Can China join CPTPP?

The Chinese Premier expresses interest in China joining CPTPP.  This should be encouraged.

“China has a positive and open attitude about joining CPTPP”.  These words of Chinese Premier Li Keqiang at the conclusion of the recent National People’s Congress mark the first time the Chinese leadership has expressed possible interest in joining the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP).  

Another Chinese dream?

Some commentators have already dismissed the Premier’s words as impractical, but such thoughts are certainly not new amongst Chinese, academics and business people.  I myself have had many discussions in China about the merits of CPTPP, particularly in the context of ongoing reform and “opening up” of the Chinese economy.  

From the very beginning CPTPP (and its predecessor TPP) was designed by New Zealand and its “P4” partners, Singapore, Chile and Brunei, as a precursor or “pathway” to a wider agreement that would one day encompass all 21 APEC economies, including both China and the United States.  TPP’s promise as an ambitious, comprehensive and high quality agreement able to encompass the whole region rose in significance when the United States decided to join in 2008. 

The value proposition for the deal was in setting ambitious region-wide standards for trade, encompassing not just tariff cuts but also ‘next generation’ issues such as rules around cutting red tape, helping small businesses to succeed in trade, the digital economy and data flows, innovation and intellectual property protection, the movement of skilled workers and capital, binding rules to protect the environment and promote working conditions – the list goes on, but in short, the hope was for a mechanism to raise living standards, create jobs and deliver more sustainable growth across the region.

The agreement was concluded amongst twelve economies in 2016 but hopes were  dashed in 2017 when the Trump Administration pulled the plug and left.  But a “fellowship of the Ring” pressed on and CPTPP was born, amongst eleven economies, in March 2018.  To date CPTPP has been ratified by seven economies.  Trade between New Zealand and Japan (where we did not previously have an FTA) has boomed as a result.

What’s China got to do with it?

CPTPP has been designed as an outward looking agreement, open to any economy in the Asia Pacific region (and potentially beyond) able to meet its high standards. 

The CPTPP membership has developed an accession process that sets out the steps to be followed with regard to aspirant economies.  

In theory then, China is at liberty to initiate this process but there is little point in doing so unless it is confident that its application will not be rejected.  That depends largely on the extent to which Chinese policies can meet CPTPP standards and whether a market access agreement can be concluded with each of CPTPP’s members.  On the latter, China already has FTAs with New Zealand, Australia, Chile and Singapore as well as with ASEAN, which may make things easier.  On the question of standards, China is likely face challenges in the areas of state-owned enterprises, labour and data flows, to name just a few key areas.    The negotiation of China’s future accession into CPTPP will not be straightforward, and may take time, but with the right political will may not be impossible.

What’s in it for everyone else? 

China’s accession would further increase CPTPP’s standing as a regional agreement and would certainly encourage other ratifications and accessions.  So far CPTPP’s expansion has been slow and not even all the original signatories have completed the ratification process.  Amongst possible new members, Thailand has been exploring accession for quite some time now, but potential applications from others like Korea, the Philippines and Colombia have not materialised.  The UK has said it is interested.  Chinese Taipei and Hong Kong China would be  ideal candidates: ironically the prospects of their candidatures could be increased if China were to join (recall that China and Chinese Taipei joined the World Trade Organisation at the same time).  There is little likelihood that the Trump Administration would find its way back to CPTPP, but future Administrations may be less doctrinaire about plurilateral agreements.  In any event, while US accession would be something to be welcomed, the region cannot afford to sit around why America makes up its mind.

Perhaps the biggest benefit for others is in the impetus that Chinese accession would give to structural reform in China itself.   If we really want to encourage this, CPTPP is possibly the best way to achieve it.  We already have a model in Viet Nam, which very deliberately used CPTPP to drive domestic regulatory and other reforms.  Constantly berating China about the management of their economy has been shown to be spectacularly unsuccessful in delivering the desired result.  CPTPP might yet show the Chinese leadership that reform is in their own best interests.

The strength of New Zealand’s economic relationship with China doesn’t depend on CPTPP: our FTA has already done its job and the recent upgrade will assist further.  But New Zealand like other economies has a fundamental interest in the extent to which the future development of the Chinese economy follows internationally accepted norms and standards.   Hopefully this is why the Premier has now expressed this “positive and open attitude” and this is exactly why it deserves to be encouraged.

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