Are latest announcements of intended memberships a shot in the arm for the Trans Pacific trade deal – or a spanner in the works?

Way back at turn of the century the idea of what was to become the Trans Pacific Partnership (TPP) was but a glint in the eye of New Zealand Ministers and trade officials.  It took twenty years to put in place this new trade fellowship, starting with New Zealand and Singapore (2001), then P4 with Brunei and Chile (2006) before TPP-12 (2016), and ultimately, after the United States departed the company, “the Comprehensive and Progressive Agreement for Trans Pacific Partnership” (2018).

Now three more economies are seeking to join – the United Kingdom, which takes the vision beyond the Asia Pacific; China, which significantly magnifies the Agreement’s economic punch; and Chinese Taipei, which qualifies for membership as a separate customs territory. Other economies, including Korea and Thailand, may well be in the wings.   This has clearly been a long term vision.  Despite one large and deeply regrettable reversal of fortune, the strategy appears to be working – that is, to build an ambitious,  high quality and comprehensive agreement as a pathway to a broader Free Trade Area of the Asia Pacific and as a spur to global trade liberalisation.

What’s behind China’s bid?

Much attention was focused last week on China’s sudden announcement of intention to join.  This was not completely unexpected – the Chinese leadership had signaled as early as June last year that it wanted to explore CPTPP – but the timing was exquisite, coming hard on the heels of a new security partnership announced by the US, UK and Australia.  Before beginning the accession process all eleven members need to assure themselves that China can meet the high CPTPP standards.  This includes not just the trade rules, but also the market access interests of the other members.  In New Zealand’s case our FTA already gives us very favourable market access to China. CPTPP is unlikely to give us more unless Chinese membership were to come before 2024, when the remaining dairy safeguard tariffs are due to be phased out.  But like other members, we have a strong interest in seeing China play by the rules and, as we said back in June 2020, CPTPP is a way of ensuring that China’s future economic development follows internationally agreed norms and standards.  

Political theatre, or something more?

Some commentators especially in the US have been quick to dismiss China’s bid as political theatre designed to frustrate the achievement of CPTPP’s goals.  It’s true that in relation to digital trade and data flows, state owned enterprises, intellectual property and labour, to name just a few areas, China will need to contemplate some serious reforms.  Doubtless the Chinese are thinking that they may be able to negotiate their way through this – if so, their position is not so different from the US which has said it “may” (one day…) seek to rejoin, but only if the rules can be changed (and it should be added if Congress grants a new Trade Promotion Authority).  It is hard to believe though that the Chinese have taken this step on the expectation that they won’t have to do anything at all.  Their bid is not risk-free.  They are putting their trade regime up for international scrutiny in a way they have not done since they joined the World Trade Organisation (WTO) – a rebuff would be a significant loss of face, for very little gain.  If on the other hand the Chinese leadership is serious about reforms in key areas, then CPTPP provides just what the world needs at this point – a way to engage with a rising China on matters of national interest where China has every reason to co-operate.

It’s true too that political differences could well overshadow China’s bid.  Australia and China are pitted against each other in a series of WTO disputes, but Australia could use the bid to seek direct discussions with China which have earlier been rebuffed.  Canada’s relationship with China is also frosty, but its significant economic interests may be assisted by a more positive engagement.  Then there is the ticking time bomb of USMCA Trade Agreement and the provision that seeks to restrict the ability of the US, Mexico and Canada to negotiate FTAs with non-market economies – this too will need to be tested.

Meanwhile in Taipei …

The bid by Chinese Taipei, announced days after that of China, also presents a challenge.   New Zealand like Singapore has a very successful FTA with the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, which should position Chinese Taipei well for CPTPP membership.  China has already indicated its strong disapproval, which may yet play out badly.  Possibly the process used to engineer Chinese Taipei’s membership of the WTO, whereby they joined immediately after China, could work with CPTPP, but for the time being at least the process requires applications to be handled on separate tracks.

Good things take time

CPTPP is unusual in that it has no permanent Secretariat.  While New Zealand serves as the depositary (a kind of mail-box) for the Agreement, the accession process is handled by the Chair of the Commission.  Japan currently holds this role and will be succeeded by Singapore at the end of the year (and New Zealand in 2023).  The UK application, being the first under procedures adopted in January 2019  is already taking up a lot of time and effort.  These further applications and the complex issues they will give rise to, are likely to weigh heavily on the system.

While it may seem like things never change much in trade, occasionally some big things happen.  This has been the history of TPP from the very beginning.  Last week was a big week for CPTPP and who knows, maybe for the future of trade in the Asia Pacific and beyond.

Note:  CPTPP Members are (* denotes yet to ratify):  Australia, Brunei*, Canada, Chile*, Japan, Malaysia* Mexico, New Zealand, Peru, Singapore and Viet Nam.

CPTPP accession procedures are outlined here and in a handy graphic produced by the Peterson Institute here.

This post was prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum.