Remarks to Shanghai Forum: “China and CPTPP – New Zealand Expectations and Advice”

FUNDAN UNIVERSITY, SHANGHAI, 28 OCTOBER 2023

STEPHEN JACOBI, EXECUTIVE DIRECTOR, NEW ZEALAND INTERNATIONAL BUSINESS FORUM

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CHINA AND CPTPP – NEW ZEALAND EXPECTATIONS AND ADVICE

It is an honour for me to speak in such a distinguished forum.

My thanks to colleagues from Fudan University for the invitation and all the arrangements that have been made.

It is also a pleasure to be back in China again.

The discussion today about CPTPP has been both enlightening and encouraging.

It is clear that CPTPP’s significance as an ambitious, high-quality and comprehensive trade liberalising instrument for the Asia Pacific region is well appreciated and understood.

That is very satisfying for someone like me from New Zealand, who has followed the development of this agreement since its earliest days and who has advocated consistently for its conclusion and now expansion.

New Zealand is a small, open and trade-dependent economy in the South Pacific and was the prime mover of the early small steps that were taken to get to where we find ourselves today.

The process has taken far longer than any of us imagined in the beginning.

How this next stage of expanding and deepening the Agreement is handled from here on in will determine how useful CPTPP will be in the future.

I am here today representing New Zealand business, not the New Zealand Government.

From a business perspective, China’s application to join CPTPP is most welcome as a further sign of China’s ongoing economic reform and desire to be part of future collective rule-making in the region.

The title of this section of our discussions is “advice and expectations from New Zealand”.

I will address this by looking at three aspects in particular:

• First, the original vision of CPTPP which should condition how we look at the Agreement and its expansion today

• second, how we might assess China’s application; and

• third, how aspirant economies might approach the accessions process in the light of the recent CPTPP Joint Ministerial Commission meeting.

Original vision

From the very beginning the vision has been about the more open economies in APEC coming together to set a new standard for economic integration. 

TPP is often described as an American invention but this is not the case.

The concept grew from more humble origins with four economies at the outset in 2005 (New Zealand, Singapore, Chile and Brunei, known as “P4”.)

In 2008 the US under the Bush Administration was persuaded to join.

At the 2008 APEC Summit in Lima any other APEC economies who were interested to join the negotiation were invited to do so.

By the time the Trans Pacific Partnership (TPP) was signed in Auckland in February 2016 there were twelve members including Australia, Canada, Japan, Malaysia, Mexico, Peru and Viet Nam.  

Despite the reversal of January 2017 when the Trump Administration abruptly withdrew, the remaining eleven signatories persevered to bring CPTPP into effect as an “open plurilateral.”

This means that accession is available to any economy willing and able to meet its high standards, including in both market access and forward looking trade rules.

From a business perspective CPTPP is particularly attractive, 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 Fee Trade Area of the Asia Pacific (FTAAP), originally mooted by the APEC Business Advisory Council (ABAC) in 2004 and still very much part of APEC’s Putrajaya Vision to 2040.

In the period since the first TPP, many other plurilateral FTAs have been concluded.

The Regional Comprehensive Economic Partnership (RCEP), led by ASEAN, is now fully in effect as the world’s largest FTA, albeit with provisions that are not generally as ambitious as CPTPP.  

In the Americas NAFTA was replaced in 2020 by USMCA (US, Mexico and Canada), ironically largely built on TPP. 

More recently enthusiasm for freer trade appears to be waning. 

The world is turning increasingly inwards as notions of “strategic autonomy,” protectionism and “industrial policy” have taken hold.

Other largely non-binding models for economic co-operation like the Indo Pacific Economic Framework (IPEF) are being pursued, but without offering market access.

Business practices have also continued to evolve.  

The pandemic has impacted global value chains.

The digital economy has continued to advance.

The pandemic has also frustrated progress with CPTPP’s built-in work programme.

Some economies have been slow to implement all CPTPP’s requirements.

More positively the CPTPP is now fully in operation and we have again 12 members with the United Kingdom.

Today the agreement is in need of updating and expanding to maintain both its relevance and its cutting edge.

This is why at the July Ministerial Commission Meeting in Auckland it was agreed to embark on a wide-ranging review of CPTPP provisions.

There is no doubt that a review is necessary, but there is equally some risk that a lengthy review will add more delay in dealing with accessions.

For the aspirant economies like China it will clearly be challenging to negotiate to accede to rules which are in the process of being changed.  

Any undue delay with accessions will be much regretted by business in the region which in the aftermath of the pandemic is looking for new generators of business growth.

This is a point we in business are making forcefully to our government.

China’s application

It is a mark of the success of CPTPP that the list of economies wanting to accede has never been longer.

The accession of the United Kingdom is now complete, but this too was a long process.

Dealing with the applications of China, Chinese Taipei, Ecuador, Costa Rica, Uruguay, and Ukraine in a reasonable timeframe will be no easy matter, especially when the Agreement, unwisely, has no standing Secretariat but relies on resources from member economies.

There can be little doubt that the Chinese application is a serious one and provides an extraordinary opportunity to embed this great country in the pattern and habit of rule-making in the region.

It is good to hear, as we did earlier, that China’s application is part of a commitment  to ongoing reform and further “opening up” of the economy.

China’s application for  membership of the Digital Economy Partnership Agreement (DEPA), also led by New Zealand, can be seen in a similar light.

I am aware too that China is already taking steps to make the necessary regulatory changes to enable it to accede to both CPTPP and DEPA.

Alongside opportunity there is also challenge.

Areas such as state owned enterprises, subsidies, intellectual property, other aspects of digital as well as labour and the environment all present challenges that will need to be overcome in the accessions process.

I have every confidence China can meet these challenges if it so wishes.

One area where China can offer advantages to existing members, with which it does not have FTAs already, is in market access. 

New Zealand’s experience with China in the ground-breaking FTA we signed in 2008 is a case in point.

We already enjoy excellent access to this market with the final barriers in the form of safeguard tariffs on some dairy products to be removed in January 2024.

Our trade has soared as a result –  CPTPP Members should be attracted to this and to the bigger, strategic picture of China’s accession.

Accession process

When Ministers met in Auckland last July, they had a lot to discuss.

They took the final steps to welcome the United Kingdom as the 12^th member.

They initiated the third year general review of CPTPP I mentioned earlier – this review is mandated in article Article 27.2.1(b) of the Agreement and the Terms of Reference for this review are currently in development.

They also had a discussion about the large number of accession applications that had been received.

They did not decide 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. 

The Protocol also establishes indicative time lines, although these do not appear  to have been strictly followed in the case of the UK. 

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 others, like South Korea, the Philippines and Thailand, still considering whether to join the Agreement.

It’s often the case that nothing encourages quicker trade liberalization than the thought that others might get ahead.

That’s an argument for setting up competitive accession processes within CPTPP by which those who are prepared to do more to meet the standards can receive the green light more rapidly. 

Unfortunately the political reality does not favour this outcome as the whole process is subject to consensus amongst the existing Members. 

This requirement for consensus, established in Article 27.3.1 and Article 4.1 of the Accessions Protocol[1] should be carefully noted by China and other aspirant economies.

They need to make sure that to the greatest extent possible any ongoing irritants in the relationship with CPTPP members are on a path to resolution in order to ensure that these do not prove a stumbling block to the accession process.

The Ministers’ Joint Statement reveals further details about their thinking at this point.

In particular I draw attention to this paragraph:

“We reaffirm that the CPTPP is open to accession requests by economies that are ready to meet the high standards of the Agreement and with a demonstrated pattern of complying with their trade commitments, so that the benefits to the CPTPP membership can continue to grow through the accession process”[2].

The first requirement – “ready to meet the high standards of the Agreement” – will not come as any surprise.

This has been a much-repeated condition which is also provided for in Article 30.4. of the text of the Agreement[3].

The integrity of CPTPP’s rules and market access commitments is the bedrock of the Agreement.

This has been demonstrated most clearly by the very first dispute under CPTPP taken by New Zealand against Canada over Canada’s implementation of tariff rate quotas for dairy products under the Agreement.

The dispute settlement panel found comprehensively in favour of New Zealand.

It should be noted too that the CPTPP Accessions Protocol in Article 5 related to Benchmarks further emphasises the importance both of compliance with existing CPTPP rules and the significance of  comprehensive market access commitments[4].

The second requirement established in the Joint Ministerial Statement also makes clear that “a demonstrated pattern of complying with their trade commitments” is also a criterion that will taken into account in considering accession applications.

Although it is not stated we would assume that “trade commitments” would be defined fairly broadly – it would apply for example to WTO commitments as well as other trade agreements to which the aspirant economy is a party.

What we have therefore are three requirements that aspirant economies will have to meet:

• they will need to demonstrate an ability to meet the Agreement’s high standards – both in respect to rules and market access
• they will need to demonstrate a pattern of compliance with existing trade commitments; and
• their application will need to be approved by consensus of all twelve parties.

If I were to be so bold as to offer any advice to China and other aspirant economies I would urge close consideration be given to these three elements.

Conclusion

At the Auckland Joint Ministerial Commission some clear signals were given about the future direction of CPTPP.

From a business perspective it was reassuring that Ministers appear determined, despite the headwinds of protectionism, to press on with comprehensive trade liberalization and to provide the basis for an improved business environment in the Asia Pacific region.

From the very beginning – from P4 to TPP(12), then CPTPP – the vision 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.

For this vision to be realised CPTPP needs to remain a big tent with room for all who can gain the confidence of Members in their ability to subscribe to CPTPP’s high standards including market access and are prepared to live within the commitments that they make.

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[1] https://www.mfat.govt.nz/assets/Trade-agreements/CPTPP/Accession-Process.pdf

[2] https://www.mfat.govt.nz/assets/Trade-agreements/CPTPP/Joint-Ministerial-Statement-of-the-7th-CPTPP-Commisison-Meeting.pdf

[3] Article 30.4 reads:

1. This Agreement is open to accession by:

(a)  any State or separate customs territory that is a member of APEC; and

(b)  any other State or separate customs territory as the Parties may agree,

that is prepared to comply with the obligations in this Agreement, subject to such terms and conditions as may be agreed between the State or separate customs territory and the Parties,

[4] Article 5 of the CPTPP Accessions Protocol reads:

5.1            Aspirant economies must:

(a)  demonstrate the means by which they will comply with all of the existing rules contained in the CPTPP; and

(b)  undertake to deliver the highest standard of market access offers on goods, services, investment, financial services, government procurement, State‐owned enterprises and temporary entry for business persons. These must deliver commercially‐meaningful market access for each Party in a well‐balanced outcome that strengthens the mutually‐ beneficial linkages among the aspirant economy and the Parties, while boosting trade, investment and economic growth, and promoting efficiency, competition and development.

5.2            The objective of comprehensive market access commitments agreed by CPTPP original signatories through the elimination of tariffs and other barriers to goods and services trade and investment should guide the level of commitments offered by aspirant economies.