Analyzing China’s TPP Bid

Politics Economy World

In September 2021, China applied to join the Trans-Pacific Partnership, setting off shockwaves through the Asia-Pacific and prompting economies like Taiwan and South Korea to began their own applications. Some analysts see it as a Chinese declaration that even with the elimination of tariffs, the country’s products can hold their own now. How should Japan, a leader of the TPP, respond?

Beijing’s Application a Shock to Many

The TPP is a free trade agreement uniting 11 nations in the Asia-Pacific region, among them Japan, Australia, New Zealand, and Singapore. With over 500 million people living in the region, and gross domestic product totaling over 11 trillion, it accounts for nearly 10% of the global economy. It was established in 2015 with 12 member nations, but President Donald Trump declared the United States’ withdrawal after taking power in 2017. As Japan and the other members struggled to ensure that the organization did not fall apart, the remaining members established the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) without the United States, which came into effect in 2018.

This bloc is marked by a high level of trade liberalization and advanced rights and data protection rules. Participating countries are in principle required to eliminate tariffs on industrial and agricultural products, but also have to comply with a high standard of rules in areas including intellectual property rights protection, state-owned enterprises, and labor. In 2015, when the negotiations were nearing their end, the leading negotiator at the time for the United States, Trade Representative Michael Froman, said that the agreement represented a strategic framework to force economic and investment liberalization in China as its economic strength grew.

Thus, there are those who view TPP as a bulwark against China. And yet, in September 19, 2021, the Chinese government applied to become part of that very framework, sending shockwaves through Japan and the other members of the TPP, and to the United States as well. A senior official in charge of trade negotiations in the Japanese government said that even within the Chinese government, the departments that had been in charge of trade negotiations, the Ministry of Commerce and the Ministry of Foreign Affairs, apparently did not know the details until just before the application went out. It seems that the central leadership under Xi Jinping took direct action in applying.

A diplomat from a TPP member country also suggested that the application process may have been rushed, saying that applications are typically made directly within the repository country, which is New Zealand, but the Chinese government handed the documents to a diplomat from New Zealand stationed in Beijing.

Details of TPP

March 2010 Eight nations, including the United States, Australia, New Zealand, and Singapore, begin TPP negotiations.
March 2013 Prime Minister Abe Shinzō announces Japan’s participation in negotiations.
July 2013 Japan joins negotiations.
October 2015 Twelve nations reach broad agreement.
February 2016 All 12 nations sign.
January 2017 Donald Trump takes office and announces US withdrawal from the TPP.
March 2017 Ministers from 11 members, excluding United States, meet.
January 2018 Eleven nations agree to final CPTPP.
March 2018 Signing ceremony.
December 2018 CPTPP goes into effect.
June 2021 Britain begins entry negotiations.
September 16, 2021 China applies to join.
September 22, 2021 Taiwan applies to join.
December 2021 South Korea begins entry procedures.

Impacts of American Absence

So, why has China chosen this moment to apply to join the TPP?

Negotiation experts all pointed to Taiwan’s potential membership as an influence. Taiwan is home to the world’s largest contract manufacturer of semiconductors in Taiwan Semiconductor Manufacturing Company, and so will be eligible for tariff reductions and preferential access to the region’s supply chain if it joins the agreement.

The planned location of a new TSMC plant in Kikuyo, Kumamoto Prefecture. (© Kyōdō)
The planned location of a new TSMC plant in Kikuyo, Kumamoto Prefecture. (© Kyōdō)

In addition, if Taiwan-made semiconductors and automobile engine control components incorporating those semiconductors are certified as TPP-made, it will be easier for Japanese automobile manufacturers to export cars using them. While the idea of Taiwan joining the TPP has been gaining momentum in some quarters since the spring of 2021, one member country diplomat offered up the analysis that Chinese President Xi has made a preemptive move to prevent Taiwan from joining the TPP with a look to the One China policy.

A second reason offered up is an attempt to restrain the United States, which is vying for economic and advanced technology hegemony. Democrat Joe Biden took office as US president in 2021 with promise of a return to international cooperation, and Japan and other TPP members have given voice to hopes that the United States will rejoin.

Rejoining the TPP is a very low priority for the Biden administration. However, if the administration does move in that direction, then given the issues of human rights abuses in the Xinjiang Uyghur Autonomous Region, a representative of Japan‘s Ministry of Economy, Trade and Industry says that Washington will very probably reopen discussions on implementing stricter labor rules. And so, many see China’s application as a way to sway TPP members before the United States calls for tougher articles on labor and human rights issues.

Will External Pressures Lead to Domestic Reform?

China, however, showed interest in TPP long before these more recent developments, and so it seems likely that the application was part of a long-term strategy rather than a simple sudden decision.

The TPP ministerial meetings in Hawaii in March and July of 2015, and the strategy meeting in October of that same year, were important sessions on the way to reaching overall approval. One conspicuous sight around the Hawaii meeting venue was a group of Asian men in suit jackets trying to make personal connections with negotiators and industry representatives from the 12 countries involved.

One of those industry representatives later remarked that the men were Chinese officials investigating the details of TPP with an eye to future membership. And, according to one former USTR official, many experts in the field believe that China has been interested in joining the TPP since the early 2010s, when the United States first got involved.

An International Monetary Fund and China expert says that reformists among China’s bureaucrats recognize the need for market mechanisms and free economic rules, and are looking to external pressure through agreements and negotiations (like the TPP) to advance domestic reforms.

Confidence to Drop Tariffs

Hanyūda Keisuke, the president of the Owls Consulting Group who has been involved in METI’s negotiations and policy proposal activities, has raised the possibility that China’s foreign economic policy has entered a new stage. He indicates the apparent confidence China is displaying in regard to eliminating tariffs.

Until now, many in Japan believed that the Chinese were not ready to abolish tariffs on finished Japanese cars, which was one barrier to their joining the TPP, but Hanyūda feels it likely that circumstances have changed.

He points out that it will be some three to five years before China is able to join the agreement. As international adoption of electric vehicles progresses and China’s EV and battery manufacturers continue to grow as a result, he says that the Chinese government may have decided that Japanese cars, especially EVs, pose no threat in their market projections three to five years out.

Thus, this application to the TPP can be read as a declaration of victory over Japan’s automakers, and might also be the same for the industrial and agricultural products of other member countries.

However, Hanyūda also stresses that China will have difficulty complying within that short time with rules in nontariff areas like eliminating preferential treatment for state-owned enterprises and strict protection of intellectual property rights. Of course, the TPP’s “high standards” are not without their loopholes, such as Japan’s exemption from dropping tariffs on agricultural and other products, and Vietnam’s exemption from immediately applying strict state-owned enterprise rules.

If China offers to eliminate tariffs on industrial and agricultural products in return for exemption from immediate application of rules on state-owned enterprises when its membership negotiations are in full swing, it is likely that its huge market of more than 1.4 billion people will be a powerful attraction for some TPP members.

Some, like Malaysia and Singapore, are already expressing support for China’s membership. Ozaki Hiroshi, head of the Osaka Chamber of Commerce and Industry and an advisor to Osaka Gas, said at a press conference just after China’s application that it was a “welcome development.”

TPP as Foreign Policy Card

As China expands its international influence during the pandemic, friction between the United States and China will only intensify. As the United States continues to surround itself with allies and friends, Japan, sandwiched geographically between the two powers, is finding it increasingly difficult to keep its foreign economic policy on track.

The Kishida Fumio administration is aiming to submit a bill to the ordinary Diet session in late February to promote economic security, focusing on making supply chains more resilient, reinforcing basic infrastructure, and strengthening measures to develop advanced technologies and prevent information leaks. Kobayashi Takayuki, minister for economic security, stresses that the bill is not aimed at any specific country, but it is commonly known that expanding the economic security system is predicated on China being positioned as a threat.

The TPP, which is a key part of Japan’s entire Asia-Pacific strategy, is a trump card for its foreign policy as well. In September of last year, the government quickly welcomed Taiwan’s application to join, but has maintained its more cautious stance toward China’s application, saying that TPP members must first determine whether the country is truly ready to meet the extremely high level of the agreement standards. For the time being, Japan is showing reluctance toward admitting China, as are other economies experiencing trade friction with the nation, such as Australia. This stance itself could be used as leverage in various economic and diplomatic negotiations with Beijing.

(Originally published in Japanese. Banner photo: International ministers pose for a photo before the TPP signing ceremony. © Kyōdō.)

China United States foreign policy TPP Taiwan EV US automobile