Beijing bids to join CPTPP

The PRC is ‘willing to meet the CPTPP‘s high standards in full’, proclaimed  Wang Shouwen 王受文 MofCOM vice minister on presenting its formal application to CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) on 17 June 2023.

Beijing delivered a concrete move days later. In a State Council notice on promoting FTZs (free trade zones), citing the CPPTP agreement verbatim, Beijing stopped the forced transfer of source code, an issue on which it had earlier seemed intractable. 

The mega trade agreement, accounting for 13 percent of world GDP, phases out tariffs and eases barriers to investment, customs, intellectual property, and government procurement. It meanwhile, sets new regional trade standards for environmental protection and labour rights. 

Membership has been on Beijing’s trade to-do list since its initial application in 2021. MofCOM has been reviewing the 2,300-plus provisions, mulling a host of reforms to bring the PRC into compliance. 

Trump's withdrawal from the original Trans-Pacific Partnership agreement (TPP) in 2017 afforded Beijing more leverage and negotiating space. Yet it did not change the need to consult with other members in order to gain their consent. With obvious fences to mend, Beijing has proposed to set up a working group with Canberra, and is in talks with other CPTPP members. Scepticism on the part of Japan, Mexico, Canada or Australia may yet derail the accession plan. This is not least because of the PRC’s spotty reputation in honouring and upholding trade commitments. 

technical compliance

MofCOM explained to the press on 17 June 2023 its plans to meet CPTPP market access standards. The PRC services sector will be further opened, negative lists for market access of cross-border services trade will be launched in pilot FTZs and beyond, and the negative list for foreign investment access will be further trimmed.

Beijing has been using its FTZs to trial CTPPP compliance. These trials may expand from Beijing and Nansha to other FTZs. Hainan Free Trade Port‘s negative list for cross-border services trade can be promoted to other FTZs, suggests Chi Fulin 迟福林 China Reform and Development Research Institute.

services: With services liberalisation a key plank of CPTPP, more work may be expected to harmonise domestic and international standards in finance, education, telecoms, healthcare etc.

intellectual property: IP protections are less of an issue for Beijing, given that more stringent articles (e.g. on copyright, patents or pharmaceuticals) were suspended when Trump pulled the plug on the original agreement. CPTPP's IP provisions promise better returns to innovators, asserts Zhou Mi 周密 MofCOM Research Institute. Beijing issued a draft amendment of its trademark law in 2023, better aligned with CPTPP standards.

digital trade and e-commerce: CPTPP requirements on e-commerce and digital economy align with the PRC’s reform direction, MofCOM claimed in March 2023. It is revising the Data Security, Cybersecurity, and Personal Information Protection laws to meet CPTPP standards.  

CPTPP rules banning data localisation were a major obstacle. Yet the PRC now seems willing to use the Hainan Free Trade Port or other special zones to pressure-test additional cross-border data flows and related privacy laws. Alternatively, digital rules can be improved gradually, following more flexible Regional Comprehensive Economic Partnership upgrades or Digital Economic Partnership Agreement negotiations.

Beijing has shown it can more easily comply with CPTPP regulations in some sectors, like environmental protection, IP or opening up services. It hopes to negotiate carve-outs and exceptions for cases where compliance is more complicated. Tu Xinquan 屠新泉 UIBE (University of International Business and Economics) WTO Research Institute expects leniency from existing members who may favour PRC accession. Vietnam's SOEs, he insinuates, have skirted CPTPP rules; other members have failed to ratify key labour conventions. 

state-owned sticking points

The pact's rules on freedom of association and labour dispute settlement are a stretch for Beijing to accept. But these are not the worst sticking points. 

SOE rules, such as the ‘competitive neutrality’ principle and restrictions on industrial subsidies and other trade-distorting practices, will likely most discomfort the PRC, warns Liu Jingdong 刘敬东 Chinese Academy of Social Sciences Institute of International Law. SOEs are more broadly defined by the agreement—focusing on de facto control. The pact prohibits ‘non-commercial' assistance (i.e. provided to SOEs with no expectation of advantage). 

SOE practices that are conventional in the PRC, may attract injury claims under the pact. As Wang Xiaohong 王晓红 China Centre for International Economic Exchanges admits, its standards on SOEs are unmet. Liu Jingdong urges the PRC to amend its own SOE rules on principles such as ‘competitive neutrality’, ‘commercial basis’, and ‘transparency‘. But it should challenge the pact's non-rational criteria of ‘non-commercial‘ assistance provided to SOEs. The PRC should also seek to narrow the broad definition of SOEs to objective criteria, such as capital ownership. Liu suggests amendments should

• provide inclusive support to R&D firms and campus research institutes rather than direct state subsidies
• separate ‘public welfare’ and ‘commercial’ SOEs
• curb state intervention in SOE mergers or restructures
• ensure SOEs be wound up on market performance or bankruptcy laws, but not administrative direction
• carry out reviews before new SOE policy is made, ensuring compliance with international law

Global economic downturn and strategic rivalry with the US nonetheless pull Beijing in a contrary direction. Centralising control of SOEs to serve strategic ends has become all too tempting. Huge assets for the PRC, SOEs account for some quarter of national GDP. Heavily-protected sectors tend to be too sensitive to touch. Complying with CPTPP rules may be a bridge too far. 

means as an end

Joining the pact is a rational response to mounting decoupling calls from the US. Beijing commits anew to global trade and bolstering relations with partners. Linking Asia-Pacific and North American markets, many CPTPP members are also players in the PRC’s Maritime Silk Road vision. 

CPTPP discipline may tighten future amendments of the WTO and RCEP. Getting ahead in the pact may give Beijing more say in future trade rulemaking. It should shape a favourable external environment for itself, argues Long Guoqiang 隆国强 State Council Development Research Centre. 

The accession process itself and its entailed domestic reforms are already proving valuable to the PRC, argues Tu Xinquan. Benefits include speeding up reform in market access, business environment, laws and regulation. These may offset low-cost industry relocation. Beijing aspires to a stable, transparent business environment, more attractive to foreign investment. 

The membership bid will, regardless of its outcome, keep shifting policy. 

profiles

Tu Xinquan 屠新泉 | UIBE (University of International Business and Economics) WTO Research Institute director

As the US still influences CPTPP members like the UK, Canada and Japan, it remains difficult for the PRC to join, says Tu. While the PRC may negotiate transitional measures or carve-outs, it should be prepared for its CPTPP bid to fail. PRC institutional opening may need to be more self- than CPTPP-initiated. The PRC should focus on reforming behind-the-border measures rather than border measures or market access commitments. It should learn from advanced economies like the EU, Singapore and New Zealand.

Tu received his doctorate in international trade at UIBE. His research focuses on PRC trade policy, WTO, government procurement and US-China trade relations. He is a 13th Beijing Municipal Political Consultative Conference member and a foreign trade expert for MofCOM’s Advisory Committee on Economic and Trade Policies. Tu has conducted research projects for the China Social Science Foundation and the Ministries of Commerce, Education and Finance.

Liu Jingdong 刘敬东 | CASS (Chinese Academy of Social Sciences) Institute of International Law International Economic Law Research Office director

‘Competitive neutrality’ fosters fair competition and defrays market distortion among SOEs, says Liu. It need not contradict the socialist market economy: rules can be made, ensuring SOEs compete on equal footing with other market entities. Liu adds that if the PRC continues to reject this market principle, its SOEs may be less competitive, losing international market share.

Liu works on international trade and its rules. A legal scholar, and expert in international and WTO law, he studied at China University of Political Science and Law from BA to PhD. Aside from his position at CASS, He is affiliated with the China Law Society's WTO Law Research Association and is the Executive Director of the China Arbitration Law Society.

Wang Xiaohong 王晓红 | China Centre for International Economic Exchanges (CCIEE) Information Department deputy director

Japan, currently the CPTPP leader, is hostile towards the PRC’s membership, says Wang. As US-PRC relations remain tricky, the US can pressure allies like Japan, Canada, Mexico and Australia to oppose PRC accession to CPTPP. In response, Wang argues that the PRC should work to transform US-PRC relations from strategic rivalry to strategic cooperation, as this benefits both parties and the global economy that has been hit hard by the COVID-19 pandemic. The PRC can leverage its massive domestic market and substantial international trade ties to negotiate for cooperation with these countries, says Wang.

Wang, a CASS PhD in economics, focuses on international trade, investment, and service economics. Her reports have been submitted to PRC leaders such as President Xi Jinping and Premier Li Keqiang. She has led or participated in more than 50 major national projects, including 15 projects as the project leader for NDRC, MofCOM and MIIT. She is a prolific author and commentator.

context

15 Jul 2023: UK is set to become the 12th member of CPTPP

17 Jun 2023: PRC submitted official documents to join CPTPP

22 Sep 2021: Taiwan announced its application to CPTPP

16 Sep 2021: PRC announced its application to CPTPP

8 Mar 2018: CPTPP was signed by 11 member countries

23 Jan 2017: US President Donald Trump signed an executive order to withdraw the country from the original TPP

4 Feb 2016: The original TPP (Trans-Pacific Partnership) signed by 12 countries