After years of speculation, both China and Taiwan have formally applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Others are likely to step forward in the near term, as the process of expansion gets underway in earnest.
Both countries present a host of challenges for current members in deciding whether to proceed with allowing one, both, or neither to join the agreement at this time. This includes deciding not just whether these two are genuinely prepared to adhere to the letter and spirit of the agreement, but determining specific issues that will need to be tackled during the process.
Of course, Chinese and Taiwanese applications are not just about trade. There is also considerable additional baggage that both bring to the table that will need to be managed.
While the trade community appears to be largely coalescing around the idea that both can join the CPTPP (even if the process of actually negotiating acceptable schedules could be lengthy), trade and economics are not the only considerations on the table.
In particular, China and Taiwan also come with significant political, strategic and security issues. It seems notable that the geopolitical community generally appears to be taking the opposite position to trade watchers—that one or both will have their applications for entry denied.
While there could be quite a betting pool developed on the outcome, timing and a host of other issues related specifically to China and Taiwan, it is also worth thinking hard about the implications of application requests for others.
The United States, particularly, has now been presented with a considerable new challenge.
Having pushed for the expansion of the CPTPP from the original four members in 2008 and driving the negotiations until conclusion of the original agreement in 2015, the United States famously withdrew from the agreement on the first full day in office for US President Donald Trump in January 2017.
It looked like this would deliver a death blow to the agreement as a whole, but members managed to resurrect the deal, saddle it with an even longer and more unwieldy title, and drop 20 provisions. The CPTPP has been in force since late 2018 and even acquired a new participating member, Peru, earlier this month. The UK has also started accession talks.
From the beginning, American negotiators were aware of the difficulties and challenges that might be presented from Chinese accession.
The TPP was officially part of the APEC process towards the Free Trade Area of the Asia Pacific (FTAAP). Key meetings and summits typically took place on the sidelines of APEC and all 21 member economies of APEC were encouraged to join.
While it was clear that China could opt in, it was not anticipated that China would do so—and certainly not in the near term. However, as a sensible precaution, officials tried to create an agreement that would reign in some of what were seen as the most problematic challenges that might be thrown up by China. This led, most obviously, to a whole chapter devoted to disciplines on state-owned enterprises (SOEs).
The agreement also included deep rules and enforcement provisions for intellectual property rights protection, government procurement commitments, rules on labor and environment, and as much legally binding language as members could accept. Many of these were added or adjusted with a clear eye on potential future Chinese membership.
In the run up to possible approval in the US, however, the framing of the agreement was changed. Instead of trying to constrain or discipline Chinese economic behaviors, the deal was about containing China. Even this new framing, however, was insufficient to generate strong support for approval of the TPP domestically and the US ended up pulling out entirely.
This now puts the US in a particularly awkward position with Chinese entry to the CPTPP on the table.
The easiest solution would be for the US to quickly come back to the revised deal. All the schedules have been maintained and could be reactivated. The 20 provisions that were “frozen” in the transition from TPP to CPTPP could be addressed.
However, politically in the US, this is viewed as a “non-starter.” If the US were to return at this point, there would need to be additional adjustments made and, even then, it is not clear whether there might be sufficient votes in Congress to approve entry.
The US, under the Biden Administration, continues to work on its trade policy dimensions. There is a review of policy with China, specifically, that has been underway for months. Until these are both clarified and supported by Congress, it’s not clear what sort of forward-looking offensive trade items might be possible. It could be something on digital or perhaps on climate.
Since the US is neither likely to return to the CPTPP in the near term or have a comprehensive trade strategy in place, the US is in a pickle. China’s letter has even been seen by many as less a serious commitment to the Asian trade agreement and more of a way to poke the US in the eye.
While this interpretation is likely untrue, it does highlight the challenges facing the US. At this point, if it will not or cannot return to the CPTPP, it will end up managing China and other key allies from outside a critically important framework for trade.
Of course, all CPTPP members are part of the World Trade Organization (WTO). However, as members get closer to the Ministerial Conference at the end of the year, it’s not clear that many outcomes will be achieved (once again).
On the political and security side, the US has been enhancing the Indo-Pacific Alliance, but this does not have an economic leg.
Economics matters in Asia. It frequently drives policy. It can be divorced from political or security relationships, as can be seen by the ability of 15 Asian members to sign the Regional Comprehensive Economic Partnership (RCEP) in spite of some often strong political and security headwinds.
For the US, the continuing lack of a strategy to address trade just got a lot harder to manage with the requests by China and Taiwan on CPTPP and the likely entry into force of RCEP at the start of next year.
***This Talking Trade was written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore. For help understanding CPTPP benefits for your company, please contact us today.***