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Economy

China’s CPTPP Challenge

Dec 15, 2020
  • Wu Zhenglong

    Senior Research Fellow, China Foundation for Int'l Studies

Chinese President Xi Jinping announced at the 27th APEC Leaders’ Meeting that China would look with favor on joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, another major decision after the signing of the RCEP — the Regional Comprehensive Economic Partnership — with the aim of entering into high-standard free trade agreements with more countries.

But what are the messages behind the announcement?

The CPTPP has evolved from the TPP, which was spearheaded by the United States under the Democratic administration of President Barack Obama. It was promoted as a free trade agreement for the 21st century that provided whole-cycle rules and boasted high standards that were deemed beyond China’s grasp. The TPP was also integral to the U.S. “pivot to Asia” strategy, which aimed to contain China.

The subsequent president, Donald Trump, a Republican, lashed out against the TPP, saying that it risked hollowing out U.S. manufacturing and would lead to a loss of domestic jobs. Trump didn’t lose a minute after taking office, immediately withdrawing from the agreement. Because of partisan political pressure, Democrats who once supported the TPP stood out openly against it. Japan took the reins and led the remaining 11 countries to press ahead with negotiations, reaching an agreement under the modified name of CPTPP after removing 22 high standards on intellectual property rights and dispute settlement that the U.S. had previously backed.

Compared with the RCEP, the CPTPP has higher standards, a higher degree of openness and is less anti-China in substance and style. While the RCEP has 20 chapters, the CPTPP has 30, encompassing the substance of the RCEP and beyond, including provisions on transparency, anti-corruption, state-owned enterprises, development, cooperation, capacity building, labor and environmental protection.  

With its endorsement of the CPTPP, China has sent several messages.

First, it recognizes and accepts the standards of the agreement and stands ready to put them into action to better integrate into the global economic system. China has made this decision at a time when it has made great strides in IPR protection, environmental protection and SOE governance, among other things. Hence, the CPTPP standards are not insurmountable for China.

Second, China is committed to pressing ahead with its opening-up. Joining the CPTPP will help China elevate opening-up to a higher level in all aspects, including through continued trade and investment liberalization and facilitation and fostering and enabling a business environment that is based on market principles, governed by law and up to international standards. It will make new breakthroughs as it opens up.

Third, China is committed to reform — to removing deep-rooted institutional and structural barriers, strengthening IPR protection, deepening SOE reforms, improving institutional competition and building an open economy featuring new higher-level institutions. 

Fourth, China will bring clear benefits to CPTPP members. Currently, the CPTPP has only a limited impact on global trade and investment, as its members represent 13.5 percent of global GDP. Japanese Prime Minister Yoshihide Suga said at the 27th APEC Economic Leaders’ Meeting that Japan expected steady expansion of the CPTPP. China, a major economy, can amplify the effect of trade agreement and help grow the global pie. With its accession, China will bring twice as many benefits to CPTPP members as it receives, while making significant contributions to world economic growth.

Fifth, with its joining the CPTPP, China can contribute much to the reform of global trade governance. The World Trade Organization, established in January 1995, and the GATT, established in October 1947, are both about the rules of cross-border trade. But deepening economic integration and the advent of new technologies and business models, which increase trade transactions, mean that rules are also needed inside national boundaries. Global economic and trade governance must be shaken up to address this weak link, and reform is warranted. CPTPP membership will facilitate China’s participation in such reforms, helping to make the system more fair and equitable.

While the CPTPP has left room for the U.S. to return to its ranks, this remains a politically sensitive topic. Neither the incoming Democratic administration or the outgoing Republican one will likely join the CPTPP. It is an good moment for China to reveal its intentions. It’s affirmative response promptly answers Japan’s call to expand the CPTPP.

There should be no illusion that only smooth sailing would follow China’s joining the agreement. China needs to secure the consent of the all existing members to officially begin negotiations. It then needs to hold market access negotiations with individual members and make tariff arrangements agreeable to both parties.  

The biggest constraint for China now lies not so much in high standards as in geopolitical calculus. There is no denying the gap between Chinese and CPTPP standards, but China is confident that it will rise up to CPTPP standards through reform at home — though the U.S. and others may attempt to derail China’s accession along the way by invoking the “poison pill” clause of the U.S.-Mexico-Canada (USMCA) agreement in North America.

On a more positive note, U.S. allies Japan, Australia and New Zealand have joined the RCEP with China; and China has signed bilateral or multilateral free trade agreements with eight CPTPP countries, including those three. In this light, the U.S. and its allies, in their own national interest, may find insufficient reason to exclude China from the CPTPP, as including it will only promote economic and trade development in the Asia-Pacific region and build a more fair and equitable system of global trade.   

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