A Trade Pact Faces a Crucial Test as China and Taiwan Try to Join



Wendy Cutler | Barron's

The year 2022 is shaping up to be consequential for the members of one of the world’s most recent and most consequential trade pacts. Japan, Australia, Mexico, and others will need to make decisions on whether to lay out the welcome mat for China and Taiwan by starting accession negotiations for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP.    

The U.S. decision to withdraw from the original version of the deal, the TPP, in 2017 left the remaining members with post-traumatic stress. But 11 countries rallied and moved on without Washington, which is without a formal role as a crucial accession process moves forward. As in most other multi-country trade agreements, CPTPP decisions on whether new members can join are taken by consensus of existing members that have brought the agreement into force.  In essence, any individual member of the agreement can block the will of the others. Ideally, it never gets to that point as the parties work to find common ground.  

To date, CPTPP countries have worked well together. They finalized a high-standard agreement that looked moribund after the U.S. departure, agreed on detailed accession procedures for new candidates in 2019, and initiated formal negotiations for the United Kingdom to join the agreement earlier this year.

This unity will be tested by China’s Sept. 16 application to join the CPTPP, followed by Taiwan’s request six days later. The political and economic stakes and pressures on CPTPP members are high. Beijing has been quick to pressure individual members to accept its application and reject Taiwan’s request. A government spokesperson at China’s Taiwan Affairs Office couldn’t have been clearer when stating, “We oppose the Taiwan region participating in any trade agreements of an official nature or signing any trade agreements of an official nature.” Taiwan in fact already has concluded free trade agreements with two CPTPP members—Singapore and New Zealand—and is a member of both the World Trade Organization and the Asia-Pacific Economic Cooperation forum.

There are two basic schools of thought emerging among the CPTPP parties on China’s application: the “advocates” and the “skeptics.” The advocates, which include Singapore and Malaysia, are positive about China’s potential accession to the CPTPP.  They believe that welcoming China into CPTPP,  like China’s accession to the World Trade Organization 20 years ago, will spur further reforms and market opening in China, with external pressure forcing  tough domestic decisions. In their view, Chinese accession would give a boost to the so-called reformers in China who recognize that the long-term health of the Chinese economy hinges on structural reforms and market opening. The advocates also see Beijing’s embrace of the CPTPP rules as an opportunity to de-escalate trade tensions between the United States and China, which have had serious spill-over effects in the region. Finally, they recognize that their economic fates are largely tied to China as the soon-to-be largest economy in the world. They welcome the new market-access opportunities, as well as the transparency, predictability, and WTO-plus disciplines that go hand-in-hand with CPTPP accession.  

The skeptics, which include Japan and Australia, are far from convinced that Beijing is ready to meet the high standards embodied in the CPTPP. They point to the sizable gaps between the CPTPP rules and China’s current economic regime in such areas as the behavior of state-owned enterprises, restrictions on the use and storage of data, worker rights, and environmental protection, and economic coercion over geopolitical tensions, among others. Moreover, they get little comfort from the direction the Chinese economy is headed—toward more state intervention and a tighter control of  the private sector, which raises serious questions about  whether China would adhere to CPTPP norms. In their view, the China the world negotiated with during its accession to the WTO is very different from today’s China, where reformers are dwindling  and those remaining are reluctant to speak up in fear of backlash from the authorities. Moreover, the skeptics are wary that even if China were to put in place laws, regulations, decrees, and ordinances that appeared on paper to be aligned with CPTPP rules, Beijing would find ways to circumvent or even blatantly ignore its obligations as it sees fit. 

While these differing perspectives present challenges for CPTPP members, they don’t necessarily mean that a showdown is imminent. The likeliest and probably wisest near-term course of action would be to shift the burden to Beijing and Taipei to demonstrate that they are indeed ready to adhere to CPTPP “gold-standard” trade rules and ambitious market-access commitments, before taking any decisions.   

There is precedent. Before the United States supported Japan’s participation in the original TPP negotiations, Washington asked Tokyo to demonstrate its commitment to further open its economy, particularly with respect to its agriculture and automotive markets. This process took close to two years, but it was time well spent. Once Japan joined the talks, there was little doubt among TPP members that Tokyo had the political will and had done the necessary homework to allow it to fully embrace and  implement the agreement.  

Until CPTPP members are all fully convinced that China and Taiwan are in a similar position, they are best served by waiting before taking the next step of establishing accession working groups. In the meantime, they should focus on U.K. accession negotiations, which commenced in June.   Through this process  CPTPP members will gain valuable experience on the most effective ways to expand membership that can then be applied  to future candidates. 

Unfortunately, the United States, notwithstanding its stated commitment to provide leadership in the Indo-Pacific, is noticeably absent from a conversation that may profoundly change the regional trade landscape. The United States forfeited its seat at the table by withdrawing from the original TPP. The current CPTPP members are more than ready to dust off the U.S. seat should Washington consider rejoining the pact. But as membership expands—especially if China joins, giving it a veto on U.S. membership—that will no longer be a safe bet.  The U.S. withdrawal from the TPP is a gift for China that keeps on giving.

Wendy Cutler is the vice president of the Asia Society Policy Institute and a former acting deputy U.S. Trade Representative.

To read the full commentary from Barron’s, please click here.