Last week Peru became the sixth country to ratify the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement between 12 countries mostly surrounding the Pacific Ocean or the South China Sea, except for the UK. The agreement will come into effect on the 15th of December this year with the members who have ratified the agreement. So far that is Peru, Japan, Singapore, Chile, New Zealand and Vietnam. Hopefully, the other members (Australia, Brunei, Canada, Malaysia and Mexico) will finish their ratification process shortly.

The CPTPP includes some of the world’s most affluent and rapidly growing countries, with a total GDP of US$15.4 trillion in 2023. 

No doubt the usual suspects will be complaining that the UK has given up its access to the EU for the CPTPP but that isn’t true. EU membership is very different from becoming a party to the CPTPP agreement. And the UK has retained its tariff-free and quota-free trade with the EU.

The CPTPP is focused on promoting market-driven economies and the elimination of tariffs and other trade barriers for manufactured goods, agricultural commodities, and services. It also establishes rules for investment and protection for investors, intellectual property, and communications, as well as transparency in government procurement. The CPTPP requires its parties to establish a committee to identify ways to assist SMEs in taking advantage of the commercial opportunities in the CPTPP and help them grow their exports. The CPTPP trade agreement has a chapter on the Environment, and it sensibly concentrates on achievable goals: protecting the oceans from ship pollution, overfishing, and illegal fishing; protection of wild flora and fauna, endangered species and their habitats; control of toxic chemicals, discharge of pollutants and environmental contaminants and protecting the ozone layer. These protections must be in each party’s legislation and be enforced by the members’ governments.

What the CPTPP is not is a group of countries moving towards a federal union. Unlike the EU, there is no CPTPP Commission, Parliament, Court, Flag or National Anthem and the UK doesn’t have to pay to be a member. The UK can determine its own VAT rates (and keep any money raised) and we are not forced to apply tariffs to goods imported from non-CPTPP countries – as we were when members of the EU. The CPTPP doesn’t even have one President, let alone five (like the EU). And most importantly the CPTPP does not require its members to adopt its regulations nor do UK courts have to defer to CPTPP laws above our own laws. And despite the social media rumours, the CPTPP won’t force the UK to give up its animal welfare regulations. (For the record, Chile does not allow cattle to be treated with hormone implants and it produces enough beef to fill the UK’s very small CPTPP beef quota.)

Quotas and tariff reductions
The usual suspects have also complained that the UK already has trade agreements with many countries in the CPTPP so there is no need to join. However, if these trade agreements were rolled over from the EU, then they will have had small quotas on many products that the UK needs to import but were in competition with other EU producers. When the UK left the EU we were generally given about 14% of the EU’s quotas with the CPTPP countries, this left us with small uneconomic tariff-free import allowances. And most of the EU’s trade agreements skipped over services – even though they are one of the UK’s largest export sectors.

The CPTPP goods liberalisation is generally better for UK consumers although the UK’s farmers have continued to get protection from CPTPP producers, even though they have no protection against EU producers. Inexplicably the UK has also limited rice and banana imports from other CPTPP parties.

But most UK import tariffs will be eliminated in full on CPTPP imports in December, at least from countries that have ratified the treaty. Although UK import tariffs on food that can be produced in the UK will be reduced more slowly. For example, imported beans will have their tariffs eliminated over 5 years, some types of apples will take 10 years, while dairy product tariffs will generally be lowered over 5 years although butter will take 11 years.

However, a lot of the UK’s protection from agricultural competition is unnecessary. The largest food exporters in the CPTPP are either in the southern hemisphere and so produce food in the opposite season to the UK or they are in the tropics and produce foods that cannot be grown in the UK climate. While the CPTPP’s two largest food exporters, Australia and New Zealand, have been limited to the quotas they received in their bilateral trade agreements with the UK so will not be eligible to use the CPTPP quotas.

This will be the UK’s first trade agreement with Malaysia, and it will allow the UK to import refined palm oil tariff-free directly from Malaysia rather than via EU refiners in the Netherlands, which import crude palm oil from Malaysia, refine it and then sell it to us (still!). While Malaysia will lower its 80% tariffs on imports of UK Whisky over 16 years (If you think this is unfair, please see the UK’s tariff reduction for Australia Beef or New Zealand Lamb).

Accumulation
Joining the CPTPP is particularly good news for UK manufacturers and exporters. The CPTPP’s process of accumulation allows imported materials, parts or semi-finished goods from other CPTPP countries to be counted as originating material if the finished product is exported to another CPTPP member.

Despite the delicious food and drink produced in CPTPP countries, they mostly export machinery and parts, electronics, oil and gas, minerals, chemicals, clothing and footwear. These products will probably become part of UK supply chains to benefit from the CPTPP’s process of accumulation. For example, if a UK fashion company uses wool or cotton produced in Australia, or cloth made in Malaysia, or manufactures their goods in a Vietnamese factory, these inputs count towards originating material under CPTPP rules so the finished products can be sold in other CPTPP countries at the CPTPP preferential tariff rate.

Similarly, if UK car manufacturers use Australian bauxite to make aluminium or car parts made in Malaysia, Japan or Mexico, then this will count as local content if the final vehicles are sold within the CPTPP. This is likely, as Brunei, Australia, Chile, Peru and New Zealand have no local vehicle producers and are dependent on imported cars, trucks, and mining vehicles.

Conclusion
It was very encouraging to see the new Trade Minister, The Rt Hon Douglas Alexander, announce the accession of the UK to the CPTPP. This coincided with rumours that the Prime Minister was trying to rejoin the EU by meeting with Chancellor Scholz in Germany and President Macron in France. If this was the aim of the meetings, it is misplaced. UK trade with the EU is doing fine but is hampered by the EU’s sluggish economies – not Brexit. While allowing the UK to fully benefit from increased trade with the dynamic economies of the CPTPP, will help the UK achieve the economic growth the Prime Minister is looking for.

To read the blog as it was published on the Briefings for Britain webpage, click here.

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Pressing foreign policy matters remain top of mind—the war in Ukraine, the looming climate crisis, a global economic slowdown and possible recession. At the same time, the Biden administration and Congress must find opportunities for economic growth and job creation.

Following the Global Financial Crisis and economic recession, the Obama administration looked to trade as a path to economic growth and prosperity, as well as shoring up alliances with key allies—particularly in the Indo-Pacific. The famous “Pivot to Asia” was grounded in negotiating a regional free trade agreement (FTA) in the Pacific, the Trans-Pacific Partnership (TPP). TPP would have been the largest FTA, encompassing 40 percent of world trade. However, since the United States formally withdrew, the China-led Regional Comprehensive Economic Partnership (RCEP) is now the world’s largest FTA, covering 30 percent of world trade.

The Biden administration has stated its intention to reimagine trade—moving away from traditional market access and tariffs, to cooperation, transparency, and inclusivity. The strategy includes labor rights and new areas such as supply chain resiliency and decarbonization. These new ideas are the hallmark of IPEF, which commenced negotiations last December in Brisbae.

Unlike a traditional trade negotiation, it’s not clear whether the four pillars (trade, supply chains, clean energy and decarbonization, and tax and anticorruption) of IPEF will include binding commitments. New areas such as supply chain and clean economy are especially murky, as well as trickier areas such as anticorruption. However, very much like a traditional trade negotiation, the first few rounds of negotiations included formal discussions on the four pillars. There were exchanges of text and white papers, and engagement from key stakeholders including business, labor, and civil society.

The overall sentiment in Bali was positive and constructive, with many of the IPEF member countries excited to see the United States engaged in the region again. However, it left many wondering—why not just rejoin the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which evolved from TPP and retained much of its structure?

Follow the data

China’s total trade with ten of its neighbors in Southeast Asia, including Indonesia, Malaysia, Singapore, and Vietnam, has grown significantly. It has increased 71 percent since July 2018, when the United States first placed tariffs on a range of Chinese goods, to $979 billion in November 2022. Chinese trade with India grew 49 percent over the same period. Total trade exports between the United States and the same ten countries reached $450 billion in the twelve months through October 2022, compared with $262 billion in mid-2018. The gap between China’s trade with the region and the United States’ trade with the region can be explained as simple as this: China has a trade agreement with the region and the United States does not. RCEP lowered trade tariffs, but more importantly, its changes to rules of origin will likely forge stronger regional supply chain networks among the fifteen Indo-Pacific countries.

The Biden administration has stated it is giving countries a choice between the United States and China. However, without incentives such as tariff liberalization or market access, many IPEF countries will find it difficult take on new commitments the United States is pursuing, namely on labor and the environment. The United States could offer a real alternative—a renegotiated CPTPP with new areas in IPEF including supply chain resiliency, clean energy, and inclusivity.

FOMO of CPTPP

The fear of missing out—or FOMO. Allies want the United States back in CPTPP. China wants in, but the United States remains out. Now with the accession of the United Kingdom to CPTPP, the orientation of the trade pact transforms from regional to global.

While China’s CPTPP application will face serious scrutiny and substantive procedural hurdles, it nonetheless magnifies the serious risk the United States faces of being left behind. Without joining, the United States loses the chance to spread American democratic values and rules for the modern economy.

Amidst regional trade integration, the United States has largely been left on the outside looking in. The United Nations Conference on Trade and Development found that RCEP will shrink US exports by over $5 billion as trade is diverted away from US firms and toward foreign competitors subject to lower tariff rates under the agreement. It has been six years since President Trump withdrew from TPP, and US losses have been both economic and geopolitical. At a time when industrial policy and national security dictate how and where supply chains should develop, US and Asian firms are looking for alternatives that offer stability, predictably, security, and commercial viability.

Time is running out for the United States to seriously reconsider rejoining CPTPP—while allies, partners, and competitors including China, South Korea, and Taiwan are lining up to join CPTPP. Importantly, CPTPP addresses many of the administration’s highest priorities, including moving supply chains away from China. The best way to incentivize the shift in supply chains is to have a tariff preference from other countries. Whether there is bipartisan support for trade and rejoining CPTPP remains to be seen, but the effort to reexamine the options must begin now.

Sahra English is a contributor to the Atlantic Council GeoEconomics Center. She serves as a member of the U.S. Government’s Industry Trade Advisory Committee (ITAC).  

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There are two ways of responding to this. One is to complain that this represents a very unfair deviation from the principles of ‘free trade’. The other is to join in the race to decarbonise economies, matching US incentives with similar policies of your own.

The EU has taken the approach of joining the race, introducing its own programme of incentives and allowing for exemptions to its rules on ‘state aid’. The UK response has been to put more emphasis on complaining, refusing to match US and EU policies, and missing out on opportunities both for British business and employment, and for contributing to the greening of the world economy.

The government worries that joining in the green economy race would cost money at a time when many Tory backbenchers are pressing for spending cuts. That is all the more reason for finding other ways of encouraging green economic sectors, such as ensuring continuing alignment with EU product standards, something the Tories’ current Retained EU Law Bill is designed to obstruct.

At the same time it is right to seek fair arrangements in the international trade system, and it may be that the new moves from the US and EU, combined with complaints from countries including the UK, will provide the catalyst for some renegotiation of rules in the World Trade Organisation and elsewhere.

Among the many changes required is the need to put an end to the ISDS system: Investor-State Dispute Settlement. This uses provisions in trade agreements enabling firms losing out from changes in legislation or regulation to sue a government making those changes. The assessment of these cases is not carried out through the ordinary courts but made by a separate private corporate system of tribunals. For example, the UK oil and gas company Rockhopper in September last year won compensation of £210m from the Italian Government because of a ban on oil drilling within 12 miles of the coast.

ISDS is included in the Energy Charter Treaty (ECT), signed up to by 50 countries including the UK. Germany, France, Spain, Poland, and the Netherlands have all announced their withdrawal, on the grounds that allowing compensation through ISDS gets in the way of taking action on climate change, and makes it more expensive. The UK still remains a member.

ISDS also features in the Comprehensive & Progressive Trans-Pacific Partnership (CPTPP), the Pacific trade bloc which the US withdrew from trying to join, but which the UK government is currently negotiating to take part in, as part of a policy of replacing European close trading links with so-called “Global Britain”. The House of Lords International Agreements Committee has warned of the dangers CPTPP membership would pose to British agriculture and the NHS.

Another area of trade ripe for change is the need to agree on the use of Carbon Border Adjustment Mechanism (CBAM) systems. The idea here is that countries shouldn’t get an unfair advantage for their exports through failing to tax the carbon emissions from their production. The adjustments compensate for this ability to undercut by imposing a tariff on importing these products. A CBAM system is being introduced gradually by the EU. The UK government has announced a consultationin spring this year on the possibility of bringing in a similar scheme here.

CBAM is a mechanism for addressing the problem of ‘carbon leakage’, whereby countries get their own carbon emission figures to look good by simply getting carbon intensive goods manufactured elsewhere and then imported, rather than being produced at home where they are being consumed. Year after year, this has been used by the UK Government to give a wholly misleading impression of success in cutting emissions, on top of taking advantage of the convention of excluding from the official figures any emissions resulting from international aviation and shipping.

The latest cabinet reshuffle and restructuring of departments includes the disappearance of the Department for International Trade. This may in turn mean the abolition of the commons international trade select committee, of which I am currently a member. Trade is crucially important, including for post-Brexit Britain and for international environmental issues. I hope our parliamentary scrutiny work can continue in whatever new arrangements are set up.

Lloyd Russell-Moyle is MP for Brighton Kemptown and chair of the all-party parliamentary group for rental reform.

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Under AUKUS, the United States will share sensitive nuclear submarine technology and, together with the United Kingdom, help Australia build up its maritime defense capabilities. AUKUS is a clear move to counter China’s increasingly assertive military stance in the South China Sea and against Taiwan.

Chinese president Xi Jinping had openly mused about joining the CPTPP after former president Donald Trump withdrew the United States from its progenitor, the Trans-Pacific Partnership (TPP). Xi’s bold move to submit a formal application one day after the AUKUS announcement is a clear effort to divide the United States from its allies and partners, many of whom share the United States’ concern about China’s military buildup and its increasingly tough economic actions against other countries. Australia, for example, suffered a near-total cutoff of many exports to China after calling for an independent investigation into the origins of Covid-19.

Since submitting its formal application, Beijing has lobbied CPTPP countries to gain support for negotiations on China’s accession. Speaking on November 4 to the China International Import Expo, a trade fair in Shanghai, Xi sweetened the pot by offering to discuss China’s state-owed enterprises (SOEs), industrial subsidies, and other measures as a price of entry.

CPTPP countries should be very skeptical of Xi’s offer. The reason is simple: China has pledged to discipline SOEs, industrial subsidies, and other trade-distorting practices before, and its record of compliance on these and other commitments, as detailed below, is poor. There is no reason to expect Xi’s recent pledges will bring a different outcome. On the contrary, Xi has reversed previous reforms and is doubling down on state support to SOEs and private firms alike.

When China joined the World Trade Organization (WTO) in December 2001, its economy looked far different than it had under Mao Zedong’s command and control system that had decimated the economy and society alike, most notably through the Great Leap Forward and Cultural Revolution.

Premier Deng Xiaoping, who took the helm soon after Mao’s death, launched a “reform and opening up” program that reduced state support for SOEs and pushed them to increase efficiency and profitability, allowed a thriving private sector to grow and flourish, and opened China up to foreign trade and investment.

These reforms, coupled with WTO membership, helped create the modern, competitive economy that we know today—China has the world’s largest economy on a purchasing power parity basis and is the largest trading nation. China also boasts manufacturing giants in steel, aluminum, and other sectors and tech titans in telecommunications, surveillance, e-commerce, and other emerging fields.

In 2001, WTO members had every reason to believe that China’s leaders would continue to move the country along the path toward greater market influence and reduced state control. Indeed, that’s what China pledged to do in its accession agreement.

As a general matter, China pledged to make systemic reforms that would bring the country closer to WTO norms on transparency, openness, non-discrimination, and market-oriented policies.

On SOEs and state-invested companies, China promised to adhere to WTO rules requiring firms to make purchases and sales based solely on commercial considerations, such as price and quality. China also pledged that the state would not influence these commercial considerations. In subsequent bilateral discussions with the United States, China made additional commitments to ensure fair competition among all firms (both foreign and domestic, and state-owned and private) in terms of taxation, access to financing, and other factors affecting the competitive environment.

On industrial subsidies, China pledged in its WTO accession agreement to notify and discipline or phase out a wide range of subsidies for Chinese producers from the central and provincial governments. These subsidies included favorable tax treatment; free or low-cost land, energy, and water; and other non-market benefits. In addition, China committed to eliminating all export subsidies benefiting industrial goods upon accession.

The Office of the U.S. Trade Representative has rightly judged China’s compliance on these and other WTO commitments to be poor. Instead of moving in the promised direction, China in recent years has increased the role of the government and the Chinese Communist Party (CCP) in nearly all aspects of the economy. China is also taking steps to build up globally competitive Chinese firms in a host of industry sectors and wean China off of its dependence on the United States and other foreign suppliers of critical parts and components in strategic industries, such as semiconductors and other sectors included in the Made in China 2025 program.

Made in China 2025 aims to guide the development of Chinese champions in 10 strategic sectors including artificial intelligence, robotics, aeronautics, and other leading-edge industries. Government-directed cyber theft, targeted acquisitions of foreign firms and technologies, and state support for the aforementioned sectors appear to be an integral part of the program. These and other measures have given the government and the CCP a degree of control over the economy that has not been seen since the days of Mao.

Xi, who is laying the groundwork for an unprecedented third term as CCP general secretary, has accelerated the pace of CCP control and government support of industry. He is increasing the role of SOEs in China’s economy even as he clamps down on certain private firms and billionaire entrepreneurs, such as Jack Ma of Alibaba, whose success threatens party control. Furthermore, the government’s recent merger of three SOEs into one giant firm with a roughly 70 percent market share in rare earth and other critical minerals is an example of China’s effort to tighten control over strategic sectors.

To believe Xi will change direction and seriously consider meeting tough CPTPP disciplines over SOEs, industrial subsidies, and other trade-distorting policies is fanciful. Xi’s stated goal is “the great rejuvenation of the Chinese nation” by 2049. That goal certainly does not include moving away from the “socialism with Chinese characteristics” that has brought China this far.

Surely, the 11 members of the CPTPP will see China’s move as a transparent effort to extend its economic dominance at the expense of the United States and the open, rules-based system that has governed world trade in the postwar era.

Joanna Shelton is a senior associate (non-resident) with the Economics Program at the Center for Strategic and International Studies in Washington, D.C.

To read the full commentary from the Center for Strategic and International Studies, please click here.

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Biden wants no distraction to obstruct the extremely close and highly contested congressional votes on the two bills, which together portend new outlays of at least US$3 trillion over 10 years. The progressive wing of the Democratic party, led by Congresswoman Alexandria Ocasio-Cortez, is ready to defeat any presidential pursuit of conventional trade policy, namely lowering barriers to promote two-way trade. According to the far-left, trade liberalisation enriches corporations and impoverishes workers. It delivers no net benefit to Americans.

Progressives argue that trade policy should restrict commerce to promote labour rights abroad and gender and ethnic equality in countries that discriminate. It should uplift marginalised communities, deliver climate and environmental goals, and above all raise living standards for US workers. Biden can’t possibly agree with this bloated agenda, but he doesn’t want to risk progressive opposition to his core spending bills.

Observers might conclude that, come early 2022 when the spending bills have either passed or failed, Biden might spend his time on trade policy. But by that time, mid-term election prospects will dominate White House thinking. Past experience and current polls heavily favour the Republican Party to capture the House of Representatives in November 2022, and possibly the Senate (where party alignment is now tied). But Biden is far from resigned to his statistical fate. Trade policy will thus become a pawn to the fortunes of the next election.

Today’s Republican Party — unlike the party of previous post-war Republican presidents — has embraced Trump’s love of tariffs and fear of China. Trump’s top trade lieutenant, former ambassador Robert Lighthizer, just restated both themes with gusto in The Economist. Thus, any initiative that opens US markets will be blasted in the November election as a sign that Biden is selling out America. This is a debate he wants to avoid.

Balanced against these negative forces is one positive consideration: the foreign policy dimension of a more engaging US trade policy. This is where Trade Ambassador Katherine Tai enters the drama. She is a master of rhetoric who soothes foreign ears while not alarming progressive Democrats or protectionist Republicans. Three-quarters of Tai’s actions are Lighthizer’s policies with softer edges and a smiling face. Trump’s ‘national security’ tariffs on steel and aluminium are still in place, but they have just been converted to a tariff-rate quota for EU exports — with much the same impact on elevated US prices but paying off European steel producers with the quota rent.

The fact that the American Iron and Steel Institute and the United Steel Workers both applauded the deal tells all you need to know: it’s still managed trade. Likewise, the Boeing–Airbus dispute was temporarily resolved by taking retaliatory tariffs off the table and asking the aircraft giants to reach a standstill agreement.

Trump’s 25 per cent tariffs on imports from China persist with the narrowest opening for exclusions to rescue distressed US firms that depend on Chinese intermediate goods. Perhaps the most significant change from Lighthizer’s playbook was Ambassador Tai’s upbeat speech, on 13 October in Geneva, concluding with this declaration: ‘we all recognise the importance of the WTO, and we all want it to succeed’. During his tenure, Lighthizer never visited the WTO.

At the same time, Ambassador Tai does not recognise that reducing US barriers to trade actually benefits the US economy, especially when coupled with lower barriers abroad. Almost every speech Tai delivers on trade is laced with the phrase ‘worker centric’, which in practice means a sympathetic ear to anti-dumping duty, countervailing duty, and safeguard ‘trade remedies’, plus no lowering of barriers on steel imports without assent from the United Steel Workers, and no reform of the Jones Act, which ensures sky-high coastal shipping costs.

Tai has even expressed scepticism over the Indo-Pacific digital agreement proposed by Australia, fearing it would help the tech giants. Instead, her emphasis is on labour practices abroad, exemplified by her support of fast-tracking cases involving Mexican union elections, her insistence on provisions against forced labour in the struggling fishery subsidies agreement and new restrictions on imports from Xinjiang.

Tai’s engagement in WTO negotiations will be limited to subjects that provoke no domestic opposition, for example a Joint Statement Initiative on E-commerce that, for other reasons, is dead in the water. Meanwhile, Tai has linked the revival of the WTO’s dispute settlement system to meaningful negotiations, a chicken-and-egg formula given US reluctance to make trade-liberalising concessions.

Will the scenery change after US mid-term elections in November 2022? The brightest prospect might be a US application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). But if Democrats lose the House of Representatives, there is little chance that Republicans will renew the Trade Promotion Authority (TPA).

Without TPA, congressional procedures would kill a CPTPP bid. China’s application to join CPTPP creates strong geopolitical reasons for US membership, but perhaps not enough to overcome congressional resistance. Quite likely, US membership will remain a project in waiting for the president elected in 2024 — even if Biden follows the pattern set by Obama and opens negotiations after the mid-term elections.

Gary Clyde Hufbauer is a Non-Resident Senior Fellow at the Peterson Institute of International Economics.

To read the full commentary from the East Asia Forum, please click here.

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China’s application was presented to the CPTPP Commission the same day that the United States, the United Kingdom and Australia announced AUKUS — a security alliance that unabashedly seeks to bring about a new balance of power in the Pacific.

This was also the rationale for the design of the Trans-Pacific Partnership (TPP), an agreement predicated on former US president Barack Obama’s statement that ‘the United States is a Pacific power and we are here to stay’. In both cases, the underlying purpose was to counter the strides that China was making to gain military and strategic supremacy in the region.

Although it may take years to materialise, accession to the CPTPP would permit Beijing to be part of a regional arrangement that was originally intended to counter its power in the Pacific. It would also open the possibility for China to fill the power vacuum left by the withdrawal of the United States from the TPP in 2017.

Beijing could profit from the closer economic integration the CTPPP is likely to generate among its member countries which, in the absence of Washington, would probably slide towards China’s economic and political sphere. CPTTP membership would simultaneously enable Beijing to deepen its economic and political ties with the pact’s Latin American members and with Latin America at large.

Those ties were significantly strengthened with the creation of the China–CELAC Forum in July 2014. The Community of Latin American and Caribbean States (CELAC) is an intergovernmental mechanism which was established in 2010 for dialogue and cooperation among the 33 nations of Latin America and the Caribbean.

Membership of the CPTPP would widen the possibilities for China to tap into this market of more than 652 million people and a region rich in natural resources with a myriad of greenfield investment opportunities. It would also provide a huge potential to expand trade links and build supply chains led by Chinese companies.

China’s membership would be beneficial for Latin America as well. China is South America’s top export market and the second for Latin America and the Caribbean as a whole. Among China’s top 100 trading partners, 13 are Latin American and Caribbean countries. Chinese exports to these countries topped US$142 billion in 2020 — 5.5 per cent of China’s total exports.

With the exception of Asia’s main trading destinations, China’s exports to Mexico are larger than those to any other East Asian economy, including Australia. Three of China’s top 25 import-originating countries are Latin American — Brazil, Chile and Mexico.

It can then be expected that Latin American members will welcome China’s incorporation into the CPTPP — in principle, the same could occur if Taiwan is accepted, although in this case Latin American governments might be more cautious so as to not compromise their support for China. Besides the likely economic benefits, the presence of China would counter the weight and influence the US would command should the Biden administration decided to join in and thus bring about a more balanced power play within the pact.

The Latin American country that would give China the warmest welcome is Mexico, especially given the openly anti-US stance Mexican president Andres Manuel Lopez Obrador has adopted since Biden took office, Mexico’s membership in the US–Mexico–Canada Agreement (USMCA) notwithstanding. In fact, visible signs of mutual empathy have been sent from both sides. At the 2021 CELAC summit meeting held in Mexico City on September 18, two world leaders were invited as keynote speakers — Chinese President Xi Jinping (the first to speak) and UN Secretary General Antonio Guterres. Two days before, Xi had sent a warm congratulatory message to Lopez Obrador to mark the 200th anniversary of Mexico’s independence.

On those bases, Xi could cultivate a closer relationship with Lopez Obrador by building on his anti-US stance and thus gain a valuable ally. Beijing could find friendly ground in a country that shares a 3145-km border with China’s rival in the new cold war that is unfolding nowadays.

If Biden decides to join the CPTPP, Washington would surely do what it could to make Beijing’s accession difficult. One way of doing this would be to press Canada and Mexico to force China to satisfy more and harder-to-meet requirements. Another would be to invoke the USMCA’s Article 32.10.5, the so called ‘poison pill’ clause, and threaten to walk away from the agreement.

Mexico and Canada signed the CPTPP in March 2018 and the USMCA eight months later. If China were accepted to the CPTPP, neither would be signing a new agreement with a ‘non-market’ economy but simply abiding China’s admission into a multi-country trade agreement of which they happen to be members already.

If the ‘poison pill’ were invoked, then Canada or Mexico would have to agree on exiting the USMCA and promptly sign a bilateral pact with the United States. This seems highly unlikely given the strong trade links among these three countries and the deeply entrenched continental supply chains they share.

Juan J Palacios is Professor at the Centre for Strategic Development Studies, University of Guadalajara, and a member of the PAFTAD International Steering Committee.

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The CPTPP is what was left of the original U.S.-led 12 nation deal the Trans-pacific Partnership (TPP) that was a priority under Presidents Bush and Obama, but which President Trump pulled the U.S. out of in his first week in office.

Since the APEC CEO Summit in November last year, China had indicated its interest in joining CPTPP. Yet, this apparent interest was greeted with skepticism around China’s ability to undertake the economic reforms required to meet the high CPTPP standards, such as more competition for state-owned enterprises, freer flows of data across borders, and curbs on China’s industrial subsidies.

Yet, it is increasingly clear that China’s request to join CPTPP needs to be taken seriously and may happen sooner than expected. For one, China is the largest export market for nine of the current 11 CPTPP countries. Second, it may be less difficult than generally thought for China to meet many CPTPP standards. China could also lean into to the agreements broad exceptions to justify non-compliance. Where China has justified trade restrictions as being about national security, there is also a very broad national security carve out that China could rely on.

Second, in order for many developing countries such as Vietnam to join the agreement, full compliance with various rules needed to be delayed as these governments undertook domestic reforms. This sets the precedence for China to argue that where it is unable to meet CPTPP standards today, similar flexibilities should be extended to China and not delay it becoming a party to the agreement.

A key question for many governments will be whether they can be convinced of China’s eventual compliance with the CPTPP. The Australian trade minister when asked about China joining the CPTPP noted the need for China to demonstrate a track record of compliance with trade agreements. This speaks not only to China’s recent restrictions on Australia’s exports that are inconsistent with the China-Australia FTA, but also well-documented ways China has avoided its WTO commitments.

The announcement by the U.K. earlier this year of its interest to join the CPTPP likely hastened China’s decision to join. In part as U.K. membership in CPTPP would be another bulwark and hurdle to China joining, and it is harder for CPTPP governments to seriously negotiate U.K. accession, and to then not do the same for China. Taiwan’s request this week to also join the CPTPP will complicate the accession process, as China will oppose Taiwan joining as being at odds with its One-China policy.

So now the U.S. is faced with a flipped script—as China readies to join the CPTPP, it is left on the outside, still unsure how to show leadership on trade in the Indo-Pacific.

Should China succeed in joining CPTPP, this will foreclose the U.S. rejoining the agreement. The U.S. then having to negotiate with China to join the CPTPP is an irony that would be too much to bear. Indeed, re-engagement by the U.S. on trade in the Indo-Pacific region will require the U.S. to start the process again. However, after Trump’s withdrawal from CPTPP, getting other governments to agree to again make high standard trade commitments with the U.S. will be a big lift. In addition, with China party to CPTPP, the economic impact on China of a new U.S.-led trade agreement that excluded China would be significantly diminished. Indeed, China joining CPTPP will for the foreseeable future undercut the effectiveness of U.S. trade policy as a tool for achieving U.S. strategic goals with respect to China.

As President Biden made clear in his speech to the U.N. General Assembly this week, the U.S. needs to lead a collation of countries to counter China’s strategic challenges. To do this, the U.S. will need to continuously show up, lead and demonstrate consistency of purpose. This will require a renewed economic engagement strategy for the Indo-Pacific. The U.S. no longer has the luxury of spending precious political capital getting other countries to join a major international economic initiative like CPTPP and then decide to withdraw because it makes for good domestic politics. Leaving CPTPP was costly and China’s decision to join CPTPP has raised the stakes even higher.

Joshua Meltzer is a senior fellow in the Global Economy and Development program at the Brookings Institution.

To read the full commentary from the Brookings Institution, please click here.

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From the start, TPP was marked by tragic irony—with China always in a supporting role. The George W. Bush administration notified Congress of its intent to negotiate a high-standard trade agreement with Asia-Pacific partners on September 22, 2008—one week into a global financial crisis that would severely undermine U.S. economic leadership and embolden Beijing. While quick to embrace TPP and successful in concluding an agreement among the parties, President Barack Obama fatally delayed pushing for trade promotion authority from Congress in 2014—choosing instead to name the chairman of the relevant Senate committee, Max Baucus, as his ambassador to China. And in one of his first, catastrophic acts as president, Donald Trump withdrew the United States from the unratified TPP—not understanding that it was one of the most powerful tools he had to compete with his nemesis, China.

And now the People’s Republic of China has applied to join TPP’s successor agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Tragic irony, indeed.

Recall what the power of TPP was. It advanced U.S. interests along three lines: economic, by boosting U.S. and regional growth; strategic, by embedding the United States more deeply in Asia-Pacific affairs; and “strategic economic,” by updating and upholding U.S.-preferred rules and norms. Although Joe Biden supported TPP as vice president, his national security team argued during the presidential campaign that the economic benefits of TPP had been oversold and in any case went mainly to large multinational corporations. They also expressed determination not to be hoodwinked into supporting a trade agreement merely because of its purported “strategic” value. 

But as China’s application to CPTPP makes pointedly clear, the Biden team underestimated the rulemaking power of a U.S.-led trade agreement. Among its other useful provisions, TPP’s disciplines on state-owned enterprises (SOEs), digital governance, and labor—since upgraded in the U.S.-Mexico-Canada Agreement (USMCA)—committed a group of countries representing 40 percent of the global economy to aligning their economic policies with U.S. preferences. With the United States out and China prospectively in, CPTPP is now more likely to bend to Beijing’s preferences than to uphold U.S. ones.

Like Hillary Clinton when she renounced TPP as a presidential candidate in 2016, the Biden team no doubt fears the politics of trade. For decades trade was a toxic issue for Democrats, with their base of supporters—particularly manufacturing unions—opposed to trade because of its disruptive effects on jobs. (Certainly both parties have paid far too little attention to helping workers adjust to these and other economic disruptions.) But the tide may be turning, and the conventional wisdom on trade politics may need rethinking. Even as Donald Trump seized the protectionist ground, a growing number of Democrats have expressed support for trade—over two-thirds according to recent polls conducted by the Chicago Council on Global Affairs and Pew Research Center. A similar shift can be seen in Congress, where 193 House Democrats and 39 Democratic senators voted for USMCA, and where the pro-trade New Democrat Coalition in the House boasts nearly 100 members. All of this makes sense; Democratic voters are increasingly urban and global in their outlook, while the union movement today is dominated by government and service workers, who have less reason to oppose trade.

So there may be more political room for the United States to get back on the path to TPP than some Biden advisers believe. And there is certainly a pressing logic for the White House to reconsider its position. China’s application to join CPTPP comes just two months before the annual Asia summits in November, when new presidents typically lay out the broad outlines of their strategy in the region. A credible trade policy is an essential component of any serious U.S. strategy of engagement in the Asia-Pacific region. It is what allies and partners in the region want, for two principal reasons: it promises them greater access to the world’s largest market, and—unlike more fleeting initiatives the United States is wont to offer—demonstrates commitment to a long-term U.S. presence in the region. President Obama was quick to tack to this reality in his first year in office; while viewed initially as a trade skeptic, he used his first speech in the region in November 2009 to announce his intention to renegotiate the Korea-U.S. (KORUS) trade agreement and to launch TPP negotiations.

President Biden should consider his own version of Obama’s speech when he appears at the annual leaders’ meeting of the Asia-Pacific Economic Cooperation (APEC) forum to be hosted by New Zealand in mid-November. First, even if he is not ready to state his intention to apply for CPTPP membership, Biden should at least signal U.S. interest in eventually being part of a comprehensive, high-standard regional trade arrangement. Second, he should set out his conditions for the kind of agreement the United States could sign on to. This would presumably include the addition of USMCA-plus provisions on labor, the environment, and the digital economy, and the removal of ones seen to favor large corporate interests.

Third, Biden could announce other steps the United States is prepared to do now to get it back on the path to a comprehensive regional trade deal. He could state the U.S. intention to join Singapore and other Asia-Pacific partners in the Digital Economic Partnership Agreement (DEPA) and to build out APEC’s work on cross-border data rules. He could propose initiatives with like-minded partners in the region to build out rules in other critical areas such as SOEs and intellectual property. These could form the building blocks of a new and improved CPTPP.

Beyond trade, Biden should incorporate other valuable economic initiatives in his APEC speech, including cooperation with like-minded partners on clean energy, high-quality infrastructure (in line with the G7’s “Build Back Better World” initiative), and capacity building in less-developed economies. But again, a U.S. economic strategy in the Asia-Pacific region without a commitment to deeper integration on trade will not be credible to partners there.

In a recent opinion piece, Thomas Friedman called China’s application to join CPTPP a “tragic comedy” and a “deliciously mischievous ploy.” In fact, the Chinese bid is deadly serious, but not because of what it says about Beijing’s motivations or intentions. Rather, it shines a spotlight on the United States’ own tragic error in walking away from TPP and not replacing it with something equally powerful. In mid-November, when he is center stage at APEC, President Biden has a chance to open a new act.

Matthew P. Goodman is senior vice president for economics at the Center for Strategic and International Studies (CSIS) in Washington, DC.

To read the full commentary from the Center for Strategic and International Studies, please click here.

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The new partnership has been marketed as a strategic security alliance, with the Biden administration underscoring that “[AUKUS] is a fundamental decision—fundamental—that binds decisively Australia to the United States and Great Britain for generations.”

A key part of that binding will need to be built through strong economic ties, and the rise of a new U.S.-Australia-U.K. security alliance to potential prominence may amount to little more than hollow promises if the United States fails to demonstrate leadership in advancing free trade and investment.

If the U.S. is to be a credible leading force in the Indo-Pacific, America must prove itself a positive and dependable actor—not a reactive and unpredictable one—particularly when it comes down to trade and investment.

The U.S. can and should step up its own game considerably. Washington’s evolving efforts to become more deeply engaged in the Indo-Pacific region, raise the American profile, and elevate its participation in the region are very well advised. However, without a discernible trade component, particularly America’s leadership in building a predictable open trading environment, it will be an empty gesture.

The U.S. relationships in the region need substance, and the substance that counts in a concrete and practical way these days is trade. America should strengthen enduring alliances and build on nascent ones by increasing measurable economic opportunities and collaboration—by removing barriers to open trade.

America needs to get back to the free trade table, which will reinforce the network of alliances and partnerships America has invested in and built over decades.

It’s notable that China’s quick response to the announcement of the new U.S.-Australia-U.K. alliance was not military, but economic. In less than 24 hours, Beijing had formally applied for membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an 11-nation regional free trade agreement.

Clearly, China is aiming at flipping the strategic game plan on the United States through trade and investment.

In this evolving geostrategic context, the new U.S.-Australia-U.K. partnership must go beyond a trilateral security pact. A unique triangle network of free trade can be built upon that, and more importantly amplify the security alliance to the next level.

2020 marked the 15th anniversary of the U.S.-Australia Free Trade Agreement. Over the years, the two allies have enjoyed greater trade and investment interaction since the pact entered into force in 2005. The agreement eliminated previous trade barriers, resulting in a doubling of trade between the two countries and a tripling of two-way investment between the two countries to about $1.3 trillion.

Like the U.S.-Australia Free Trade Agreement, in an effort to secure and build on the already vital economic and security partnership between the U.S. and the U.K., the two nations embarked on negotiations for a long-desired free trade agreement last year, shortly after the U.K. withdrawal from the European Union.

Unfortunately, the negotiations—a high priority for both then-President Donald Trump and British Prime Minister Boris Johnson, with bipartisan support in the U.S. Congress—have been derailed at this juncture.

Worse, the recent White House summit between President Joe Biden and the U.K.’s Johnson did not provide a clear timeline for reinvigorating the stalled bilateral free trade agreement talks between Washington and London.

Revitalizing the stalled bilateral free trade negotiations with the U.K. and implementing the U.S.-U.K. Free Trade Agreement in a timely fashion is critical, now more than ever. 

The Biden administration underscored that “[f]or more than 70 years, Australia, the United Kingdom, and the United States have worked together … to protect our shared values and promote security and prosperity. Today, with the formation of AUKUS, we recommit ourselves to this vision.”

Advancing free trade and investment is vital to ensuring that vision. Economic security driven by the advancement of economic freedom at home and abroad—not by the proliferation of protectionism—truly enhances national security, which in turn buttresses greater economic dynamism.

The time for Washington to act on that is now. 

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