Written by Richard Pomfret.
Image credit: ลงนาม CPTPP มีนาคม 2018 by Prachatai/ Flickr, license: CC BY-NC-ND 2.0.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) evolution has been a combustible mixture. On the one hand, the CPTPP, as an international trade agreement that goes beyond WTO commitments, involved lengthy negotiations before consensus on the text could be reached and the CPTPP could be implemented. On the other hand, the CPTPP, as an instrument of domestic politics and of international relations, has been subject to dramatic coups de théâtre. The USA signed the Trans-Pacific Partnership after eight years of negotiations, but President Trump refused to ratify the agreement three days after taking office in January 2017. Both elements – careful negotiation of a legal text and grand political gesture – are visible in Australia’s approach to the CPTPP.
Australia’s trade policy in the twenty-first century has been among the most liberal and progressive in the world. Australia has reduced tariffs to the extent that today about half of the country’s most-favoured-nation tariffs are zero, and half are 5%; the average applied tariff on imports is less than one per cent. Australia strongly supports the international trade system based on the World Trade Organisation (WTO) and has been active in extending world trade law into new areas through international economic diplomacy.
Australia was the founder in 1989 of the Asia Pacific Economic Cooperation (APEC), whose open regionalism was a precursor of the Trans-Pacific Partnership (TPP). Australia and eleven other countries concluded the TPP negotiations in 2016, but non-ratification by the US meant the TPP could not enter into force. Australia and Japan led the remaining countries in negotiating and ratifying the CPTPP, a slightly modified version of the TPP. After ratification by Australia, Canada, Japan, Mexico, New Zealand, and Singapore, the CPTPP entered into force for those countries on 30 December 2018.
In an age when the consensus requirement hampers progress at the WTO, the CPTPP has become the leading-edge benchmark for a modern trade agreement. The emphasis is less on traditional trade barriers such as tariffs or quotas and more on agreements on topics beyond WTO commitments, such as digitalisation and e-commerce. Reasons for this development include the increased share of global value chains in international trade and the development of recent technologies for conducting trade.
Australia has also signed the Regional Comprehensive Economic Partnership (RCEP) between the ten ASEAN countries and five regional partners (Australia, PRC, Japan, Korea, and New Zealand). The two agreements are generally consistent, although they vary in coverage and depth of commitment. Consistency is not surprising, given that seven CPTPP signatories are also in RCEP. Other examples of largely consistent beyond-WTO agreements include the European Union’s deep agreements with countries such as Canada and Japan and the agreement between Canada, Mexico and the United States signed in November 2018 and in force since July 2020.
Australia’s Approach to the CPTPP
In contrast to the careful and successful trade diplomacy described above, recent Australian policy has been characterised by major political decisions with a negative impact on trade policy. A striking example was the clumsily managed announcement in 2021 of the Australia-UK-US agreement that included tearing up a large contract for French submarines, stalling negotiations for an Australia-EU trade agreement that had been progressing since 2017.
The most important example of the CPTPP has been the aggressive policy stance toward the PRC, which is by far Australia’s largest trade partner. After Prime Minister Morrison irritated the PRC in April 2020 by advocating an inquiry into the Chinese origins of the COVID-19 virus, relations rapidly degenerated into a trade war with Chinese restrictions on Australian exports of wine and barley and Australian anti-dumping actions on several Chinese products. The Australian government justified its measures by highlighting the scale of Chinese government intervention in the domestic market and carried this on to the CPTPP stage by stating that China was not a suitable CPTPP member due to the extent of its non-market economy.
The speed and simplicity of this reaction to China’s CPTPP application and Australia’s immediate positive response to the UK application in June 2021 to join CPTPP contrast the detailed negotiations creating the CPTPP. The fact that China has signed and ratified the RCEP, which encompasses the philosophy of the CPTPP while being less restrictive on signatories’ policy space, suggests that an a priori decision on China’s CPTPP application was too peremptory.
The Australian government has maintained a low profile with respect to the other applicants, Taiwan (which, like the PRC, applied in September 2021) and Ecuador (applied in December 2021). An appropriate response would be to examine each applicant’s policies to ensure compatibility with CPTPP rules and make membership conditional on reforms to remove incompatible policies. However, Australia’s contrasting attitude towards the UK and PRC applications could pull the rug from under this process.
A further reason for more measured responses to applications is the connection between the applications from the PRC and Taiwan. APEC managed this issue successfully by preparing for simultaneous admission of the PRC, Taiwan, and Hong Kong in 1991. The WTO accessions of the PRC and Taiwan were approved on 11 and 12 November 2001. For the CPTPP to achieve a similar coordinated result would require subtler diplomacy than Australia was offering in 2021.
The Institutional Response from CPTPP Members
In contrast to the rapid response of Prime Minister Morrison to the applications by the UK and PRC to join the CPTPP, the institutional response from CPTPP members has been more measured. The UK application in June 2021 was followed by the CPTPP members establishing an accession working group and the UK submitting a 192-page report outlining how the UK would meet the CPTPP standards. The first meeting of the applicant and the eleven CPTPP countries was held virtually on 28 September. This was followed by negotiations within smaller technical working groups, focusing on individual chapters and on questions of whether the UK meets the commitments in the CPTPP.
The UK accession process should be relatively easy. The UK has already rolled over EU agreements with CPTPP signatories Canada, Chile, Japan, Mexico, Singapore, and Vietnam, as well as having an agreement with Australia signed in December 2021 and an agreement in principle with New Zealand, most of which are fairly deep agreements. Nevertheless, it is important to establish a thorough and transparent accession process before considering other outstanding applications.
The PRC’s application to join the CPTPP faces resistance from CPTPP members concerned about Chinese competition in their markets or doubting market-opening commitments. China has already signed RCEP, which contains many commitments in areas covered by the CPTPP. However, in many CPTPP chapters, commitments are deeper than RCEP commitments, and dispute settlement processes are stronger. For example, the digital provisions of the CPTPP chapter on e-commerce go further (e.g., forbidding forced disclosure of source code), are subject to dispute settlement procedures, and do not permit self-defined national security exemptions. Moreover, unlike RCEP, the CPTPP has chapters on labour and state-owned enterprises that mandate freedom of association, elimination of all forms of forced labour, and establishing disciplines on the commercial activities of public enterprises.
In sum, there are many areas where CPTPP members can challenge China’s readiness to accept CPTPP commitments, but the process must be transparent. The UK accession negotiations must be designed to establish such a process and not be rubber-stamped as Australian prime minister Morrison seemed to promise UK prime minister Johnson. A trickier balancing act will be to depoliticise the applications from China and Taiwan. Australia has shown little interest in the Taiwan application, in contrast to its adroit support in the 1990s for linking PRC and Taiwan applications to APEC and the WTO. As with the UK-China comparison, the objective should be to focus on the process while acknowledging the political implications of appearing to favour one application over the other.
Australia’s Position and Prospect
Australia’s role in CPTPP expansion will depend on whether the astute trade diplomacy of recent decades or the clumsy political diplomacy displayed in relations with France and with China dominates. The CPTPP agreement implies treaty-level compliance with trade rules beyond WTO commitments, and membership applications should be assessed on the applicant’s willingness and ability to observe the CPTPP rules. Even if an applicant is a strategic rival with a unique economic system, the application should be measured against compatibility with CPTPP rules, and diplomacy should aim to dampen other considerations by emphasising the process of determining compatibility with CPTPP commitments.
Australia’s initial positive reaction towards the UK application and negative response to that of the PRC were driven by politics rather than an assessment of compatibility with CPTPP commitments. With respect to China’s position, Australia’s concerns should not differ much from those of other CPTPP members such as Canada, Japan, and New Zealand, who may worry about China’s strategic intentions and disagree with its internal policies. In reaching a decision, Australia would be best advised to work with like-minded CPTPP members than staking out an individual position without reflection or discussion.
The May 2022 Australian election may provide an opportunity to improve relations with China.
Richard Pomfret is Professor of Economics Emeritus, University of Adelaide, Australia, and Adjunct Professor of International Economics., The Johns Hopkins University School of Advanced International Studies, SAIS Europe, Bologna, Italy.
Based on a paper prepared for the workshop Racing to join the club: The implications of China’s, Taiwan’s, and the UK’s applications to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to be held in Nottingham on 17-18 June 2022.
This article was published as part of a special issue on “Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”