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An Expanded CPTPP : Could it Help Bridge China-U.S. Trade Differences?

Feb 08, 2021
  • Hugh Stephens

    Distinguished Fellow, Asia Pacific Foundation of Canada

This year Japan assumes the Chairmanship of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and will convene the annual meeting of the Parties, known as the CPTPP Commission. Recall that the CPTPP, the eleven-country agreement that emerged out of the ashes of the Trans-Pacific Partnership (TPP) when the U.S. withdrew after Donald Trump took office, came into effect at the very end of December 2018. Six of the eleven signatories (Australia, Canada, Japan, Mexico, New Zealand, Singapore) fast-tracked their domestic ratification process, allowing the Agreement to come into effect, jump-starting additional tariff reductions that would take effect on January 1, 2019. A seventh member, Vietnam, ratified it a couple of months later, leaving Brunei, Chile, Malaysia and Peru still to complete the ratification process.

After the U.S. -- which had been a leading proponent of the TPP -- announced its withdrawal, it was Japan that kept the process going to bring the CPTPP into being. The CPTPP Agreement is essentially based on the TPP text, with some provisions suspended (many of these relating to issues of primary interest to the United States) supplemented by some additional bilateral understandings between members. The challenges now for the CPTPP are (1) to complete the ratification process for the four signatories that have not yet done so, (2) to consider expansion of the Agreement by negotiating accession by new members, and (3) to review coverage of the Agreement.

It would seem logical to complete ratification before embarking on any consideration of expansion, but domestic political issues in Chile, Peru, and Malaysia need to be resolved before ratification can be completed for all members. All three are bogged down with internal issues, and it appears that Brunei will take its lead from Malaysia. Chile, where the CPTPP was signed in March 2018, was expected to be one of the original participants, but its ratification process was thrown off course by widespread internal protests and social unrest. Given the unlikelihood of early completion of ratification by the four hold-outs, the seven CPTPP states currently active in the Agreement can no longer afford to postpone consideration of expansion indefinitely. With Japan at the helm this year this is an opportunity not to be missed. Although there have been calls to consider expanding the scope of the Agreement to address issues such as digital governance, supply chains, and foreign investment, the focus for now should be on expanding its geographic coverage.

Apart from the obvious question as to whether the U.S. under the Biden Administration is interested in rejoining, there are a number of other potential partners in the wings including, surprisingly to some, the United Kingdom, but also economies in the region such as Korea, Thailand, the Philippines, Indonesia, and Taiwan (the latter requires careful handling). China has also expressed interest from time to time, most recently at the virtual APEC Summit in November 2020. This came just days after the signing of another regional trade agreement, the Regional Economic Partnership Agreement (RCEP) that brings together China, Japan, Korea, Australia and New Zealand with the ten ASEAN countries. Six of the RCEP countries (Australia, Brunei, Japan, Malaysia, New Zealand and Singapore) are also members of the CPTPP. This raises the intriguing possibility that these two platforms could one day be combined in a broader, aspirational Free Trade Area of the Asia Pacific, the FTAAP (although without the participation of the United States an FTAAP would lose much of its raison d’etre, inclusiveness).

A recent study undertaken by American professors Peter Petri and Michael Plummer has argued that the CPTPP and RCEP combined could offset the global trade losses of US$301 billion to 2030 caused by the U.S.-China trade war. Adding additional members to the CPTPP increases the gains -- which jump substantially if China also joins. Petri and Plummer note that: “The RCEP and CPTPP offer hope in a dangerously divided world. They partly offset the damage of the US-China conflict, encourage cooperation in the Asia-Pacific, and suggest viable directions for the world trading system.” It is interesting that their calculations don’t even include the U.S. as a participant.

Whether or not the Biden Administration will consider joining the CPTPP remains to be seen. The new Administration will be preoccupied with domestic economic and health issues for some time, although it has indicated that it is interested in working more closely on both economic and political challenges with like-minded countries. China certainly doesn’t fall into this category, yet it is likely that the unpredictable nature of the U.S.-China trade war will be mitigated somewhat, paving the way to greater dialogue and potentially a step-back from reciprocal imposition of punitive tariffs.

If China is serious about joining the CPTPP eventually it would have to undertake a number of domestic economic reforms (such as changes to the role of state-owned enterprises in the Chinese economy) which at this point seems unlikely. However, China is clearly keeping its options open by expressing interest in joining the CPTPP at some undefined point in the future. In the meantime, it has taken a leadership role in the new RCEP, along with ASEAN, in the process becoming, for the first time, part of a regional trade agreement that includes China, Korea and Japan.

Japan has indicated that it favours CPTPP expansion, and as this year’s chair it has the opportunity to kick-start the process. Neither the U.S. nor China are likely to be candidates for the next phase of expansion, but neither has excluded the possibility for the future. The CPTPP offers the option of a high-standard framework agreement that advances trade liberalization and imposes disciplines on trade-distorting practices (in contrast to the lower ambition RCEP), and it is important that the CPTPP maintains its relevance by expanding its membership to include regional economies that are ready and willing to accept its conditions (and enjoy its benefits). Careful expansion now will open the door to the CPTPP, alone or in combination with the RCEP, to becoming a possible bridge between China and the United States, avoiding economic decoupling, technological rupture, and damaging retaliatory measures between the world’s two leading economic powers. 

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