Maintaining High-Level Rules Should Be the Basis for Allowing Chinese Accession to the CPTPP

KAWASE Tsuyoshi
Faculty Fellow, RIETI

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which went into effect in 2018, appeared to be starting to expand steadily when approval was given for the start of accession negotiations with the United Kingdom at a CPTPP Commission meeting in June 2021. However, uncertainty is growing as first China and then Taiwan formally applied for accession, now followed by Ecuador, and likely Korea within the next couple of months or so.

Prospects for accession negotiations with China and Taiwan are precarious amid a flurry of sophisticated and complicated diplomatic maneuvers over the "One China" concept. However, as reaffirmed by the CPTPP Commission with respect to the start of accession negotiations with the United Kingdom, the CPTPP as the embodiment of a set of "high-standard rules for the 21st century" should not be undermined. As indicated by the benchmarks set under the accession procedures, which are shown in the figure below, accession applicant economies must clarify how they will comply with all CPTPP rules and commit themselves to the highest level of market access.

Flow of the CPTPP accession procedure

Going forward, maintaining the "high-standard rules for the 21st century" should be Japan's basic stance in accession negotiations with China and Taiwan.

The ruling Liberal Democratic Party's manifesto for the recent House of Representatives elections expressed a welcome for accession by Taiwan but indicated reluctance to accept Chinese accession by referring to digital protectionism and forced labor while avoiding mentioning China's name. This stance of viewing the exclusion of China as a foregone conclusion is meaningless.

Both the CPTPP and the Regional Comprehensive Economic Partnership (RCEP) are milestones on the way toward the Free Trade Area of the Asia Pacific (FTAAP) and both China and Taiwan are expected to join FTAAP. If the FTAAP is to be realized as a high-level agreement, bringing China into the CPTPP will become inevitable in due course. Concerns over China should be dispelled by ensuring that the country fully meets the conditions for accession to the CPTPP. To that end, Japan should deal with China with the negotiating stance that I proposed earlier.

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Looking at China's accession from a rules-based perspective, a significant number of obstacles stand in the way of China ensuring compliance with the CPTPP chapters on state-owned enterprises, e-commerce and labor. Regarding government procurement as well, China faces a high hurdle as it has had no record of opening its market to the outside world under the frameworks of the World Trade Organization (WTO) and RCEP.

In commentaries sympathetic to China, optimism has been expressed about the country's chance of winning accession to the CPTPP by taking advantage of various exception provisions. However, if China has to heavily depend on exception provisions, it will fail to meet the abovementioned benchmarks for accession and will be unable to obtain all member countries' consent to starting the accession procedures.

Moreover, if it is assumed that China will maintain its socialist market economy system, it is necessary to require the country to commit itself to doing more than just complying with the terms of the CPTPP ("TPP Plus"). For example, regarding the chapter on state-owned enterprises, China should commit itself to restricting interventions in management affairs by the Communist Party organizations within enterprises and to preventing local government-affiliated enterprises and government-affiliated investment funds from engaging in competition-distorting practices. Regarding the chapter on e-commerce, China should be required to restrict mandatory government access to private-sector data and to clarify its own concept of national security (the Comprehensive National Security), which impedes the free flow of data.

As a result of my research with Professors Mariko Watanabe (Gakushuin University), Tomoki Kamo (Keio University) and Fujio Kawashima (Kobe University) at the Research Institute of Economy, Trade and Industry (RIETI), we arrived at the understanding that China's application for accession is part of efforts to acquire an "institutionally embedded discourse power" (power to make others accept one's own arguments) in order to develop an international order that is in line with Chinese demands, and is in fact intended to rewrite the CPTPP, which forms the core of the economic order of the Asia-Pacific region. This strategy should not be tolerated if it undermines the rules of the CPTPP, which aims for high-level liberalization, by attempting to make trade-distorting policy measures accepted.

On the other hand, in Taiwan's case, the WTO's trade policy review report has pointed out the Taiwanese restrictions on market access for agricultural products and control of foreign capital, but the challenges facing Taiwanese accession are relatively few. A smooth accession is expected in light of the Taiwanese authorities' disclosure of the development status of promotion of the legislation that are necessary for accession to the CPTPP, and Taiwan's conclusion of relatively high-level free trade agreements with Singapore and New Zealand, both of which are CPTPP members.

Even so, regarding market access, the restrictions on imports of some Japanese foods that have continued since the nuclear accident in Fukushima pose a problem. Under the CPTPP, food safety measures are required to conform to the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) and must be based on international standards and scientific evidence. Taiwan should indicate as early as possible when it will be able to secure the conformity of its food safety measures with the agreement. In this regard, it is a very positive development that Taiwan voters rejected a proposed ban on imports of pork from swine fed with growth hormones (ractopamine) as the results of a referendum on December 18, 2021, which could create the impetus to repeal the import ban against Japanese products.

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In accession negotiations with China and Taiwan, Japan's leadership will be put to a serious test. When Japan played the leading role in the conclusion of the CPTPP, the Japanese leadership was backed by the tacit consent of the United States. There were also expectations at that time that the United States would return to the CPTPP several years later, after the Trump administration left office.

However, at present, there is little incentive for the United States to return to the CPTPP. The Biden administration attaches importance to workers' interests and gives precedence to strengthening domestic industries' competitiveness. Furthermore, the United States has already concluded trade agreements favorable to its own interests, including the Japan-U.S. Trade Agreement and the United States-Mexico-Canada Agreement (USMCA). The United States can also engage with the Asia-Pacific region through planned digital agreements which came to attention this past summer; through AUKUS, which is a security framework between the United States, the United Kingdom and Australia; and the QUAD security framework between Japan, the United States, Australia, and India. In fact, Commerce Secretary Gina Raimondo, during her official visit to Japan, in mid-November 2021, announced her plan for the Indo-Pacific economic framework of this kind, while indicating the U.S. reluctance to rejoin CPTPP.

In the future, Japan should lead the establishment of governance under the CPTPP in the medium to long term, based on the assumption that the United States will stay out of this partnership. It is necessary to continue to call for the United States to return to the CPTPP. However, we cannot depend on the United States, whose return to the CPTPP is uncertain, in view of the pressure that is likely to come from China in terms of relaxing of rules or easing regulatory stipulations during the accession procedure, which is expected to become prolonged, and the need to ensure Chinese compliance with the rules if Chinese accession becomes a reality. The most urgent task is to develop a system that enables the CPTPP to autonomously maintain and enforce " high-standard rules for the 21st century."

To that end, the first thing to do is to immediately and then steadily proceed with the accession procedure for the United Kingdom. In the short term, if the United Kingdom is made to accept high-level accession terms without compromise on the part of the CPTPP, and if the details of the accession procedures, which have yet to be decided, are fixed, that will set a good precedent for accession negotiations with China and Taiwan. After the United Kingdom accedes to the partnership, in order to deal with China within the CPTPP in the absence of the United States, Japan should develop a close and robust partnership with the United Kingdom, and cooperate with Canada and Australia as well, all of which share values that place emphasis on rules.

Second, even if the United States does not return to the CPTPP, it is important to cooperate with it with respect to Chinese and Taiwanese accession. U.S. Trade Representative Katherine Tai, in a meeting with Chinese Vice-Premier Liu He in October, made clear the U.S. stance of opposing industrial subsidies and market-distorting practices by state-owned enterprises. The U.S. pressure for reform regarding Chinese market interventions is consistent with the CPTPP's demands regarding Chinese accession.

On the other hand, negotiations based on the U.S.-Taiwan Trade and Investment Framework Agreement (TIFA), which were resumed after a five-year hiatus, are a stepping-stone to a future U.S.-Taiwan FTA and provide an opportunity for Taiwan to prepare for CPTPP-level liberalization.

Third, the CPTPP should promptly enhance its own multilateral compliance surveillance system. At the time of the conclusion of the TPP12, the predecessor to the CPTPP in which the United States was participating, it was expected that U.S. surveillance and pressure would de facto ensure compliance by signatory countries. However, if the United States remains absent from the CPTPP, it is necessary to consider enhancing the dispute settlement procedures and the multilateral surveillance system and setting up a secretariat.

Finally, the CPTPP should explore linkage and collaboration with the European Union (EU). The EU's Indo-Pacific strategy, which was revealed in September, made clear the EU's stance of strengthening collaboration with Taiwan as well as with Japan, the United States and Australia, and its wariness about China. In this context, linkage and collaboration with the EU will provide strong support for maintaining the CPTPP as a high-level trade partnership. In this regard, it is notable that ex-EU Former EU Commissioner for Trade Cecilia Malmström floated the idea of EU's accession to the CPTPP in January 2022.

*Additional details were added to this translation of the article, in January 2022.

>> Original text in Japanese

* Translated by RIETI.

November 4, 2021 Nihon Keizai Shimbun

January 13, 2022