Tax & Trade Blog
China Joining CPTPP? Don’t bet on it!
In 2018, eleven counties including Canada and Mexico entered into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) for free trade between the signatory states. Formerly known as “Trans-Pacific Partnership”, CPTPP was initiated by the US to impede China’s non-market trade strategies and influence in the Indo-Pacific.
The request does not seem to have been greeting with open arms, as CPTPP members undoubtedly worry about the impact of accepting China on other global trade agreements like the Canada-US-Mexico Trade Agreement (“CUSMA”) and others.
The Accession Process
Any state looking to join the CPTPP has to reach agreement with all other eleven existing members, meaning that any single member has a veto on the membership application: see CPTPP Accession ProcessSections 1-4. A requesting state like China sends a formal request to commence negotiation to the CPTPP depository (currently, New Zealand), and a CPTPP commission then takes decision regarding the request. Following acceptance of the request, a negotiations process is initiated with each member state.
China is currently trying lobby the CPTPP Members to support its CPTPP Bid.
Surprisingly, China’s request to join CPTPP has trickle down effects for Canada’s involvement in CUSMA. Under Articles 32.10 and 34.6of CUSMA, if Canada were to begin negotiations for a Free Trade Agreements with a Non-Market Economy Country like China, the US would be given an immediate ability to review those negotiations, and terminate CUSMA at their will (with very little notice)!
These provisions put Canada (and Mexico) in an awkward position, likely forcing them to choose between the US – our biggest and most important trading partner – and an up-and-coming and politically-unpredictable China. (Probably not a hard decision to make, but who knows with Mr. Trudeau and his pro-China governing Liberals). As unlikely as it may be that Canada (or Mexico) would choose to begin negotiations with China, that will come at a loss of potentially additional market opportunity in China.
Quite apart from Canada’s conundrum, if China were to successfully join CPTPP, that would likely result in it continuing in its apparent goal of becoming a global trade champion, and in extending its economic reach to gain geopolitical advantage in the Asia-Pacific.
Other commentators regard China’s application as a direct response to the recent Australia-UK-US trade agreement or to create a rift between the US and its historic trading partner. China’s accession request could also be targeting Taiwan, by creating global trade barriers for Taiwan. For example, if China were to join CPTPP, it would then have veto powers over any application by Taiwan to join. (Interestingly, Taiwan applied to join CPTPP a week after China did).
Considering the political sensitivities here, it is doubtful that China’s application will be successful.
To put a positive spin on things, it is possible that CPTPP negotiations with China could afford CPTPP members with the opportunity to put leash on China’s non-marketed practices (dumping, state subsidization, etc.). Given the constraints imposed on Canada under CUSMA, it is unlikely that Canada would be one of them.
This may be unfortunate from a pure “trade policy” perspective, since “free trade” between Canada and China would be expected to reduce the current high tariffs on items like apparel, footwear, electronics and/or furniture. Of course, there are also other legitimate public policy concerns at play: who really wants to buy a cheap tee-shirt, manufactured under enforced labour conditions?
So, while China’s CPTPP application is interesting from a geo-political perspective, the bottom line is don’t bet on China being successful, at least as long as Canada wants to be involved in CUSMA!
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