Pacific Trade Pact Archives - WITA

China Moves Closer to the CPTPP

Jake O'Keeffe — Tue, 21 Sep 2021 13:52:34 +0000

Beijing filed its formal application to become part of the 11-member trade pact.

China has officially launched its bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). On Sept. 16, Beijing filed its formal application to become part of the 11-member trade pact—whose members include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam—by sending a notification to New Zealand’s trade minister, the designated CPTPP member who serves as the repository for administrative matters.

The signs that this was coming have been building for a while.

At the Asia-Pacific Economic Cooperation CEO Summit last November, Chinese President Xi Jinping said Beijing was giving “positive consideration” to the agreement. Meanwhile, over the past year, Chinese officials have been consulting with select CPTPP members while studying the detailed provisions at home.

The timing of the announcement, however, was largely unexpected. Many trade officials had anticipated that Beijing would carefully watch developments in the United Kingdom’s CPTPP accession process, which recently started, before formally stepping forward. It was also assumed that Beijing would follow London’s example and take time to line up support from current CPTPP members so that its announcement would be met with positive responses. While Malaysia and Singapore have been welcoming to China, reaction from others has been muted at best.

It’s not entirely clear what motivated China to move now. Some have speculated that the CPTPP application was a response to the announcement the previous day of the Australia-U.K.-U.S. security partnership, but Beijing quickly denied such a link. Perhaps China wanted to forestall any possibility that Taiwan would get on the CPTPP wagon. Or, with entry into force of the Regional Comprehensive Economic Partnership agreement on track for early next year, a self-confident Beijing may have seen this as an opportune time to shift its attention to the other large regional trade agreement.

What is clear is that China had little to lose and much to gain from officially seeking CPTPP membership. Two potential risks were probably considered but quickly dismissed. First, could Beijing’s announcement prompt Washington to reconsider joining the CPTPP? And second, would existing CPTPP members reject China’s bid with a “thank you, not interested” response? Neither of these scenarios seems likely, the first due to domestic U.S. politics, the second to international economic realities.

The potential upsides, however, are plentiful. It’s an opportunity for Beijing to continue to try to gain the moral high ground on the importance of a rules- based trading system, which started with Xi’s 2017 speech at the World Economic Forum praising the virtues of free trade and warning against the dangers of protectionism. When discussing the CPTPP application last week, Zhao Lijian, a spokesperson for China’s Ministry of Foreign Affairs, mirrored these themes by underscoring that China is a strong supporter of trade liberalization as it pushes for “economic cooperation and regional economic integration.”

And what better way to continue this quest than to seek entry into a trade pact shaped by the United States but where domestic politics and priorities preclude U.S. participation at this time? Beijing’s CPTPP application brings to the forefront the lack of a robust U.S. trade agenda for this critical region.

Moreover, China’s bid could create divisions between CPTPP members who see the merits of Chinese participation and those who are skeptical of China’s true motivations. If a common response to Beijing cannot be found among CPTPP members, this coalition of like-minded countries could be weakened, affecting implementation efforts and future accessions.

A final potential upside is that through its application, China, like other accession partners, could secure some sort of seat at the CPTPP table, perhaps as an observer, and thus become privy to certain discussions on implementation and emerging issues.

As a high-standard and market-oriented agreement, this pact would require China to make major reforms to bring its trade regime in line with existing obligations in multiple areas, including state-owned enterprises, intellectual property rights protection, labor, digital trade, agricultural non-tariff measures, and the environment. Beijing would also be called on to make commitments such as eliminating tariffs and lifting other restrictions far above the level embodied in its current trade agreements on industrial and agricultural goods, services, investment, and government procurement.

As was expected with China’s accession to the World Trade Organization (WTO) 20 years ago, CPTPP participation could provide the needed external pressure for China to reform and open in these and other areas. Reformers in Beijing hold on to this hope, including certain academics, former trade officials, and even some current government officials.

But it’s hard to consider it as anything more than a hope, given that Beijing’s policy direction in most sectors of its economy is headed in the opposite direction. As China intensifies efforts to strengthen the role of the state in its economy; rein in private sector companies; further restrict the flow, use, and storage of data; and arbitrarily restrict imports from countries that are out of its favor, it is moving further away from, not closer to, the letter and spirit of the CPTPP.

Squaring China’s state-led economic strategy and practices with the standards and rules of the CPTPP will present challenges for the pact’s members. Initial responses from New Zealand, Japan, Mexico, and Australia to China’s CPTPP notification struck a common theme: the need to ensure that any prospective candidate meet the high-standard rules of the agreement.

Australian Trade Minister Dan Tehan went further, stating that the candidate must also have a “track record of compliance” with its commitments in the WTO and existing agreements to which it is a party, including the Australia- China Free Trade Agreement. His comments come as no surprise given the tense state of Chinese-Australian relations. As much as Japan and Australia are expected to insist that China rise to CPTPP standards, Malaysia and Singapore have already conveyed a more welcoming and flexible attitude.

According to CPTPP procedures, once a formal request to join is made, members must decide by consensus “whether to commence the accession process with the aspirant economy within a reasonable period of time.” Based on the U.K. experience, the only accession case thus far, the term “reasonable” seems to mean a matter of months, not years. The U.K. made its formal request in February, with actual negotiations now being conducted under a Japan-led CPTPP working party, which began its work four and a half months after application.

The discussion on whether to launch accession negotiations with China will be considerably more complicated than with the U.K. London has already concluded high-standard free trade agreements and continuity agreements with many CPTPP partners and is reportedly close to concluding an agreement with New Zealand. It had also conducted productive and conclusive pre- consultations with individual CPTPP members.

CPTPP members will have a robust discussion on China’s application. It’s hard to argue that Beijing’s trade regime will be in line anytime soon with CPTPP disciplines on state-owned enterprises, labor, digital trade, and intellectual property protection, among other concerns.

But the discussion will not end there. Singapore, among others, is likely to emphasize that accession could spur China to reform and move closer to CPTPP rules, with the bonus of reducing global trade tensions. Members that have been subject to Chinese economic coercion, such as Australia and Canada, are likely to think twice. Canada and Mexico will be mindful of their commitments under the United States-Mexico-Canada Agreement, including providing advance notification to the United States should negotiations with China proceed.

But CPTPP members will also be practical and realistic. For most, China is their largest trading partner, a critical supply chain partner, and a major investment destination. It represents a large and growing market that can contribute to their post-pandemic economic recovery. All of which means the prospect of a simple no/not ready response to Beijing seems unlikely.

If it looked as if U.S. participation might be in the cards in the not-so-distant future, certain members could be prompted to take a harder line on Chinese accession. Instead of sending such a signal, White House Press Secretary Jen Psaki gave standard U.S. talking points on CPTPP last week, continuing to keep U.S. distance from the pact. She made clear that the decision on China’s application belongs to CPTPP members yet reminded them of China’s coercive and prevalent non-market economy practices.

The most logical course of action would be for the CPTPP members to put the ball back in Beijing’s court by asking for details on how it would adhere to CPTPP rules chapter by chapter and, in those areas where it cannot currently comply, for it to outline specific steps and timetables it is prepared to take to bring its trade regime into conformity.

This part of the process, which could take place before formal accession procedures are triggered, will help CPTPP members ascertain whether China’s CPTPP application is mostly smoke and mirrors or whether there is actual substance behind this request.

More than anything, China’s CPTPP bid has raised the stakes for trade leadership in the Asia-Pacific region, with an active and self-confident Beijing and a reserved Washington. It’s not too late for the United States to step up its economic engagement in the region by launching a major trade initiative, but time is running out with each passing day.

Wendy Cutler is a vice president at the Asia Society Policy Institute and managing director of its Washington office. She was a former acting deputy U.S. trade representative during the Obama
administration.

To read the full commentary from the Asia Society Policy Institute, please click here.

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What American Farmers Could Gain By Rejoining The Asia-Pacific Trade Deal That Trump Spurned

Ashley Singh — Wed, 12 May 2021 20:56:08 +0000

The Biden administration has an opportunity to recalibrate American global trade by rejoining the influential Trans-Pacific Partnership trade agreement. Signing on to this partnership has the potential to deliver powerful diplomatic and economic gains yet politically, the odds appear slim that there will be political consensus to agree to this partnership.

The U.S. began Trans-Pacific Partnership negotiations in 2008 during the Bush administration, efforts that were intensified during Barack Obama’s presidency. Hammered out between the U.S. and 11 Pacific Rim countries, the intention of joining the partnership was to set trade policy and greatly expand U.S. trade and investment in the Asia-Pacific region. President Obama signed the agreement in 2016 and less than a year later, immediately after Donald Trump’s inauguration, the U.S. withdrew from the agreement.

Rejoining the partnership, renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018, could signal to the world that the U.S. is back in the global engagement arena. It would also strike a stark contrast to the previous adminstration’s bilateral and nationalistic approach, which has resulted in tensions with major U.S. trading partners. Aside from improved trade relations, rejoining the this agreement would counter China’s economic and geopolitical influence in the Asia-Pacific region.

Both of us have worked extensively with the U.S. Department of Agriculture on trade policy issues. As economists specializing in international agricultural trade, our research demonstrates that the U.S. would benefit from rejoining the trade accord and, in particular, American agriculture.

Regional trade agreements like the Trans-Pacific Partnership can go far beyond tariffs to tackle deeper trade and domestic issues such as investment, labor, migration, competition, intellectual property and, in some cases, key regulatory issues governing food safety standards.

Although agriculture comprises only about 10% of total U.S. exports, the agricultural sector in the U.S. and other countries account for a large share of trade policy considerations. Rejoining the accord has the potential to establish economic ties with emerging economies like Vietnam and Malaysia and embrace the need for improved trade relations in Southeast Asia overall.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership could be the easiest path forward if the U.S. wanted to improve trade relations with Southeast Asia. Joining this partnership could be especially beneficial based on the volume of agricultural trade and expected growth in these markets. At an approximate US$14.3 billion annually, Southeast Asia accounts for a significant amount of U.S. agricultural exports, making it the fourth-leading destination behind China, Canada and Mexico.

A return to global engagement

The Trans-Pacific Partnership was seen as an opportunity for the U.S. to shape regional and global trade rules, potentially influencing economic policies and practices in China. However, there are concerns that need to be addressed if the U.S. were to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

There are important differences between the agreement signed under Obama in 2016 and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Provisions important to the U.S. were changed in the subsequent agreement, such as the investment and intellectual property provisions that offered improved standards on intellectual property relative to past trade agreements. The provisions fall short of the more stringent requirements in the earlier Trans-Pacific Partnership.

What are the odds?

Like all trade agreements, joining the partnership would require congressional approval. Historically, Republicans have been more supportive of trade agreements. But President Trump’s rhetoric, that past trade agreements have been “disastrous” for the U.S. economy, may have lessened Republican support for an agreement like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

President Joe Biden quickly rejoined the Paris Climate Agreement and reversed President Trump’s decision to withdraw from the World Health Organization, showing that the U.S. is back in the global engagement area.

Mega-regional trade agreements offer more than a forum for negotiating trade barriers. They establish procedures that reduce uncertainty in international transactions, make rules that are clear to members and provide an institutional framework to remedy trade concerns or disputes. If the Biden administration wants to signal to the world that the U.S. is pivoting to a more expansive global engagement, joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership could be an initial step.

Dr. Andrew Muhammad is a Professor of Agricultural Economics and the Blasingame Chair of Excellence in Agricultural Policy at the University of Tennessee Institute of Agriculture.

Jason Grant is Associate Professor and Director of the Center for Agricultural Trade at Virginia Tech.

To read the original blog by The Conversation, please click here.

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US must take seriously China’s interest in Pacific trade pact

Emma Donahue — Sat, 06 Jun 2020 15:10:34 +0000

Wendy Cutler is Vice-President of the Asia Society Policy Institute.

Given the focus on the Hong Kong national security law, the international community paid little attention to the statement by Chinese Premier Li Keqiang at last week’s National People’s Congress that China “has a positive and open attitude toward joining CPTPP.” The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is a trade agreement involving 11 countries including Australia, Canada, Vietnam and Japan.

This is not the first time China has expressed some interest. But it is the first time such interest has been conveyed publicly by the Chinese leadership. The motivation and timing of the statement are curious and could be interpreted seriously or with skepticism. Regardless, it cannot and should not be ignored, particularly by the U.S.

In the early days of negotiations for the TPP, the CPTPP’s predecessor which included the U.S., the word in Beijing was that it was a U.S. strategy to contain China by enlisting its neighbors in a trade deal without the largest Asian economy. This view changed, however, as negotiations proceeded, an evolution captured in a statement by a Foreign Ministry spokesperson who conveyed China’s “open-minded attitude toward TPP.”

I will always remember my first trip to Beijing in early 2016, soon after ending my almost three-decade career in the Office of the United States Trade Representative. The TPP talks had just concluded and other countries were lining up to express interest in joining. The lengthy text had been translated into Chinese, and in my meetings with the Chinese government, academia and business community, I was peppered with questions on specific provisions and what they might mean for China, should it consider joining.

But once the U.S. had exited from the deal under President Donald Trump, the TPP looked dead. Remarkably, with Japan’s leadership, the other members decided to go forward without U.S. participation rather than squander all the work they had invested, bringing the CPTPP into effect among seven of the 11 members about 18 months ago.

Since then, China has quietly approached certain CPTPP members to learn more about the agreement and informally explore their views on possible Chinese accession. While these overtures have not yet led to anything concrete, they demonstrate a continuing interest, which appears to have risen to a new level by May 30 with Li’s statement.

A number of considerations seem to be motivating China. First, with the U.S. on the sidelines and negotiations on the Regional Comprehensive Economic Partnership, an Indo-Pacific trade deal, heading toward signature this November, it would provide another avenue for China to integrate its economy with others in the Asia-Pacific region.

Secondly, it could help reduce China’s reliance on the U.S. market and its vulnerabilities to further tariffs and other sanctions emanating from Washington. At the same time, acceding to CPTPP could provide external pressure, similar to the role that World Trade Organization accession played two decades ago, for Beijing to proceed with certain needed domestic reforms, particularly in the services sector.

Finally, it could be a great public relations coup for Beijing to show the world that it is serious about trade liberalization and structural reform while the U.S. slips further into protectionism.

However, CPTPP members should be under no illusion that China’s interest might lead Trump to reconsider U.S. participation. Conversely, it could further harden his position, criticizing the CPTPP, as he has the WTO, as an ineffective agreement for addressing China’s unfair trade practices.

Of the seven CPTPP members that have ratified the agreement, Singapore has been most vocal in support of Chinese accession. In an interview with the Nikkei Asian Review a year ago, Prime Minister Lee Hsien Loong said, “Singapore’s view is that we welcome China to join.”

Japan has been more cautious. A Japanese trade official told Caixin last year, “CPTPP members welcome everybody who is willing to take on the high standard of market access commitments and the high standard rules,” but he added that “it is up to China, not CPTPP members, to decide whether China is willing to take on those CPTPP rules.”

In a January 2019 meeting, CPTPP members established a detailed accession process that spelled out bench marks for joining the pact. In particular, they asked candidates to show that they could “comply with all of the existing rules contained in CPTPP.” Furthermore, they called for comprehensive market access commitments.

Fulfilling both requirements would be an incredible challenge for China, especially as its economy becomes more state-driven. Bringing Chinese practices in line with CPTPP commitments on such matters as state-owned enterprises, labor, e-commerce and investment would be a heavy lift for China, as would Beijing achieving the high rates of tariff liberalization met by other countries.

This should not mean that working toward accession is a futile exercise, albeit one with a long time horizon. If China were to take the market-opening actions over time to match the positive attitude expressed by Li, this would be a welcome step for a beleaguered global trading system. Time will tell whether there is any substance behind Li’s words on CPTPP.

To view the original blog, click here.

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