CRUNCH TIME FOR CPTPP

As published in the NZ Herald, 18 August 2023.

By Stephen Jacobi, Executive Director, NZ International Business Forum.

Following the Ministers’ meeting in Auckland, what is the outlook for CPTPP as the world’s most ambitious free trade agreement?

When Ministers representing the members of the Comprehensive and Progressive Agreement on Trans Pacific Partnership (CPTPP) gathered in Auckland in mid-July, for their annual Ministerial Commission, they had before them a number of thorny issues, including welcoming with accompanying fanfare the United Kingdom as CPTPP’s twelfth member, commissioning a broad review of the agreement and discussing how to manage the large number of aspirant economies now lining up to join. In a world where good trade liberalisation is hard to find, CPTPP still stands as an ambitious and high-quality instrument. How the process of its expansion and deepening is handled will determine how useful the agreement remains.

A big vision

From the very beginning, the CPTPP’s vision has been about the more open economies in APEC coming together to set a new standard for economic integration in the region. Accession is available to any economy willing and able to meet CPTPP’s high standards, including in both market access and forward-looking trade rules.

CPTPP is particularly attractive from a business perspective, including as a means to eliminate costly barriers to trade and investment for goods and services, both at and behind the border, to promote regulatory coherence and ease of doing business as well as to address sustainability and other stakeholder concerns. The broader vision of CPTPP is as a pathway to the lofty goal of a Free Trade Area of the Asia-Pacific (FTAAP), originally mooted by the APEC Business Advisory Council (ABAC) in 2004 and still very much a part of APEC’s Putrajaya Vision 2040, a blueprint for APEC priorities to modernize over the next near-two decades.

Changed circumstances

In the period since the TPP was first initiated, many other plurilateral FTAs have been concluded. Today, the world is turning increasingly inward as notions of “strategic autonomy,” protectionism, and its sidekick “industrial policy” have taken hold. The US which abruptly left TPP in January 2017 has not signed a free trade agreement for some years now and is lukewarm at best about the World Trade Organisation (WTO) and multilateral trade rules. Instead the US is championing the Indo-Pacific Economic Framework (IPEF) as a new, non-binding model for economic cooperation, but without offering market access.

Business practices have also continued to evolve.  The pandemic has shortened global value chains. The digital economy has continued to advance. While CPTPP is now in operation for all 11 original members, this has been a slow process. Economies have been slow to implement all CPTPP requirements. The pandemic has frustrated progress with CPTPP’s built-in work program. The agreement is in need of updating and expanding to maintain both its relevance and its cutting edge.  Yet at the same time, the list of six economies wanting to accede to CPTPP has never been longer.  

To expand or not

China’s application is likely to raise questions for a number of CPTPP members, particularly at a time of heightened geopolitical tension. There can be little doubt that the Chinese application is a serious one and not, as some would have it, a manoeuvre to throw a spanner in CPTPP’s works.  China is seeking new markets for expanding production.  China says it is committed to ongoing reform and opening up of its economy and this is a way of demonstrating this commitment.

Even so, difficulties over China’s CPTPP accession are foreseen in areas such as Chinese state-owned enterprises, subsidies, intellectual property, and other aspects of digital governance as well as labour and environmental issues. China can be expected to be a tough negotiator. It will be conscious too of the flexibilities given to Vietnam in some areas. One area where it can offer advantages to CPTPP members with which it does not already share FTAs is market access.  CPTPP members may be attracted to this and to the bigger picture of embedding China, as the world’s second-largest economy, more firmly into their leading framework of trade rules in the region.

Managing Taiwan’s application at the height of geopolitical tension in the Taiwan Strait will be a delicate exercise.  Taipei has every right to seek accession: New Zealand for example has enjoyed excellent FTAs with both China and Taiwan.[1]

Ecuador and Costa Rica are newcomers to Asia-Pacific trade diplomacy.  Uruguay’s application is more complex since it is a member of the Southern Common Market, known by its Spanish abbreviation MERCOSUR. Ukraine’s interest introduces a different type of political complexity: negotiating a trade agreement with an economy in the middle of a war will be anything but straightforward. Whether the US might one day seek to re-join the earlier TPP or CPTPP or propose something else, like an expanded USMCA, need not have taken up much time at the Auckland CPTPP Ministerial – there is little appetite for this in Washington in the medium term.

The best outcome from the Auckland Ministerial would have been an agreement to move forward with the processes already established in CPTPP’s Accessions Protocol.  This requires the process to be initiated “within a reasonable period of time” of receipt of the application and for accession working parties to be established in close consultation with the aspirants.

It is understandable that these things take time, but that is all the more reason to begin the process if only to provide encouragement to those in the waiting room, and to attract others like South Korea, Philippines, and Thailand, which are still considering whether to join the party. But jumpstarting the accessions process appears to have been too audacious a step in Auckland where Ministers prioritised a wider review of other aspects of the agreement. There is a risk that a lengthy review will add more delay. That will be regrettable for businesses in the region which in the aftermath of the pandemic are looking for new generators of business growth.

In Auckland the challenge was to deliver some clear signals on the future direction of CPTPP. CPTPP has always been about a big idea – freer trade and investment under better trade rules can provide impetus to economic integration, sustainable global growth, and development. CPTPP needs to remain a big tent with room for all who are prepared to subscribe to its high standards.

This article is adapted from a longer piece originally published by the Hinrich Foundation, Singapore, on 18 July 2023.

[1] New Zealand’s Agreement on Economic Cooperation is with the separate customs territories of Taiwan, Penghu, Kinmen, and Matsu.