Wendy Cutler on China, Taiwan, and the CPTPP

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Wendy Cutler on China, Taiwan, and the CPTPP

China and Taiwan have each applied for membership in the trade pact. What are the next steps – and the broader implications?

Wendy Cutler on China, Taiwan, and the CPTPP
Credit: Illustration by The Diplomat

On September 16, China officially submitted its application to join the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP), an 11-member trade pact known for high standards that go well beyond tariff reductions. On September 23, one week later, Taiwan announced that it had done the same.

The Diplomat’s Shannon Tiezzi interviewed Wendy Cutler, vice president at the Asia Society Policy Institute (ASPI), about the implications of China and Taiwan’s bids. Cutler previously served as acting deputy U.S. trade representative and worked on the original TPP negotiations, among other bilateral, regional, and multilateral trade initiatives.

First, a technical question: What does it actually mean for China to submit its application to join the CPTPP? What are the next steps from here?

By submitting its application to join CPTPP on September 16, China has formally indicated its interest in joining the eleven-member trade pact. Expression of interest does not result in automatic membership. It is up to the current CPTPP membership to determine whether they are satisfied that the applicant can live up to the high-standard rules of the agreement and make ambitious market access offers. A formal application by a prospective candidate triggers a series of procedural steps that were agreed upon by CPTPP members in January 2019. Upon receiving the application, each member will undertake internal discussions to determine its position, while consulting with other CPTPP members. Members may also reach out to Beijing for more information to help shape its position.

The first decision point for CPTPP members will be whether to establish a formal Working Group that would kickstart actual accession negotiations. This decision needs to be taken by consensus of those CPTPP members that have brought the agreement into force, which currently totals eight. It is possible that the remaining three CPTPP members – Malaysia, Chile, and Brunei – will accelerate ratification of the agreement in order to have their vote count. If any of the eight members blocks the decision, the Working Group cannot be established. There is no time limit on deliberations by the Working Group, but it is incumbent upon the applicant economy to explain early on how it can currently or plans to comply with CPTPP rules, as well as to make market access offers. Upon completion of the negotiations with the candidate, the Working Group is to submit a report to the CPTPP Commission, consisting of all CPTPP members. A final decision on whether to welcome the country as an official member is to be made by consensus by those countries that have ratified and brought the agreement into force.

It is also important to note that the Chinese application was only the second formal CPTPP accession application made to date – following the bid made by the United Kingdom in February. As such, there is little precedence to guide the process. The U.K. Working Group was established in June and its accession negotiations are ongoing.

The CPTPP was envisioned from the start – back when it was just the TPP – as a “high standard” trade agreement. Given that, what is the likelihood of China meeting those standards and actually being able to join the bloc? China’s CPTPP announcement came alongside a wave of new regulations, particularly aimed at the tech industry. How do you see China’s CPTPP application fitting into the broader economic policies on display under Xi Jinping?

This is the key question and one on which CPTPP members will deliberate. Over the years, China has moved closer to CPTPP obligations in certain areas, including liberalizing its services market, lifting investment restrictions, and strengthening its intellectual property protection and enforcement regime. But on many other matters, including state owned enterprises, labor rights, environmental protections, and e-commerce, large gaps remain between the high-standard CPTPP rules and Chinese trade practices.

Moreover, in many respects Beijing is moving further away from the letter and spirit of CPTPP, with increased state involvement in its economy, growing restrictions on the use, storage, and flow of data, arbitrary imposition of trade restrictions in response to political concerns, implementation of preferential government procurement policies, and a questionable track record in implementing its existing trade commitments.

Taiwan submitted its application to join CPTPP less than a week after China’s bid. What are the implications of this move? How will CPTPP countries respond?

Coming six days after China’s bid, Taiwan’s formal CPTPP accession application complicates the decisions facing CPTPP members. CPTPP rules clearly stipulate that separate customs territories, like Taiwan, can be members. In recent years, Taiwan has been consulting with CPTPP members and taking steps to bring its trade regime in compliance with CPTPP rules by passing laws and implementing regulations on intellectual property protection, agriculture, and other areas. Nevertheless, Beijing was quick to make its position clear in the strongest terms by urging other CPTPP members to reject Taiwan’s bid. On the day following Taiwan’s application, Zhao Lijian, China’s Foreign Ministry spokesperson, stated,”China firmly opposes all official interactions with Taiwan, firmly rejects Taiwan’s accession to any agreement or organization of official nature.” These developments put additional pressure on CPTPP members, now forced to navigate through these complex and politically sensitive matters.

Has the Biden administration expressed any interest in coming back into the CPTPP fold? Given the political climate in the U.S., would such a move be feasible?

While CPTPP countries would welcome the U.S. back to the agreement, the Biden administration has shown little interest in rejoining. President Biden has made it clear that he will not pursue trade agreements until domestic measures are implemented to build back the strength and resilience of the U.S. economy. With respect to CPTPP, he has not entirely closed the door. He has talked about the need for major revisions and giving labor and environmentalists a seat at the negotiating table. Following his lead, USTR [Katherine] Tai has distanced herself from the agreement, pointing to its outdated provisions that do not reflect recent developments in the international trade landscape. While there is some Congressional and stakeholder support for rejoining the pact, opponents remain vocal and the political climate for reviving the CPTPP debate in the United States remains toxic.

Aside from China, the U.K. has entered into talks to join CPTPP and a number of other countries have expressed interest. What should we expect from the expansion process over the coming years, and which countries in particular should we pay attention to?

The original TPP and its successor agreement, CPTPP are “open architecture” agreements, with provisions encouraging expanded membership over time. The rationale is that as the membership circle broadened so would the reach of the high-standard rules, promoting them as the norm for the region. While numerous economies expressed interest in joining the original TPP when concluded in 2015, this interest waned with the U.S. departure in 2017, and the growing focus on negotiations on the other mega-regional trade pact, the Regional Comprehensive Economic Partnership (RCEP).

To date, CPTPP members have received three formal applications for accession – the United Kingdom, China, and Taiwan – but more are expected over time. Thailand and South Korea appear to be the most viable prospective candidates, but have yet to make the leap. The Philippines, Indonesia, and Colombia, among others, have expressed varying degrees of interest in the past, but their degree of seriousness is unclear. What is clear is that all prospective candidates will be closely watching developments in the U.K. accession to gain a better sense of the process, including the expectations and flexibilities of the current CPTPP membership.