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Beijing made it official this week: China is formally asking to join the CPTPP. The process ahead for it is expected to be long and difficult and quite likely unsuccessful. China’s announcement came, probably not accidentally, a day after the US, Australia, and the UK announced on September 15th the formation of a new strategic alliance – AUKUS – aimed at collaborating on military/advanced technologies and prominently including US and UK assistance to help Australia develop a nuclear submarine capability (nuclear-powered, not nuclear-armed). A day later the EU unveiled its own new strategy for the Indo-Pacific.
The submarine deal is the most directly commercial component. The US and UK will help Australia develop its own capability to have and produce the subs – replacing Australia’s prior expensive and poorly performing contract to buy diesel-powered subs from a French company. This led to howls of protest from Paris, accompanied by supportive denunciations from the EU, in which France plays a prominent role.
The US, UK, and Australia already have very tight strategic ties. Together with Canada and New Zealand, they form the “Five Eyes” intelligence-sharing alliance and are seen as the core nations of the “Anglo-sphere” — countries tied together by the English language and Enlightenment culture.
Blocking Chinese takeover of Indo-Pacific sea lanes
AUKUS is intended to boost capabilities to counter China militarily in the Indo-Pacific and assert “Western” authority in the sea lanes and the South China Sea. That gives it commercial significance since it roots the US more firmly in the region, backing up Biden administration claims that it is prioritizing relations with the Indo-Pacific and is not retreating from there despite the US’s recent retreat from Afghanistan and its previous retreat from the TPP, the CPTPP’s predecessor.
Beyond the nuclear subs, AUKUS is tasked with enabling collaboration on advanced tech including cyber-security, AI, quantum technologies, and undersea capabilities, according to US officials.
There is an implied commitment by the US and UK to support Australia in its current commercial confrontation with China. AUKUS is being seen as a signal to other countries that the US is intensifying its overall commitment to the region. This is especially important given the shock of the messy US withdrawal from Afghanistan. Japan and Taiwan are reported to be particularly pleased with AUKUS. Its formation is expected to be welcomed at the first-ever Quad Summit hosted by President Biden on September 24th for Japan’s prime minister Yoshihide Suga, India’s Narendra Modi, and Australia’s Scott Morrison.
Nonetheless, until the Biden administration settles on its trade strategy toward China and Asia, even with an increased US strategic presence, Asian countries can’t begin to ease their commercial reliance on China or make any moves that could risk provoking Chinese economic coercion. That would change, however, if the US were to join the CPTPP (formerly the TPP).
France infuriated, EU miffed
For France, losing a lucrative diesel submarine contract, AUKUS was “infuriating.” But Australia was fed up with French delays, cost overruns, and a technology ill-fitted to a now more threatening strategic situation. Washington, for its own part, had already been viewing France with some suspicion given President Emanuel Macron’s promotion of EU “strategic autonomy” and talk of developing a European military force apart from NATO, as well as EU opposition to US sanctions on Iran and other moves to weaken US influence within Europe. Washington also had long found the EU, in particular France and Germany, uncertain partners in efforts to confront China and Russia.
Meanwhile, Europeans have been angered at the continued pandemic-related US travel ban on visitors from Europe. But trade disagreements have been waning as a consequence of US-EU efforts to finally resolve three disputes: aircraft subsidies, digital services taxes, and the Section 232 steel and aluminum tariffs.
EU left out of loop and upstaged
The EU was also affronted because the AUKUS was announced a day before Brussels was scheduled to release its own formal strategy for intensifying its relationships in the Indo-Pacific and restraining Chinese dominance. Foreign affairs commissioner Josep Borrell said that the AUKUS announcement having been made without informing Brussels was a sign the EU must develop its own Indo-Pacific strategy. European Commission President Ursula von der Leyen, in her annual September 15th state of the union address given just before the AUKUS announcement, had also stressed the need to deepen ties to allies including the US and noted that the EU would pursue infrastructure investment abroad to counter China’s Belt & Road Initiative.
It’s possible that the Biden administration — deeply embarrassed by the fiasco of its Afghanistan withdrawal and the follow-on fiasco of a rushed drone attack that killed a US-friendly Afghan adult and nine innocent children – also rushed the AUKUS announcement forward, neglecting diplomatic niceties that might have reduced European shock at the cancellation of a lucrative but outdated contract with one of its major members, France.
China formally applies to CPTPP. All members must now respond.
China’s September 16th announcement that it has formally requested to join the CPTPP was not a surprise: top Chinese leaders have been suggesting for several years that they are interested in membership. Still, the formal submission request roils trade relationships in the area and forces the question of whether the US will seek to re-enter the pact abandoned by President Trump in early 2017.
Some think Beijing was eager to deflect attention from the previous day’s AUKUS announcement and to counter other recent US moves to shore up relations with the region. China’s request adds to already mounting pressure on the Biden administration to seek to rejoin the pact. But administration officials have been adamant that they won’t take steps for new trade deals, or even modify significantly the trade policies (and tariffs) they inherited from the previous administration, until they finish working on their domestic economic priorities. The administration’s waffling is also likely a response to anti-CPTPP pressure coming from labor unions and parts of heavy industry as well as anti-free-market leftists. This could prolong the waffling until after the November 2022 congressional elections.
Did the US miss its chance?
Most current CPTPP members probably would like the US in the pact but not necessarily all of them, especially given the prospect of changes to the existing pact that the US would insist on. But at least for now the roadblock is in Washington.
While it wouldn’t be assured that a US accession application would be accepted, China will face an even higher hurdle. The agreement as signed by the TPP-11 countries says that a new entrant must agree to abide by the provisions in the existing pact – that is, not try to renegotiate an agreement that is already in effect – and that all existing members must agree to begin accession negotiations with the new applicant and, if negotiations conclude, all must agree to accept the new member.
Reasons for opposition to China’s membership
But many of the CPTPP members have adversarial relations with China: Australia because of China’s economic and trade coercion; Japan, Vietnam, Malaysia, Philippines because of territorial clashes; and Canada because of Beijing’s detention of Canadians as hostages. Meanwhile, all members condemn China’s trade and human rights abuses and market-distorting practices.
Moreover, most CPTPP countries fear China’s dominance of the CPTPP and its ability to control the standards set in the pact. They originally saw the TPP as a desirable counterweight to China because it would exclude China but include the US.
And then there is the Taiwan question. Japan, and probably others, supports bringing Taiwan into the pact. But China, contrary to when it agreed to Taiwan’s entrance into the WTO, now won’t accept Taiwan in other trade agreements, such as RCEP.
How China’s application even if unsuccessful could benefit it
Even if China’s accession talks don’t move quickly, Beijing can benefit from its effort because seeking to join appears to support its assertion that it just wants to be a good member of the international trading community – a champion of the rules-based system, seeking to expand trade. It could also be to China’s advantage that its application is likely to split the other members. Some might want to bend current requirements to let China in. Others would oppose any dumbing down of the deal. That would make it very difficult for China to join. Any provisions on state-owned enterprises and subsidies, the treatment of data, digital trade, and some IP commitments would be especially hard for Beijing to adhere to.
A US veto through the USMCA?
The US might have a say in the matter even though it’s not a member of the pact. At Washington’s insistence, the USMCA includes a clause giving any of the three parties the right to terminate the pact with another party if that party concludes a trade agreement with a non-market economy. So, if Canada or Mexico were to enter an FTA with China, as for instance through China’s CPTPP entry, the US has the right to terminate the USMCA. The clause was controversial when inserted into the USMCA, but the Trump administration was concerned that Canada especially, but also Mexico, might seek a bilateral FTA with China. Chinese products – metals in particular – could then enter the US duty-free by stopping first in Canada or Mexico. Such transshipment, either of an item that was imported into Canada or Mexico and then exported to the US (e.g., steel) or products made in Canada or Mexico with Chinese inputs, could circumvent the high duties the US has placed on Chinese products. This concern was so sharp that the US almost slapped the Section 232 tariffs back on Canada’s aluminum exports to prevent such Chinese transshipment.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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