trilateral security pact between Australia, the United Kingdom and the United States, announced on 15 September 2021 for the Indo-Pacific region.
[iv]Bloomberg (September 17, 2021) China Formally Applies to Join Asian Trade Deal That Donald Trump Abandoned. Available at:https://time.com/6099049/china-tpp-trade-deal/Accessed on 26-09-21
[v]Ibid