Taiwan’s Catalytic Role for Resilient Development in the CPTPP

Written by Peter C. Y. Chow.

Image credit: 08.28 總統針對國際經貿情勢發表談話 by 總統府/ Flickr, license: CC BY 2.0.

The Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP) was considered as one of the pathways to a Free Trade Area of Asia Pacific (FTAAP) during the APEC meeting in 2014. Hence, membership enlargement in this trade bloc will enhance its sphere of regional influence, leading toward the path of free trade in the Asia Pacific. CPTPP is the highest standard of trade accord which includes what is not in the WTO-the WTO extra and those beyond the WTO- the WTO plus. Therefore, it symbolises a gold standard of trade liberalisation in the 21st century.

As indicated in its initial statement, CPTPP would like to invite the “like-minded” economies to join the trade bloc with a high standard of free trade in the Asia Pacific. Taiwan has been engaging in trade liberalisation since joining the WTO and had long aspired to enter this trade bloc even at its initial negotiation stage. It formally applied for its membership in September 2021. If admitted, Taiwan will be the fifth-largest economy in the trade bloc, next only to Japan, Canada, Australia, and Mexico. The share of the CPTPP in world trade will also increase from 17.7% to 18.7% by including Taiwan in the trade bloc.

Trade liberalisation through multilateral trade accords will generate the ‘trade creation’ effect among members and benefit those within the trade bloc. The larger the number of member states in the trade bloc, the greater the trade creation effect, as evidenced by the gradual enlargement of the evolving history of the European Union. Hence, there is an economic incentive for the incumbent members to enlarge their membership in the trade accord. Geopolitically, the larger the size of the trade bloc, the greater the influence in world power politics. Evolving from the original six members of the European Community, the geoeconomic impact of the European Union on the global economy increased incrementally as the number of its members expanded. Therefore, there is a strong incentive for the CPTPP to bring more qualified countries into the trade bloc.

The Catalytic Role of Taiwan

Since Taiwan has only signed two free trade agreements with two members of the current CPTPP-11, i.e., New Zealand and Singapore, admitting Taiwan to the trade bloc will generate tremendous growth of trade and investment flows through the trade creation effect among all CPTPP members. Furthermore, econometric model simulations on the inclusion of Taiwan in the CPTPP proved that all CPTPP members would benefit, and none would suffer from Taiwan’s membership in the trade bloc. Thus, it is a ‘win-win’ game for the CPTPP to admit Taiwan to the trade bloc for its own sake.

Over the last three or four decades, foreign direct investment (FDI) and trade nexus have become the key to the dynamism of the Asia Pacific economy. Hence, through decades of drive for globalisation, Taiwan has become a net exporter of financial capital in the global economy. The stock of its outward FDI as a percentage of total GDP exceeded those of Japan and Korea. Taiwan has thus been an important investor and trading partner for many CPTPP countries. 

Trade liberalisation will increase FDI flow, as evidenced in the membership enlargement of the European Union in the past year. With Taiwan’s membership in the CPTPP, the momentum of FDI-driven growth will further push the growth and prosperity in the region. CPTPP-11, especially those in the Pacific rim and Southeast Asia. Taiwan’s membership will benefit those countries because Taiwan’s FDI in those countries will accelerate after it enters the trade bloc. One reason is the cumulated “rule of origins” under CPTPP will expedite the trade-investment flows in the entire trade bloc after Taiwan joins it. 

As a powerhouse in the high-tech industry in the Asia Pacific, Taiwan has been playing an indispensable role in the global supply chain. In 2021, Taiwan manufactured 92% of global advanced logic chips at 10 nanometres or less, an essential component for the end uses of 5G and Artificial Intelligence. Moreover, both sectors have civilian and defence applications, such as the F-35 fighter jets. As evidenced by the global shortage of advanced chips, Taiwan’s role as the epicentre of major chip manufacturers will enhance its bargaining position in its membership bids at the trade bloc. 

In the geo-economy, any vital trade bloc has to include the key actors to amplify its level of playing field on the world stage. As a hub of high-tech industry in the region, Taiwan’s innovative technology will spill over to many of the CPTPP countries to further their industrial development. It will promote a resilient global chain and contribute to the growth and stability of those countries. CPTPP countries, especially those lesser developed ones, should fully understand that technological diffusion from Taiwan will speed up their industrialisation after Taiwan enters the trade bloc.

Taiwan’s dedication to green energy will fulfil the high environmental standard in the provision of the CPTPP. Furthermore, the Taiwan government set up an ambitious road map of increasing its green energy with a 25% renewable energy supply target by 2025. Meanwhile, Taiwan fulfils the labour standard of the International Labour Organization and complies with the criteria of the chapter on labour standards under the CPTPP. 

For the digital economy, Taiwan has complete freedom of free flow of cross-border data and has no requirement for data localisation. That means Taiwan has fulfilled the criteria of protecting the privacy of data flows. Moreover, its legislative protection of intellectual property rights can serve as a role model for the CPTPP members. Therefore, looking at the treaty of the CPTPP chapter by chapter, Taiwan is more than qualified as a new member of the CPTPP.

Why should the CPTPP Approve Taiwan’s Application?

Unlike the recently announced Indo-Pacific Economic Framework by the American government, which was alleged to counter China’s ‘One-Belt One Road’ geopolitical initiatives, CPTPP complements the RCEP in regional economic integration. Seven countries of RCEP, Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam, have dual memberships in both RCEP and CPTPP. While RCEP overtly excludes Taiwan from applying for its membership, CPTPP accepted China’s application in September 2021. Hence, the Working Council of the CPTPP should objectively evaluate all applicants’ qualifications following their respective qualifications. As Taiwan is more than ready for it, the CPTPP should approve its application and move to the next step for further negotiations. 

Japan has long supported Taiwan’s bid for the CPTPP. But it was conditioned, if not crippled, by Taiwan’s ban on importing food products from the Fukushima region due to Taiwan’s contentious domestic politics on food safety. By lifting the ban on most food imports from Japan in February 2022, Taiwan’s Tsai administration has removed the obstacle and won solid support for its application from the Kishida administration. 

Other countries welcome Taiwan to join but are wary of Beijing’s retaliation. Yet, China’s coercive diplomacy had less effect as the U.S. launched the Indo-Pacific Economic Framework which Taiwan was not included in the first group of participants. Some of those concerns about China’s reactions are unnecessary because Taiwan is already a full member of the WTO and APEC. In contrast, CPTPP is a legitimate multilateral trade accord under the auspices of both organisations. The accession clause, as listed in Article 5 of the CPTPP, says that, “….any State or separate customs territory may accede to this Agreement, subject to such terms and conditions as may be agreed between the Parties and that State or separate customs territory.” When more countries have overcome these psychological barriers, the hiccup in Taiwan’s application will disappear, and Taiwan should be accepted as a new member of the CPTPP soon. 

Without complicating it with geopolitical factors, China seems to be less, much less ready for the CPTPP. Looking at the complication of the huge size of state-owned enterprises, labour standards and other critical intellectual property rights protection issues, China will not meet the high standard of the CPTPP in the foreseeable future. Moreover, CPTPP members will evaluate what China pledged to the WTO when Beijing applied and how it performed after being admitted in the past 20 years. Hence, if CPTPP does not water down its membership criteria, China will have a long way to go before being accepted. Therefore, an individual applicant’s willingness, ability, and readiness should be the sole criteria to decide the applicant’s admission. Certainly, it should not postpone Taiwan’s membership just because China is not ready for it. The sooner Taiwan is brought into the trade bloc, the better off the CPTPP. Taiwan’s catalytic role in the resilient development at the CPTPP is crucial for the growth and sustainability of the trade bloc and the Asia-Pacific region.

Peter C.Y Chow is a professor of economics at the City University of New York. His field is in international economics and economic development. He has taught economic development for doctoral students at the CUNY Graduate Center and international economics for M.A. students at the City College since 1986. He was a visiting professor at the Academic Sinica, Nagoya National University, and National Taiwan University. He published more than 60 papers in referee articles and chapters of books and served as a contractual consultant at the World Bank. During 1998-2021, he served as the Executive Director of the American Association for Chinese Studies. He was frequently invited by several think tanks in Washington, D.C. and testified at the U.S.-China Economic and Security Commission and at the hearings at the joint session of the USTR, Treasury and Commerce Departments. Recently, he edited a book on “ Taiwan Century’s Development: From Colony to Modern State” (Edward Elgar, Inc., 2022). Among his 12 books, the book on “The Trans-Pacific Partnership and the Path to Free Trade in the Asia Pacific” ( Edward Elgar Inc., 2016 ) probably is the most relevant book to this conference. 

This article was published as part of a special issue on “Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”

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