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The complexities of China’s CPTPP entry

East Asia Forum | 26 March 2021

The complexities of China’s CPTPP entry

by Choong Yong Ahn, Chung-Ang University

Chinese President Xi Jinping made global headlines at the APEC summit on 20 November 2020 by announcing that China was considering joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which came into effect in December 2018. The news came amid a likely reconfiguration of the Asia Pacific trade landscape due to unabated trade tensions between the United States and China and the conclusion of the Regional Comprehensive Economic Partnership (RCEP) five days prior.

Significantly deviating from former US president Donald Trump’s ‘America First’ policy, the Biden administration is returning to global governance by reviving multilateral institutions, including the Paris Agreement, the World Health Organization and the World Trade Organization (WTO). The Biden administration’s pivot back to Asia might see the United States revisit the CPTTP, after mending urgent domestic affairs, including public anti-globalisation sentiments.

The United States has lost a great deal of its leadership credibility in Asia when it comes to safeguarding the liberal trade order. Despite the United States withdrawing from the Trans-Pacific Partnership (TPP), the deal was salvaged laboriously under Japan’s leadership with the remaining key members either dropping or compromising on some sensitive items in the final agreement.

In addition to China, the United Kingdom, South Korea, Indonesia, Thailand and Taiwan have also expressed interest in joining the CPTPP. Major signatory economies of the TPP and RCEP are also members of APEC. If every country interested in an expanded CPTPP, including China, were to commit to the high standards of its clauses even with a raised re-entry bar, it would help create progress toward APEC’s long-cherished goal of creating a Free Trade Area of the Asia Pacific (FTAAP), identified as a goal by APEC leaders as early as 2004.

Seven of the eleven CPTPP members, including Japan and Australia, are intersection economies also belonging to the RCEP. China’s entry into the CPTTP in the absence of the United States could be viewed as creating an advanced ‘RCEP-II’, provided that the clauses signed in ‘RCEP-I’ are upgraded to closely match those in the CPTPP chapters. An expanded CPTPP, with a re-joined United States and newly joined China, alongside other wishful entrants from RCEP, could lead to an FTAAP. It should be welcomed as an ideal building block toward the stalled WTO quest for multilateralism with the most-favoured nation principle.

But in reality, China’s entry into the CPTPP is more complex. If partner countries disagree on the key components of a ‘level playing field’, efforts toward economic integration are unlikely to bear fruit. There are several sticking points for new entrants into the CPTPP, especially China. This includes the prohibition of state subsidies for state-owned enterprises, investor–state dispute settlement, intellectual property rights over biological products, labour conditions for government procurement, data free flows and localisation restriction and digital trade.

The picture of enhanced free trade becomes more complex and unrealistic when transparency standards for the implementation of the free trade pact and strategic security elements for the Indo-Pacific are considered. Some of these points have been embraced in the EU–China Comprehensive Agreement on Investment (CAI) in principle concluded on 30 December 2020, allowing the European Union enhanced market access in China. Still, China’s CAI commitments fall short of the high standards in the CPTTP.

The TPP was originally designed by the United States to counter China’s assertive rise. In response, China became enthusiastic about concluding RCEP, originally perceived by ASEAN and Japan to rival the TPP. If these twin motivations for regional hegemonic leadership remain unchanged, the United States and China are unlikely to be in the same expanded CPTPP boat. With a possible return of the United States to the CPTTP on the horizon, the United States and other major TPP signatories are likely to screen new members while writing reinforced trade rules. The CPTPP would then become more politically like-minded.

Given this politico–economic dichotomy, China’s entry might be a long shot. Some experts claim China is motivated by a domestic reform agenda, referencing CPTPP’s high standards. But it remains to be seen how China carries out its domestic reforms to meet CPTPP entry requirements. Amid the challenging and unpredictable circumstance, an early conclusion of the China, Japan and South Korea (CJK) trilateral trade agreement — under negotiation since 2012 despite intrinsic trilateral acrimonies — could help expedite a convergence of the two mega deals. CJK leaders already committed to realising a ‘free, non-discriminatory, transparent, predictable and stable trade and investment environment’ at the Chengdu Trilateral Summit in 2020.

Many RCEP economies are experiencing their worst economic downfall since the Great Depression due to COVID-19 and want to avoid being forced to side economically with the United States or China in the years to come. Only once the two major powers collaborate can urgent global issues like the ongoing pandemic and climate change be effectively dealt with.

To bring them together, the regional ‘constructive powers’ belonging to both the CPTPP and RCEP should raise their collective voice to safeguard a deeper, rule-based, regional free trade order and serve as honest brokers. In due process, major trading powers in the Asia Pacific should be non-assertive, non-unilateral and non-treacherous. And for any sustainable and large FTAAP in the Asia Pacific, mutual trust is key.

 source: East Asia Forum