An assessment on China’s intentions to join the CPTPP

China’s decision to join the CPTPP was pre-planned. Since it coincided with the announcement of AUKUS it became strategic as well. China has much to gain both economically, politically, and domestically by joining the CPTPP. China has chosen an appropriate time to join the format as currently the 20 group of obligations under the CPTPP are suspended.

This suspension is stopping the format to become a FTA 2.0, which China does not find suitable for itself due to its own track record such as of giving subsidies to State-owned enterprises and intellectual property rights. If China joins at this juncture, it will be able to stall these 20 groups of obligations and mould the format to make it a RCEP kind of a regional FTA. Through this format, China will also try and readjust regional supply chains in its favour. China’s entry in the format will, however, not be smooth. Japan, Australia, New Zealand, and Canada may create hurdles for China.

Domestically, becoming a member of the CPTPP could bring China $298 billion in national income by 2030, as well as a $638 billion increase in exports and a similar increase in imports. The application for accession helps affirm the foreign economic policy pursued by Xi Jinping and soothes domestic public opinion about China being besieged by the US due to its tough policies.

Though official statements regarding China’s intentions to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and setting up of the Australia – UK – US trilateral relationship (AUKUS) were made the same day, China’s act is assessed to be a well prepared decision rather than an immediate response. It may be recalled that in May 2020, Chinese Premier Li Keqiang had publicly confirmed China’s interest in the CPTPP when he said in an interview that “China has a positive and open attitude towards the CPTPP.” On November 19, 2020, just a week after the conclusion of negotiations for the Regional Comprehensive Economic Partnership (RCEP), Chinese President Xi Jinping had also commented that this is the right “strategic time” to actively consider joining the CPTPP in view of US’ return to the region. However, the official announcement of this information on the same day as AUKUS also represents political messages aimed at breaking China’s siege against moves to tighten traditional security ties between the US and its allies.

China’s accession to the CPTPP will affect the rules of the global trade game. With reforms to the WTO still stalled, countries have sought an alternative by promoting bilateral or regional Free Trade Agreements (FTAs). Many of these are high-quality FTAs, known as FTAs 2.0 because they address issues “beyond tariffs”. These FTAs no longer focus much on tax reduction, but prioritize issues on institutions, intellectual property, public sector transparency, government procurement, labor and the environment. CPTPP is one of such 2.0 generation FTAs. For China, FTAs of this kind will obviously be detrimental to the country’s trade policy as subsidies, government procurement policies favor domestic enterprises or state-owned enterprises and intellectual property infringement issues are still prominent. Therefore, after bringing many members of the CPTPP into an old-fashioned game called RCEP – with almost no advantages of FTA 2.0 – taking advantage of joining when the CPTPP is still delayed with 20 group of obligations, is a way for China to (perhaps) prevent the implementation or change the way these contents are implemented, bringing it back to the form of a normal FTA.

Second, in terms of timing, this is a golden opportunity for China to join the CPTPP. What has happened with RCEP or bilateral FTAs between China and other countries shows that the biggest obstacle for China to join an FTA 2.0 is that the country cannot give up support for domestic enterprises as well as it is unwilling to comply with higher requirements for intellectual property, environmental protection or unions. But when the CPTPP postponed the implementation of 20 groups of obligations, China saw its opportunity. The 20 groups of suspended obligations of the CPTPP, cover everything that makes the 2.0 nature of this FTA. The groups of deferred obligations include 11 obligations related to the Intellectual Property chapter, 2 obligations related to the Government Procurement chapter and the remaining 7 obligations related to 7 chapters namely Customs Administration and Trade Facilitation, Investment, Cross-Border Trade in Services, Financial Services, Telecommunications, Environment, Transparency and Anti-Corruption. In other words, without implementing these 20 groups of obligations, China has nothing to worry about or change much to join.

Third, becoming a member of the CPTPP helps China to further complete its list of FTAs. Of the 11 member countries of the CPTPP, China currently has a bilateral and/or regional FTA (through ASEAN and/or RCEP) with 9 countries, leaving only Canada and Mexico. Canada is a country being included in China’s “under study” FTA group. Therefore, if China joins the CPTPP, China will be able to expand its export influence to Canada – an important gateway for round- trip exports to the US.

 Fourth, China has the opportunity to expand its export scale to North America. The emergence of FTAs with wide coverage such as RCEP and CPTPP has created great advantages for Chinese enterprises in terms of origin of goods. Although the regulations on origin of goods for many types of exports of the CPTPP are very strict, for example, textiles and garments have regulations on certification of origin from fibers, but this is a great advantage for China due to its supply chain. With a tax rate of 12-16% for textiles and garments, if China joined the CPTPP, the gate to increase exports to Canada will be very favorable for Chinese textile and garment enterprises.

Fifth, becoming a member of the CPTPP can reshape the regional supply chain in China’s favor. The US-China trade war, China’s drastic foreign policy changes and increasingly harsh domestic policies have created a wave of factory relocation from China. This is a threat to China’s position in global manufacturing. Thus, in July 2021, China’s Ministry of Commerce published a new development plan (for the 14th five-year period) which emphasized tightening supply chain ties with neighboring countries and reshape regional supply chains in favor of China. Joining the CPTPP will help China reshape the supply chain at least in the Asia-Pacific region.

 Sixth, joining the CPTPP will help China consolidate its leading diplomatic advantage in the Asia-Pacific region. The tightening of economic ties with countries in the region is perhaps more evident than any Chinese policy in using economic influence and trade to create cohesion that increasingly makes countries in the region. The region must consider or pay a big price if it goes against Beijing’s core interests. Among 16 FTAs already in effect and 8 FTAs under negotiation, Asia – Pacific is the only place where China has a regional FTA, including ASEAN – China (ACFTA), ASEAN – Hong Kong (AHKFTA) and RCEP. If China is able to join the CPTPP successfully, this number will be 4/25 regional FTA.

This coherence of trade and investment is clearly a core diplomatic advantage – helping to firmly shape China’s soft power in the region despite conflicts of political and diplomatic interests. Becoming a member of the CPTPP naturally helps China maintain its image as a free-trader promoter, strengthens its leading diplomatic advantage in the region, and prevents the United States from rallying forces to eliminate or contain Chinese rule in the new rules of the game. Finally, but not all, China has vowed to change the way it opens up – attracting foreign business more than pursuing mercantilism. However, building its image and influence as a global nation pursuing and advocating economic multilateralism remains an attractive diplomatic goal to which China’s leaders will remain steadfast.

Domestically, becoming a member of the CPTPP could bring China $298 billion in national income by 2030, as well as a $638 billion increase in export and a similar increase in imports. The application for accession helps affirm the foreign economic policy pursued by Xi Jinping and soothes domestic public opinion about China being besieged by the US due to its tough policies. Some experts believe that the pressure to accelerate domestic reform programs is also the driving force for China to join an agreement “beyond tariffs” like the CPTPP.

Obstacles when negotiating with China lie not only in the content but also in the way China fulfills its commitments after reaching an agreement. The WTO is an example of how difficult it is to force China to fulfill its commitments related to trade and investment. Most recently, in the Comprehensive Agreement on Investment (CAI) between the EU and China signed at the end of 2020, some points on investment transparency and openness were accepted by China. But these commitments are far from matching the high standards in CPTTP.

From the side of official members, Australia, Canada and Mexico can all be barriers to varying degrees for China to gain enough votes to join the CPTPP. In the rules for considering acceding external states, there is a requirement that the country be consulted bilaterally if one of the seven “full” members (Australia, Canada, Japan, Mexico, Singapore, New Zealand and Vietnam) disagrees. Of these seven countries, Japan, Australia, New Zealand, and Canada have close relations with the United States. Australia may not be in favour of China due to strained relations and also its recent entry in the AUKUS initiative. In addition, another barrier for China is Canada and Mexico as these two countries may also be pressured by the US to refuse China’s participation based on the terms of the new United States Mexico Canada Agreement (USMCA) signed in 2018 and effective from July 1, 2020, that stipulates that no USMCA member country can enter into trade with “non- market” economies – and China is still not recognized as a market economy by the US.