China and Taiwan recently applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The requests were made within a week of each other, with China submitting a formal request to the agreement’s depositary, New Zealand on September 16, 2021, and Taiwan submitting its request on September 22, 2021.
Entry into the agreement requires consensus among the 11 members.
China is the world’s second-largest economy, but it will face challenges to join the CPTTP. These include the CPTPP requirements relating to public enterprises (SOE), cross-border data transmissions and labor issues. China is also currently embroiled in various trade and territorial disputes with some members of the CPTPP.
Taiwan will also face hurdles due to the controversial nature of its political status and the potential risk of economic / trade retaliation from China.
What is CPTPP?
The CPTPP is a free trade agreement (FTA) between Canada and 10 countries located in Asia-Pacific. It is quite recent as it entered into force provisionally on December 30, 2018. The agreement eliminates tariffs and reduces trade barriers on exports between CPTPP member countries. It covers a range of sectors, including government procurement, trade remedies, investment, intellectual property (IP), labor and environment, and telecommunications.
The agreement is currently in force between Canada, Australia, Japan, Mexico, New Zealand, Singapore and Vietnam. It has yet to be implemented in Brunei, Chile, Malaysia and Peru.
In February 2021, the UK was the first country to formally apply for membership in the CPTPP. The accession process (negotiations) started in June 2021 for the UK to join the agreement. Other countries that have expressed interest (but have not officially applied to join) are South Korea, the Philippines, Indonesia and Thailand.
The United States is notably absent from the CPTPP. In 2017, the Trump administration pulled the United States out of the CPTPP’s predecessor, the Trans-Pacific Partnership (TPP), saying the deal would undermine the U.S. economy. The Biden administration has said it is open to the possibility of the United States joining the deal in the future, but currently has no plans to do so.
Implications of China’s demand for Canadian businesses
The implications of China seeking to join the CPTPP are vast and important.
First, China’s accession would have a significant impact on supply chains. By joining the agreement, Chinese exports would benefit from preferential access to Canada as well as other CPTPP economies with
which Canadian companies are doing business. Given the size of the Chinese economy and the Chinese government’s deep involvement in its economy, greater openness to Chinese products could have a profound impact on the competitiveness of Canadian businesses. This impact can be felt particularly in sectors where Canada maintains high tariff rates and / or most-favored-nation (MFN) tariff quotas.
Second, the CPTPP includes commitments among its members to liberalize access to public procurement. Although China is currently seeking to accede to the World Trade Organization (WTO) Plurilateral Agreement on Government Procurement (GPA), to which Canada is a party, no agreement has yet granted Chinese companies preferential access to goods. Canadian government purchases. High-value infrastructure projects in Canada can be particularly attractive to Chinese state-owned entities, which compete globally for such works.
Third, the CPTPP includes rules on the protection and enforcement of intellectual property (IP) rights. Given the controversial nature of China’s intellectual property protections and practices, some companies may be wary of any Chinese government engagement in this area. However, CPTPP members will also need to consider whether China’s desire to join the CPTPP can be an opportunity to secure commitments to minimum standards for the protection and enforcement of intellectual property.
Canadian businesses should monitor this development and consider how they might be affected by any expansion of the CPTPP.