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China wants to join the trade pact once designed to counter it

Foreign Policy - 21 September 2021

China wants to join the trade pact once designed to counter it
By Wendy Cutler

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.

 source: Foreign Policy