Australia Can Encourage China’s Credibility In The CPTPP – Analysis

By Ken Heydon

In early 2024, China’s State Council announced its wish to accelerate China’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a preferential trade agreement among eleven Pacific Rim economies plus the United Kingdom. This move is welcome as a complement to WTO activity but its success is not assured.

In May 2024, a research report by the Australian Productivity Commission modelling tariff reductions in goods trade found that China’s membership of the CPTPP would bring only modest economic benefit for Australia, with GDP rising by just 0.01 per cent. This is not surprising given that Australia already enjoys a preferential trading arrangement with China, arising from shared membership of the Regional Comprehensive Economic Partnership.

But there is much more to the CPTPP than just tariff cuts.

As an aspiring member, China will need to demonstrate a commitment to the high standard rules of the agreement — written largely by the administrations of former US presidents George Bush and Barack Obama with China in mind, before the United States later defected under president Trump. Such a commitment would be in the region’s — and China’s —interests. It would help assuage reticence about China’s membership, notably from Japan and Canada — with echoes in Australia — given Beijing’s use of economic coercion and its tensions with Taiwan, also an aspiring member.

Importantly, CPTPP membership would commit China to reform in three crucial areas: to limit subsidies for large state-owned enterprises (SOEs), permit freer cross-border data flows and ban forced labour. In each case, there would be the threat of suspension of equivalent concessions in the event of a breach.

SOEs are thesource of massive inefficiencywithin the Chinese economy, of forced technology transfer and ofinternational discord. The CPTPP constrains their influence by requiring signatories to ‘act in accordance with commercial principles’. China has in fact committed to trialling CPTPP rules in some of its free trade zones, though part of Beijing’s interest in membership is to promulgate its own interpretation of global trade rules. For example, despite China’s mixed-ownership reforms of its SOEs, private shareholders remain subordinate to the state.

For the CPTPP to help lever SOE reform in China, there are two requirements. First, some compromise will be needed, such as an undertaking from China to end subsidies for SOEs operating in competitive markets abroad, in return for more tolerance for those supplying public services within China. The second requirement is that action in the CPTPP is backed by broader reform efforts in the WTO.

The prevailing WTO Appellate Body ruling that a majority government stake in an enterprise does not automatically constitute a public body conflicts with the right of trading partners to take trade remedies, like antidumping. Dealing with this incongruity, a key source of US dissatisfaction, will be an important complement to efforts via the CPTPP to reform SOEs.

China’s ability to sign on tofreer cross-border data flowswill be a big ask. A data-protection law passed in August 2021 will make it harder for foreign companies to move data out of China — Beijing seems to be moving in the opposite direction to that required for CPTPP membership. Still, here too there may be the seeds of a solution through preferential trade agreement rules on digital standards to ensure that companies like Huawei cannot be excluded from Western markets simply because they are Chinese.

It is better for the region to engage China in a plurilateral deal like the CPTPP than in smaller groupings like the ASEAN–China pact where Beijing canmore readily impose its will. And better still if reform moves in CPTPP are backed by ongoing work in the WTO through its Joint Initiative on E-Commerce. The Joint Initiative, chaired by Australia, Japan and Singapore and drawing in both the United States and China, strives for greater international convergence in promoting cross border data flows.

The third element of CPTPP eligibility, the elimination of all forms of forced or compulsory labour, is no less tricky, given Beijing’s iron fist in Xinjiang.

But this too is not insoluble were outside auditors — mindful of the WTO ban on trade in goods of prison labour — permitted to examine, and selectively approve, supply chains using Uyghur labour, such as those producing the nitrogen heterocyclic compounds used in cancer treatment. Better this than the ineffective sanctions regime currently imposed by the West.

As it takes on the rotating chair of the CPTPP Commission in 2025, Australia now has the opportunity to encourage China to demonstrate the credibility of its goal from the recent Third Plenary to proactively align with high standard international trade rules. Such credibility is presently seriously in question. It is also only part of the story. The ‘Auckland principles’ around CPTPP accession go beyond intention and require a proven track record of complying with existing trade obligations. This is likely to be a long road, but it is a road worth taking.

• About the author: Ken Heydon is a former Australian trade official and senior member of the OECD Secretariat and Visiting Fellow at the London School of Economics and Political Science. This article draws on his latest book The Trade Weapon (Polity).
• Source: This article was published by East Asia Forum