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China said on Thursday (September 16) that it has formally applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), demonstrating the world’s second largest economy’s ambitions in international trade. However, some analysts believe that Beijing will face numerous obstacles, including the pain caused by the required domestic reforms.
The day before China announced the news, the United States had just announced the establishment of a new security alliance with Britain and Australia in the Indo-Pacific region to share advanced defense technology and intelligence.
The predecessor of the agreement was the Trans-Pacific Partnership Agreement (TPP). Former U.S. President Barack Obama pushed for the agreement to counterbalance China’s influence during his tenure, which has a high threshold for trade liberalization. But the successor, President Donald Trump, announced his withdrawal from the agreement in 2017.
The Ministry of Commerce of China said in a statement that the Minister of Commerce Wang Wentao submitted a written letter to Damien O’Connor, the Minister of Trade and Export Growth of New Zealand, applying to join the CPTPP. New Zealand is the depositary of this 11-nation agreement and is responsible for handling various administrative matters, such as requests for accession.
According to a press release on the website of the Ministry of Commerce of China, the ministers of China and New Zealand also held a conference call to communicate on the follow-up work related to China’s formal application for membership.
Why join?
Prior to this, China had been lobbying countries to include it in the agreement. Beijing emphasized that the economies of China and Australia have great potential for cooperation, even though the relationship between the two countries has deteriorated rapidly in recent years.
After the United States announced its withdrawal from the TPP in 2017, Japan led the reorganization of CPTPP negotiations. In 2018, 11 countries including Australia, Canada, Chile, Japan, Mexico and New Zealand signed the CPTPP in Santiago, Chile.
On the eve of the Biden administration, Chinese President Xi Jinping made his first statement in November last year that China will actively consider joining the CPTPP. In February this year, Vice Minister of Commerce Wang Shouwen stated that he had done “internal work” on the evaluation of CPTPP terms and had informal contacts with some member states.
In June of this year, Britain officially launched negotiations to join the CPTPP, and Thailand also expressed interest in joining the agreement.
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The predecessor of CPTPP is the “Trans-Pacific Partnership Agreement” (TPP). During the Obama era, the TPP built around the United States was promoted, and some of them were tailor-made for the United States. The entire agreement is also seen as a product of countering China’s economic rise.
Wendy Cutler, vice chairman of the Asia Society Policy Institute and former senior U.S. trade negotiator, told The Wall Street Journal: “This highlights that the United States and China are actively seeking partners to promote their Seek to join an existing alliance or create a new alliance.”
Joining the CPTPP will play a huge role in promoting China, especially since it signed another free trade agreement with 14 countries last year-the Regional Comprehensive Economic Partnership Agreement (RCEP).
The member states of RCEP cover the ten ASEAN countries, as well as South Korea, China, Japan, Australia and New Zealand. After the signing, it will surpass the EU Free Trade Area and become the world‘s largest free trade economic system.
Analysts believe that although the volume of CPTPP is not as large as RCEP, it has lower tariffs and higher trade freedom than the latter. It also covers American countries such as Canada and Peru, which can enhance China’s participation in dominating the Asia-Pacific region’s economy. The breadth and depth of cooperation. In addition, when the CPTPP takes effect and the member states start to implement zero tariffs, if China is excluded, it may directly affect the competitiveness of Chinese products in the Asia-Pacific market.
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Su Qingyi of the Chinese Academy of Social Sciences once analyzed in an economic review that under different scenarios, China’s participation in the CPTPP will drive GDP growth of 0.74% to 2.27% and export growth of 4.69% to 10.25%.
A study by Peter Petri and Michael Plummer, researchers at the Peterson Institute for International Economics in the United States, also showed that if China does not join the CPTPP, China’s total revenue will lose 10 billion U.S. dollars due to the CPTPP’s trade diversion effect, and joining will receive a gain of 298 billion U.S. dollars.
Gao Lingyun, a researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, told the official media “Global Times” that the application to join the CPTPP is a significant progress in China’s participation in the formulation of international economic and trade agreements, which will push China to “be in a better position when determining future trade rules. status”.
He also said that the agreement will also contribute to the current domestic efforts to deepen reform and opening up, especially in terms of deregulation on trade and investment.
Where is the difficulty?
However, analysts still have questions about whether China can finally join the CPTPP smoothly. As the world‘s highest standard free trade agreement, CPTPP has many rules and regulations on labor issues, environmental protection and dispute settlement, which means that Beijing must carry out domestic reforms to reach the threshold and carry out long negotiations.
According to the analysis of Nikkei, the CPTPP prohibits the provision of subsidies that harm competition to state-owned enterprises, but under the leadership of Xi Jinping, China has been strengthening its state-owned sector in recent years, so negotiations can be difficult from the beginning.
In addition, CPTPP has clear regulations for cross-border data transmission, requiring all parties to allow “cross-border information transmission through electronic means” for the purpose of conducting business, and prohibits the requirement of “data localization”. This is obviously to the left with China’s “Data Security Law” that took effect this month, which strictly restricts companies from taking data out of China.
CPTPP also called for an end to discrimination against domestic and foreign companies in government procurement. However, according to a Reuters report in August this year, the Chinese government issued new procurement guidelines in May, requiring data including X-ray machines and magnetic resonance imaging equipment. The localization rate of 100 projects reached 100%, which created new obstacles for foreign suppliers.
This huge difference makes even some domestic scholars not optimistic. In an analysis written this month by Peng Lei, a scholar of the Institute of Economics of the Chinese Academy of Social Sciences, he emphasized that there is a large gap between China’s service industry’s openness to the outside world and the CPTPP requirements. The level is relatively high, such as the telecommunications industry, radio and television, etc.”.
In addition, China is very cautious about the movement of natural persons (temporary entry of business personnel), and the degree of openness is generally lower than that of other developing countries.
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In addition to institutional and regulatory issues, observers believe that pressure from the United States and its allies and other geopolitical issues will be another important factor preventing Beijing from joining.
According to regulations, China must obtain the consent of all 11 members to join the CPTPP, but China’s relations with Australia have continued to deteriorate and there is a territorial dispute with Vietnam, another member state.
On Thursday (September 16), the United States, the United Kingdom, and Australia suddenly announced a new security agreement, under which the three countries will greatly strengthen their defense cooperation in the Indo-Pacific region. Australia will obtain “nuclear submarine construction capability” with the help of the United States and Britain. Some time ago, China-Australia relations fell to a freezing point due to Australia’s allegations of infiltration of China and calls for independent investigation of the source of the new crown epidemic.
But the relationship between China and Vietnam seems to be turning for the better. Last week, Chinese Foreign Minister Wang Yi visited Vietnam and met with senior officials such as the General Secretary of the Central Committee of the Communist Party of Vietnam Nguyen Phu Trong and Prime Minister Pham Myong Ching. Wang Yi called on the two countries to resolve their contradictions and differences through friendly consultations, speed up maritime cooperation, and explore joint development paths.
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U.S. public protest against the Trans-Pacific Trade Partnership (TPP)
What is the attitude of the United States?
Although Biden did not follow Trump’s protectionist practices in foreign policy after he took office, he rejoined the Paris climate change agreement and returned to the World Health Organization, but there have been no obvious changes in some major trade policies.
There is no sign yet that the Biden administration is trying to restart the trade agreement. White House Press Secretary Jen Psaki (Jen Psaki) said in response to China’s application to join the CPTPP on Thursday (September 16): “Applying to join the CPTPP is China’s own business, and we leave this issue to member states to decide.”
“We will continue to cooperate with other countries in the region on economic partnerships and other relationships, and if there is an opportunity to negotiate, we can participate in the discussion,” she said.