(Asia)(Economy)(Time)China Formally Applies to Join Asian Trade Deal

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September 17, 2021

Beijing has applied to join an Asia-Pacific trade pact once pushed by the U.S. as a way to isolate China and solidify American dominance in the region.

China submitted a formal application letter to join the deal, known officially as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, according to a statement late Thursday in Beijing.

The treaty was originally envisioned by the U.S. as an economic bloc to counterbalance China’s growing power, with then-President Barack Obama saying in 2016 that the U.S., not China, should write the regional rules of trade. His successor Donald Trump pulled out of the deal in 2017, with Japan leading the revised and renamed pact to a successful conclusion the following year.

The application is certain to spark a reaction from Washington, where a number of lawmakers had already expressed concern about China’s efforts to join. There have been no signs from the administration of President Joe Biden that it’s interested in rejoining the deal.

The application is the result of months of behind-the-scenes discussions after President Xi Jinping said in 2020 the nation was interested in joining. China is the second country to apply to join the 11-nation deal, after the U.K. asked to become a member earlier this year.

“It’s a perfectly rational calculation by the Chinese leadership,” said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy in Brussels. “Given how the Chinese market is driving the economic recovery, their cards will never be this strong again. Or rather, the cost of rejecting China’s application will never be this high.”

Diplomatic Disputes

The application underlines the increasingly complicated geopolitical situation in Asia, where China is the dominant economy and main trading partner for many, but competition with the U.S. is getting worse. Australia, Singapore, New Zealand and Japan are CPTPP members and close allies of the U.S., but along with China they’re also members of the Regional Comprehensive Economic Partnership, which was successfully negotiated last year.

Military and diplomatic tensions between China and Japan, the largest economy in CPTPP, have been increasing due to China’s increased military presence around islands that both nations claim as their own, Chinese threats to Taiwan, and other factors.

Regarding China’s application, “Japan must look properly at whether it is ready to reach the high level of TPP,” Foreign Minister Motegi Toshimitsu said in Tokyo Friday. “We will confer with other member countries and deal with this, taking into account strategic issues,” he said, adding that the U.K.’s application would be dealt with first.

Taiwan had also expressed interest in joining CPTPP and had been talking with members of the group, with some Japanese ruling party lawmakers last month supporting Taiwan’s entry. However, the Chinese application will complicate that as Beijing opposes Taiwan joining any international organization or group.

Taiwan will continue to talk to the members and will apply when there is consensus, the island’s Minister of Economic Affairs Wang Mei-hua told reporters Friday in Taipei. China’s surprised the CPTPP members with it’s sudden bid, according to Wang, who said there were concerns whether China could meet the deal’s high standards.

Tensions with Australia

The bid from China to join CPTPP was made less than a day after Australia, the U.S. and the U.K. announced they would form a more cohesive defense arrangement to offset China’s rising military prowess. China attacked that agreement, but it will now need to negotiate with Australia and probably the U.K. about CPTPP accession.

Any talks won’t be simple—China and Australia are already in the midst of an economic and trade dispute, which has seen Beijing apply tariffs or block billions of dollars of Australian exports, despite the two nations having a free-trade agreement. Still, China last week publicly lobbied Canberra for its support to join the deal.

Australian Trade Minister Dan Tehan said Friday that all 11 member nations would need to be in agreement for negotiations to start, and pointedly noted China would have to talk directly to the other nations. Australia ministers haven’t talked to their Chinese counterparts since early last year, and Tehan is still waiting for a response to a letter he sent Commerce Minister Wang Wentao in January.

After China’s application was submitted, Wang had a follow-up call with his counterpart Damien O’Connor of New Zealand, which is the depositary nation for the agreement.

“China will, according to procedures of CPTPP, engage in necessary consultations with members,” Chinese Ministry of Foreign Affairs spokesman Zhao Lijian said in Beijing. “On the basis of the conclusion of RCEP, China’s accession to CPTPP will be beneficial to the Asia-Pacific regional economic integration process.”

Canada is another CPTPP member that’s in a dispute with China, with one Canadian citizen jailed for 11 years and another still awaiting sentencing in cases that are seen as linked to the arrest in Canada of the daughter of the founder of Huawei Technologies Co.

A number of members of Congress have been calling for the U.S. to either rejoin the CPTPP or to be more active on trade diplomacy in the region. However, the Biden administration hasn’t announced any concrete trade policies for the region, although there are reports it’s discussing a digital trade deal covering Asia-Pacific economies.

“The future of technology, trade and defense is either going to be led by the Chinese Communist Party or by the United States and our allies,” U.S. Senator Ben Sasse said in response to the news. “If China sees the value in building alliances across the Pacific, why can’t the United States? Let’s get back into a position of leadership instead of retreat.”

Trade Rules

A former U.S. trade official said China’s membership in the group isn’t assured given its trade regime and direction toward more central control of its economy.

“It’s extremely difficult, if not impossible, to see how they could embrace the CPTPP rules governing state-owned enterprises, labor, e-commerce, the free flow of data, among others, as well as comprehensive market access commitments,” said Wendy Cutler, vice president of the Asia Society Policy Institute and a former acting deputy U.S. Trade Representative.

Japanese Finance Minister Aso Taro also expressed doubt that China could meet the requirements.

“Is China in a state where it can join?” Aso asked Friday in Tokyo. “From the perspective of the 11 nations that will be accepting new members, right now we’re just at the point of asking ‘are we going to do this? Really?’”

Others were more confident China will be successful.

“In the long term, they will be able to work out some of the differences, especially as these countries realize that China is going to be the biggest market for them and the U.S. is not going to join anytime soon,” said Henry Gao, associate professor of Law at Singapore Management University, who has written extensively on Chinese law and the World Trade Organization.

But it won’t happen anytime soon, he said, as “the accession process would probably drag on for a couple of years.”

The U.K. applied to join first and is seeking to conclude talks to join by the end of 2022, the former British trade secretary said in August.

The CPTPP ranks third among the largest free-trade agreements behind the $26 trillion Regional Comprehensive Economic Partnership and the $21.1 trillion U.S.-Mexico-Canada Agreement. China’s addition to the CPTPP would make it the most valuable free-trade agreement ever signed.

The 11 signatories of the CPTTP have combined economic value worth about $13.5 trillion, or about 13% of global gross domestic product.

  • Source Time Magazine

Additional Part

Overview and benefits of the CPTPP

Strategic and economic benefits

  • The CPTPP is a major trading bloc comprising 11 countries representing 495 million people and a combined GDP of $13.5 trillion.
  • The CPTPP strategically sets the terms of trade in the Asia-Pacific region.
  • The CPTPP Agreement, along with CUSMA and free trade agreements with the European Union (CETA) and South Korea, makes Canada the only G7 nation with free trade access to the Americas, Europe and the Asia-Pacific region.
  • The Agreement will generate significant economic benefits for Canada, including access to Japan (the world’s third-largest economy) as well as fast-growing markets such as Malaysia and Vietnam.
  • These benefits will continue to grow as the CPTPP expands to include new members.
  • All Canadian provinces and territories are expected to benefit from the CPTPP.
  •  

Goods market access

Goods market access gains are most significant in Japan, as well as in Vietnam and Malaysia, countries with which Canada does not currently have free trade agreements (FTAs) and where tariffs remain high. Canadian exporters will benefit across a number of sectors.

Agriculture

Agriculture—A key export interest for Canada, particularly in the Japanese market. With the entry into force of the CPTPP, more than three quarters of Canada’s agriculture and agri-food products now benefit from immediate duty-free access.

  • Pork and beef
    • In Japan, tariffs for higher-priced pork cuts will be eliminated within 10 years, while tariffs on lower-priced pork cuts will be reduced within 10 years.
    • Tariffs on beef cuts and beef products will be reduced within 15 years, on par with competitors from other countries with FTAs in place with Japan (e.g. Australia).
  • Food wheat and barley
    • In Japan, Canada will have access to a Canada-specific quota for food wheat and a shared CPTPP-wide quota for food barley.
  • Canola oil—Tariffs in Japan and Vietnam will be eliminated within 5 years.
  • Immediate duty-free access
    • Exports of a number of other Canadian agricultural products will benefit from immediate duty-free access to various CPTPP countries. These products include canola seed, cranberries, blueberries and pet food.
Fish and seafood

Fish and seafood—Under CPTPP, 100% of tariffs will be eliminated for Canadian fish and seafood products. With the entry into force, the vast majority of these products is now entering duty-free, with remaining tariffs to be phased out over periods of up to 15 years.

  • Frozen snow crab
    • In Japan, tariffs of 4% will be eliminated upon entry into force.
  • Lobster (including processed)
    • In Japan and New Zealand, tariffs of up to 5% will be eliminated upon entry into force.
    • In Malaysia, tariffs of up to 8%, will be eliminated upon entry into force.
    • In Vietnam, tariffs of up to 34% will be eliminated within 3 years.
  • Fresh, chilled and frozen salmon (including fillets)
    • In Vietnam, tariffs of up to 18% will be eliminated upon entry into force.
    • In Japan, tariffs of up to 3.5% will be eliminated within 10 years.
  • Frozen fish fillets
    • In Vietnam, tariffs of 18% will be eliminated upon entry into force.
    • In Japan, tariffs of up to 10% will be eliminated within 10 years.
  • Oysters
    • In Japan, tariffs of up to 10.5% will be eliminated upon entry into force.
Forest products and value-added wood products

Forest products and value-added wood products—Under the CPTPP, tariffs will be eliminated on forestry and value-added wood products, which will create new opportunities in key markets such as Japan, Malaysia and Vietnam.

  • Lumber
    • In Japan, tariffs of up to 6% will be eliminated in 15 years.
    • In Australia and Brunei, tariffs of up to 5% and 20% respectively will be eliminated upon entry into force.
  • Oriented strand board
    • In Japan, tariffs of up to 6% will be eliminated within 15 years.
    • In Malaysia and Brunei, tariffs of up to 20% will be eliminated upon entry into force.
    • In Australia and New Zealand, tariffs of up to 5% will be eliminated upon entry into force.
  • Plywood and veneer
    • In Japan, tariffs of up to 10% will be eliminated within 15 years.
    • In Malaysia, tariffs of up to 40% will be eliminated within five years.
    • In Australia, tariffs of up to 5% will be eliminated upon entry into force.
    • In New Zealand, tariffs of 5% will be eliminated within seven years.
  • Carton boxes and packing containers
    • In Vietnam, tariffs of up to 24% will be eliminated within three years.
    • In Malaysia, tariffs of 25% will be eliminated within two years.
    • In Australia, tariffs of 5% will be eliminated upon entry into force.
Industrial goods

Industrial goods—Under CPTPP, 100% of tariffs will be eliminated on industrial goods and consumer products. The majority of Canadian industrial goods exported to CPTPP countries became duty-free immediately with entry into force, with most remaining tariffs on industrial goods to be eliminated over time.

  • Industrial machinery
    • In Vietnam, tariffs of up to 25% will be eliminated within eight years.
    • In Malaysia, tariffs of up to 30% will be eliminated within 10 years.
    • In Australia, tariffs of up to 5% will be eliminated within 4 years.
    • In New Zealand, tariffs of up to 5% will be eliminated within 7 years.
  • Chemicals and plastics
    • In Japan, tariffs of up to 6.5% or 25.60 yen/kg, whichever is less, will be eliminated within five years.
    • In Vietnam, tariffs of up to 31% will be eliminated within 10 years.
    • In Malaysia, tariffs of up to 50% will be eliminated within 10 years.
    • In Australia, tariffs of up to 10% will be eliminated within four years.
    • In New Zealand, tariffs of up to 10% will be eliminated within seven years.
  • Metals and minerals
    • In Japan, tariffs of up to 11.7% or 44 yen/kg, whichever is less, will be eliminated within 10 years.
    • In Vietnam, tariffs of up to 40% will be eliminated within 10 years, including in-quota tariffs for certain minerals.
    • In Malaysia, tariffs of up to 50% will be eliminated within 10 years.
    • In Australia, tariffs of up to 5% will be eliminated within four years.
    • In New Zealand, tariffs of up to 10% will be eliminated within seven years.
  • Cosmetics
    • In Japan, tariffs of up to 5.4% will be eliminated upon entry into force.
    • In Vietnam, tariffs of up to 30% will be eliminated within four years.
    • In Malaysia, tariffs of up to 20% will be eliminated within six years.
    • In Brunei, tariffs of up to 30% will be eliminated within seven years.
    • In Australia, tariffs of up to 5% will be eliminated upon entry into force.
    • In New Zealand, tariffs of up to 5% will be eliminated within seven years.

Provisions on technical barriers to trade (TBT), investment, intellectual property, sanitary and phytosanitary measures, and other areas in the CPTPP Agreement are now in force to secure the goods market access gained through tariff elimination. It will create a predictable trading environment for CPTPP members, giving manufacturers and exporters a leg-up in prospective markets.

The CPTPP Agreement includes annexes to the TBT chapter that address specific challenges faced by exporters of pharmaceuticals, medical devices, information and communications technology, and cosmetics, among others.

Automotive and auto parts

Tariff and non-tariff outcomes for the automotive and auto parts sectors include:

  • Phased tariff elimination will apply for all vehicles and vehicle parts into CPTPP markets. Japan is already designated a most-favoured nation (MFN) duty-free.
  • Canada’s 6.1% tariff on passenger vehicle imports will be phased out over four years, through five annual back-end loaded cuts to retain greater tariff protection during the first two years—higher protection than in the Canada-Korea FTA and CETA.
  • Canada’s tariffs of up to 8.5% on auto parts were eliminated with the entry into force of the Agreement.
  • Canada’s bilateral automotive agreement with Japan, including a safeguard mechanism that applies in cases of import surges, binding accelerated dispute settlement procedures, and the establishment of a bilateral committee on motor vehicle trade to discuss issues affecting trade and investment.
  • Canada has negotiated a more liberal rule of origin for motor vehicles with Australia and Malaysia to ensure that Canadian manufacturers can benefit from preferential tariff treatment to these markets.
  • Commitments on standards and regulations addresses non-tariff measures that prevent Canadian companies from realizing their full export potential.

Services and investment

Canada secured commitments that go beyond those in the General Agreements on Trade in Services and Canada’s current FTAs with certain CPTPP members—using Canada’s traditional negative list approach with standstill and ratchet mechanisms to capture future liberalization.

  • Financial services—Once fully implemented, Canadian investors will benefit from enhanced investment protection and access on par with the best treatment provided to any foreign company in CPTPP countries. Commitments by Vietnam and Malaysia go far beyond what either country has offered in an FTA.
  • Investment—Canadian investors in the CPTPP members now benefit from a comprehensive set of investment protection provisions, including against expropriation and denial of justice, backed by a robust mechanism for the resolution of investment disputes.

Other sectors

  • Biotech annex—The Agreement emphasizes the importance of transparency in each member’s science-based approval processes for biotechnology products, sets out a process in cases of low-level presence occurrences to minimize adverse trade impacts of current regulatory practices, includes year-round submission and review of authorizations of plant products, and provides for the establishment of working groups on biotechnology.
  • Temporary entry—Once fully implemented, will provide Canadians with new temporary entry commitments from several CPTPP partners for certain professionals and highly skilled technicians, intra-company transferees, investors, and business visitors, including improved access into priority markets identified by stakeholders, most notably in Australia and Chile.
  • Dedicated small and medium-sized enterprises (SME) chapter—For the first time ever in a Canadian trade agreement, this chapter includes provisions to ensure SMEs have access to information specifically tailored for their use, making it significantly easier for Canadian SMEs to explore and navigate the CPTPP markets and better position themselves for success. The CPTPP also includes enforceable provisions on state-owned enterprises to promote fair business practices and an electronic commerce framework for cross-border data flows and server localization requirements.
  • Environment—The CPTPP Agreement includes provisions to enhance environmental protection in the CPTPP region and to address global environmental challenges, one of the most ambitious outcomes negotiated by Canada to date. Provisions in this chapter are enforceable through the dispute settlement mechanism of the Agreement—a first for Canada.
  • Labour—This chapter requires that the basic workers’ rights included in the International Labour Organization 1998 Declaration on Fundamental Principles and Rights at Work be reflected in law and practice, i.e. the elimination of child labour, forced labour and discrimination, and respect for freedom of association and the right to bargain collectively. Provisions in this chapter are also enforceable through the dispute settlement mechanism of the Agreement—another first for