China wants to join CPTPP, but don’t expect a quick pass
On September 16, China formally applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade agreement. It wasn’t surprising news, but it was big news nonetheless. The CPTPP is the survivor of the US exit from the original Trans-Pacific Partnership (TPP) at the behest of former US President Donald Trump. The reconfigured trade grouping retained ambitious targets of tariff elimination and high standards of trade and investment liberalization. From its inception, the TPP project planned to welcome new members both to increase its economic weight and disseminate quality rules for economic integration. Acceptance of existing disciplines of the CPTPP is required from all potential members.
China has been sending signals of interest in joining the trade deal for some time, and at the last Asia-Pacific Economic Cooperation Summit meeting, Chinese President Xi Jinping announced that China “favorably consider joining»CPTPP. The official application for membership is a masterstroke for Chinese diplomacy, even if the expected result of membership is far from assured.
Membership of the CPTPP would consolidate the momentum of China’s economic integration, building on its membership of the Comprehensive Regional Economic Partnership (RCEP) trade agreement; its state-sponsored “Belt and Road” initiative; and the Chinese-led Asian Infrastructure Investment Bank. The CPTPP would be a particularly valuable feather in China’s hat as a champion of economic globalization. This would reverse the lingering discourse of economic decoupling, as China would appear more integrated into the global economy with an ambitious trade deal under its belt, while the United States looks out, marginalized from the CPTPP of its own accord.
Some observers are satisfied with the prospects for China’s membership in the CPTPP. They Argue that China is closer to CPTPP standards than is usually recognized, that the flexibilities built into the text of the agreement will allow China to join even in areas where domestic reform is difficult, and that current CPTPP members have a strong interest to deepen trade and investment relations with an economic giant like China.
Such optimism can be misplaced, however. There is a significant gap between the core CPTPP standards and China’s existing commitments in other trade agreements. The CPTPP has chapters on labor and state-owned enterprises that prescribe freedom of association, eliminate all forms of forced labor, and establish disciplines on the business activities of state-owned enterprises; RCEP does not. Both CPTPP and RCEP contain a chapter on electronic commerce, but the commitments made are very different. It is not only that the digital layouts of CPTPP go further (for example, prohibit forced disclosure of source code), but that they are subject to dispute resolution between the parties and do not invoke self-assessed national security exemptions.
To assess China’s willingness to abide by CPTPP rules, the direction of travel is important. Under Xi, China moved further away from the CPTPP’s spirit of protecting labor rights, a level playing field for private companies, and free flow of data. Instead, China’s crackdown on Uyghurs, heavy subsidies given to the high-tech industry, and its more stringent data localization requirements under the new data security law have been a source of concern to its trading partners, including many CPTPP members. Scale must be taken into account. Vietnam, a founding member of the CPTPP with a strong state presence in the economy, has received several exemptions for its state-owned enterprises (SOEs). However, China’s gigantic size is sure to make many CPTPP members reluctant to extend similar flexibilities. In fact, countries like Japan have collaborated with others to tighten the rules of the World Trade Organization (WTO) on subsidies thinking of China. An easy waiver for several Chinese state-owned enterprises seems unlikely.
It should be noted that 2021 is not 2001. If China was ready to adopt sweeping economic reforms as it did to win WTO membership, membership in CPTPP could be a a catalyst for positive change for both China and its relations with its trading partners. In the absence of such a strategic orientation towards greater openness of the economy, a successful Chinese CPTPP offer negotiated through broad exemptions could instead lead to a weakening of the standards of the agreement. Many parties in the CPTPP are unlikely to be inclined to weaken the rules they have fought hard for, especially since in the RCEP they already have an alternative business platform to harvest. the benefits of greater economic exchange with China (six countries are currently members of both agreements). Transforming the CPTPP into a slightly stricter version of the RCEP would be economic and strategic malpractice.
Politics will also weigh heavily in the end result. Membership in the CPTPP must pass a very high bar: the unanimous consent of all active members. Eight countries have ratified the CPTPP (three signatories have yet to do so) and it will be up to them to determine whether China’s accession negotiations receive the green light. Among them, Canada, Australia, and Japan have recently experienced significant tensions in their relations with China, respectively due to the arbitrary detention of its nationals, quarrels over the origins of the COVID-19 pandemic and Chinese intrusions into the waters of the Senkaku Islands administered by the Japan. Membership policy is not starting with a clean slate; they will be influenced by the current economic coercion of China and by the priority given to economic security – with China in mind – by several members of the CPTTP.
The membership talks will also be influenced by Taiwan’s decision to follow in China’s footsteps and formally request entry in the CPTPP. The gap to be bridged to meet CPTPP standards is much narrower for Taiwan, and its semiconductor prowess argues for membership to strengthen supply chains. But in this era of great power competition, the WTO membership model (with the entry of China and Taiwan choreographed in sequence) is unlikely to hold up. Geopolitics has descended full force in the CPTPP.
China’s confidence in seeking CPTPP membership, despite questions about its commitment to far-reaching reform and recent tensions with prominent members of the trade group, speaks volumes about America’s marginalization. Indeed, it will be up to the small and medium powers of the CPTPP to uphold the trade and investment standards that the United States deeply cares about as it welcomes China’s membership application. This is where China’s diplomatic maneuver is most poignant: the United States has become the shadow of the center of action for regional economic integration.
When joining a mega trade deal, you have to consider both the fine print and the subtext. In other words, the nature of trade and investment obligations and the climate for political and diplomatic relations weigh heavily. Neither is signaling a quick pass for China to enter the CPTPP. But that doesn’t mean that China made a mistake in taking this step.