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China’s interest in trans-Pacific trade deal met with scepticism by those who helped negotiate it

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South China Morning Post - 08 July 2020

China’s interest in trans-Pacific trade deal met with scepticism by those who helped negotiate it
By Finbarr Bermingham

  • China’s Premier Li Keqiang voiced openness to joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
  • Negotiators sense ‘a bit of mischief’ in wanting to ‘stick it to the US’ without making required changes to its state-led economy, including state-owned enterprises

A series of high profile officials in Beijing have recently voiced openness about China joining a trans-Pacific trade pact abandoned by the United States in one of the first acts of Donald Trump’s presidency.

But officials who helped negotiate the deal formerly known as the Trans-Pacific Partnership (TPP), now the slimmed down Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), are not taking Beijing’s advances seriously.

Officials differ in their rationale, with some saying that China’s increasingly state-led economy would not satisfy membership criteria on state-owned enterprises, labour rights or corporate data localisation, while others point to China’s increasingly bitter geopolitical rows with Australia and Canada, both cornerstones of the 11-nation pact.

But those who negotiated the agreement are united in their cynicism towards China’s expressions of interest.

Beijing has not yet registered formal or even informal interest with the current 11 members of the CPTPP, according to senior sources in New Zealand and Mexico, the agreement’s depository member – the party with whom membership interest would have been registered – and convening member for 2020 – the annual host which would have to convene members to discuss new interest – respectively, who would be notified of any efforts by Beijing to sound out members.

“We have not heard directly from China”, said one senior Mexican official, who did not wish to be identified.

The highest profile statement out of Beijing so far came from Premier Li Keqiang, who in a press conference rounding off the National People’s Congress in late May said “China has a positive and open attitude toward joining the CPTPP”.

“To read it in the media was interesting. But there has been no approach through [existing] membership, we would hear from the members,” said a senior official in Wellington, also noting comments towards the end of June from former commerce minister Chen Deming, who said that China is “interested in joining” but that “we want to know more about the attitude of Japan”.

“They would want to be really sure [of being welcomed], you do not want to be embarrassed by one country holding it up, whether that is Japan or anyone else
New Zealand official”

“So far we have heard from Thailand, South Korea, and Britain, but nothing from China. They would want to be really sure [of being welcomed], you do not want to be embarrassed by one country holding it up, whether that is Japan or anyone else,” said the New Zealand official, who also asked not to be named due to the potential sensitivity of China-facing geopolitics.

Instead, there is a feeling among current members and former US officials, who would like to see Washington resume interest in the deal that the Obama administration staked out to contain China’s rise in Asia-Pacific, that Beijing is engaging in a “bit of mischief” in expressing interest in a deal Trump dumped in the early days of his presidency in 2017.

“How can either of them let any opportunity pass?” asked a CPTPP minister, referring to what they viewed as an effort by the Chinese government to bait rivals in Washington.

One negotiator described China’s statements of intent as a “cost-free dangle” and a way of “sticking it to the US by being the ones out there talking up CPTPP, but they’re not sitting down with countries, talking about changing seriously key aspects of their behaviour”.

But not everyone is complaining as China would be by far the biggest member economy should serious interest materialise, with many Pacific Rim nations keen to grow their commercial ties with Beijing, even as the politics become more fraught.

Noises from China, however, also have the added benefit of tweaking Washington’s attention to a deal that some hope it will return to under a different administration.

“We do think it’s a bit of mischief, but it is not a bad thing for us, any time a noise comes out that China is open to joining, Washington sits up and takes notice. Every time China says that, it sends a frisson through Washington, which is great,” said a negotiator from a Pacific nation.

It is not the first time China has expressed interest, with a former top US trade official saying that “high level” engagement took place in 2013, even if it never went very far.

“There were overtures of interest from China at senior levels. Particularly once Japan joined the TPP, Chinese interest became a lot stronger. Then it became a much more serious proposition,” said the source, speaking anonymously due to the confidential nature of the information.

“On China’s interest, one would ask, is China really interested in the substance of the agreement or does it have other motivations?
Barbara Weisel”

But it never became formal policy in Beijing, with China focusing its multilateral negotiating resources on the Regional Comprehensive Economic Partnership (RCEP), which was billed as a “TPP rival” deal before Trump withdrew the US in January 2017.
“I don’t think China itself was serious about joining at the time that we were negotiating the original agreement. It was involved in many other negotiations. China occasionally made passing comments about possibly joining in the future, but I don’t think China actually ever expressed any serious interest at the time,” added Barbara Weisel, formerly chief US negotiator for the TPP, now managing director of Rock Creek Global Advisors, an economic policy advisory.

She added that even had China expressed an interest, “membership wasn’t extended just because a country raised its hand and said it wanted to join” and that “accession is a lengthy process”.

“On China’s interest, one would ask, is China really interested in the substance of the agreement or does it have other motivations? I’m not going to speculate as to what China’s real motivations are. I think that it’s interesting that China expressed interest after Taiwan did so, but it may have other motivations as well,” said Weisel, referring to previous interest from Taipei which resulted in “substantial” talks with TPP members, but no formal application to join.

“Because the US is not in there, it is seen as an opportunity for China, but even if China wanted to join, the negotiations would take year
Tu Xinquan”

RCEP has dragged its heels for years and lost India at the end of 2019, significantly shrinking the size of the deal. It is viewed as a lower-quality free trade deal than CPTPP, focusing mainly on tariff reduction, rather than the meatier standards and non-tariff barrier removal in the deal that was dragged over the line by Japan when the US exited.
“I think it is preliminary, some government agencies are trying to study the CPTPP, there has not been serious discussion in the government, mainly scholars promoting or proposing that China should join. Some government agencies started studies, but there are no serious policy discussions,” said Tu Xinquan, dean of the China Institute for WTO Studies, who said RCEP is China’s priority.

Some Chinese scholars, Tu said, think the timing is right to try and join the CPTPP, which currently comprises Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

“Because the US is not in there, it is seen as an opportunity for China, but even if China wanted to join, the negotiations would take years. Who knows what will happen in the US? If [Joe] Biden wins the election, would he rejoin?” Tu said.

As vice-president under Barack Obama, Biden was a strong supporter of the original TPP and has said during the campaign that he would “renegotiate pieces of [the deal] with the Pacific nations that we had in South America and North America, so that we could bring them together to hold China accountable for … the rules of the road as to how trade should be conducted”.

A Gallup poll conducted in February found that 79 per cent of Americans view foreign trade as “an opportunity for economic growth through increased US exports”, the highest level of support for trade in 25 years, following four years of Trump administration protectionism.

A Pew research poll conducted in March, meanwhile, found that 66 per cent of Americans held an unfavourable view of China, up from 47 per cent in 2017. But US politicians are not certain that even in such an environment a trade policy aimed at containing China would fly with the American public.

“I think it would be very challenging for a Democratic administration to take this up, certainly in the first term. And so if Joe Biden were to win in November, I do not believe that this would be something that you would be willing to spend political capital on immediately,” said Clark Jennings, White House trade adviser to former president Obama.

“I think the most difficult part of joining the CPTPP would be complying to standards about [state-owned enterprises], right now the trend of SOE reform in China is in the opposite direction
Tu Xinquan”

Wendy Cutler, vice-president at the Asia Society and one of the lead US negotiators on the original TPP, added that it is not as simple as the US deciding to rejoin “because things have evolved both in the world and in the United States, since the TPP was concluded [in 2015] and CPTPP came into effect [in March 2018]”.

Things have also evolved in China. Under the leadership of Xi Jinping, Beijing has strengthened the state sector at the expense of private enterprise, slowing progress towards market liberalisation, while engaging in a bruising trade war with Washington. Analysts expect the trend of state-led growth to continue after the economic shock of the coronavirus.

“I think the most difficult part of joining the CPTPP would be complying to standards about [state-owned enterprises], right now the trend of SOE reform in China is in the opposite direction. They are not so consistent with the direction of CPTPP, trying to separate governments from SOEs, it is very controversial in China right now,” added Tu, the Beijing-based World Trade Organisation (WTO) professor.

Then there are the geopolitical skirmishes in which China now routinely engages, embroiling technical customs and trade issues with political tangles.

Ongoing examples are China’s embargo on Canadian canola and the detention of two Canadian citizens, linked by many to the arrest of Huawei executive Meng Wanzhou in Vancouver, along with bans on some Australian beef and prohibitive import tariffs on barley, allegedly linked to Canberra’s support for an independent investigation into the origins of the coronavirus.

Some Chinese proponents of multilateralism, though, view trade as the olive branch which can help heal such wounds.

“Joining CPTPP could greatly improve the relations with these countries. China has already become a major trading partner with these countries, they also depend heavily on China. I think, in the end, economic common sense will prevail and CPTPP could bond China and these countries together through joining CPTPP,” said Wang Huiyao, an adviser to China’s State Council and the founder of the Centre for China and Globalisation, a Beijing think tank.

But trade experts in the countries on the receiving end think differently.

“There’s no way the Canadian government at this point in time could stand up and say this is a good idea
Michael Woods”

Michael Woods, founder of Ottawa law firm Woods, LaFortune LLP, who led Canada’s bilateral talks with China over Beijing’s accession to the WTO, said that if he was in that role now, “I would have a difficult time with the concept at this point in time of China being able to accede to the CPTPP”.

For one, there is a so-called “poison pill” clause in the US-Mexico-Canada-Agreement that entered force last week, which could theoretically allow Washington to veto any efforts by its North American partners to sign a deal with China.

But even before it gets to that stage, Woods said Canadian public opinion vis-à-vis China has soured so badly as to make such a move impossible.

“There’s no way the Canadian government at this point in time could stand up and say this is a good idea,” he added.


 source: South China Morning Post