Chinas bid to join CPTPP trade deal set to open up new power plays

China’s bid to join the CPTPP trade deal is raising questions about its intentions, its fractious relationships with several members, and the veto that each of the 11 member countries effectively holds, including Australia.

CPTPP operates on a consensus basis, meaning that if one country objects, an applicant would be denied entry.

Beijing suspended ministerial contact with Canberra this year, and Australia has taken China to the World Trade Organisation for trade reprisals being applied to barley and wine.

But New Zealand trade specialist Stephen Jacobi says China will have considered that and will be playing a very long game.

“I think if the Australians are clever, they will be able to use this application to their advantage.

“It has given them some leverage over China and the economic relationship that they haven’t had,”said Jacobi, the executive director of the NZ International Business Forum.

He said China could not fix the relationship with Australia completely, given that last week it joined a military alliance directed against China – Aukus – with the United States and Britain.

But it would also have to fix its relationship with Canada – diplomatic relations were soured after Canada, acting on a United States’ warrant, arrested and detained Huawei chief financial officer in 2018, and China then detained two Canadian citizens.

Jacobi said on top of the diplomatic relations, China would also have to be willing to meet the high standards of the CPTPP trade deal.

Probably the digital provisions would be the most difficult for China.

“CPTPP has a number of provisions around the digital economy that are of a completely different complexion from the one that the Chinese have in place.”

For example, CPTPP provided for freedom of cross-border data flows which China didn’t currently agree with.

“CPTPP also prohibits the requirement that information needs to be based on locally based servers and China doesn’t have that idea. That’s a biggie,” he said.

The issue of how State-Owned Enterprises operated was also big. It was not a matter of them existing but being able to operate with competitive neutrality.

“I think the Chinese are capable of reforming that. Of course, they are capable of reforming anything because they only need to do it with the stroke of a pen.”

Jacobi said another hurdle could be contained in a provision of the deal between the United States, Mexico and Canada Agreement which says: Entry by a party into a free trade agreement with a non-market country will allow the other parties to terminate this agreement on six months’ notice and replace this agreement with an agreement as between them (bilateral agreement).

With Canada and Mexico in the CPTPP and the United States outside, that clause appears the give the United States the power to terminate the USMCA if it deems China to be a non-market country.

Jacobi said it would not be surprising it Taiwan also put in a bid to join CPTPP, on the same basis that it had a free trade agreement with New Zealand – as a customs territory, not a country.

Trade Minister Damien O’Connor received the application last Thursday because New Zealand acts as depository or secretariat for the CPTPP, the Comprehensive and Progressive Agreements for Trans Pacific Partnership, which took 10 years to negotiate.

The application has been forwarded to Japan which is chairing the CPTPP Commission but the next meeting is not yet scheduled.

That is the decision-making body involving all 11 countries, although it may not be considered in depth until next year when Singapore chairs the commission

CPTPP members are New Zealand, Singapore, Brunei, Chile, Peru, Australia, Vietnam, Malaysia, Canada, Mexico and Japan – the United States participated in negotiations but withdrew in 2017 under former president Donald Trump.

Brunei, Chile and Malaysia are yet to complete domestic processes to ratify the CPTPP.

China is the second applicant for entry beyond the first 11, with Britain having applied in February this year and its application still being considered.

O’Connor issued a statement in February when the UK announced its intention to apply and then again in June when the accession process began.

He has been notably silent on China’s application, which Jacobi puts down to sensitivities.

“They are hyper-sensitive to how that would be perceived by Australians and Americans.”

He said the CPTPP was begun by New Zealand on the basis of open regionalism and being open to all participants who could meet high standards.

“It was only because the Americans got involved and started thinking about it as some way to contain China that somehow the message got a bit muffled.”

Since walking away, the United States had said it was not prepared to join CPTPP unless it was significantly changed.

“Well I think they should get two fingers on that,” said Jacobi.

“We didn’t spend over a decade negotiating with them a perfectly good agreement that everybody could’ve lived with which involved serious concessions made to get it through their Congress, only to find it couldn’t be done.”

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