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Advancing Trade with the Indo-Pacific: Canada’s Role in Welcoming New Members to the CPTPP

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Image credit: The Canadian Press

POLICY PERSPECTIVE

by Meredith Lilly
CGAI Advisory Council Member
June 2021

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Table of Contents


Introduction

It’s been six years since the original 12-country Trans-Pacific Partnership was concluded, and 2.5 since the revised 11-country Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) came into force. The first years of implementation have passed quietly in Canada as disputes with the United States and the COVID-19 pandemic have dominated public debates around trade.

Though Canada’s relative inattention to the CPTPP amid these competing priorities is understandable, it is necessary to keep an eye on future opportunities and threats to Canada’s role in international trade. The Indo-Pacific is the world’s fastest growing and most dynamic economic region, and Canada must be more deliberate in its approach to remain globally relevant. Party to neither the Regional Comprehensive Economic Partnership (RCEP) nor the ASEAN Free-Trade Area, Canada’s participation in the CPTPP represents its only clear shot at growing trade relations with the region.

For CPTPP to compete with these other trade agreements, it must grow in membership and influence. Always intended to be a living agreement that would be open to new entrants, the CPTPP has not yet welcomed any to the fold. That is finally changing now that the United Kingdom (U.K.) has been approved to begin accession negotiations. Some observers wonder whether this could also serve as a catalyst for the U.S. to find its way back to the agreement under President Joe Biden. Taiwan is also keen and is seeking signals on whether its own accession would be considered or be pre-emptively frozen out in deference to Beijing. This paper considers the shifting priorities for expansion of the CPTPP, and how Canada can play a constructive role in working with new members to establish the CPTPP as the most important trading bloc in the Indo-Pacific.

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Crossing ‘T’s and Dotting ‘I’s First

As they consider new members, full CPTPP members must urge all signatories to complete their ratification processes for full implementation. Only seven of the 11 members have done so: Japan, Canada, Australia, New Zealand, Singapore, Mexico and Vietnam. However, Brunei Darussalam, Malaysia, Chile and Peru have yet to ratify. This lack of early participation by any South American countries diminishes the agreement’s global influence. After all, what sets CPTPP apart if it has fewer members than RCEP, and if Mexico and Canada represent its only non-regional participants? CPTPP must grow to regain its economic promise to the world.

But the broader message sent by the failure of those four signatories to become full parties to the agreement is more troublesome. It suggests that, as challenging as it was to negotiate the CPTPP, implementing the deal’s concessions may be too politically difficult for some countries to bother. Other countries contemplating joining the CPTPP will see this as a negative sign, especially political leaders representing smaller economies.

It also may leave the impression with aspirant major economies such as the U.K. that they have outsized leverage to seek changes to the existing agreement. For, if the CPTPP is as wonderful as its members claim, why are one-third of its signatories still standing on the edge of the dance floor? Full members such as Japan and Australia will bristle at attempts by new entrants to renegotiate hard-fought gains and will rightly expect new members to adopt the rules and standards that are in place. In other words, while new members such as the U.K. are welcomed to the table, CPTPP leaders will also clearly indicate that the silverware and linens are set, the dress code has been finalized and the music is already playing. Fortunately, the U.K.’s accession also offers a helpful final push to those four laggards on the edge of the dance floor, since only fully ratified members can participate in the U.K.’s negotiations.

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Negotiate Quickly with the U.K.

The U.K.’s accession gives the CPTPP just the boost it needs. As the world’s sixth largest economy, a newly sovereign trade partner and the only likely European entrant in the near-term, the CPTPP needs the U.K. as much as the U.K. needs the CPTPP. In addition, just as Canada is often regarded as a test market for negotiating with the U.S., CPTPP members can approach U.K. negotiations as a trial run to potentially attract the EU in the future, thereby cementing the CPTPP as the world’s dominant trade pact. CPTPP membership would also buoy the U.K. in its own bilateral talks with major partners such as the U.S.

But for now, the U.K.’s accession should be negotiated on its own terms. Membership will signal the U.K.’s commitment to the CPTPP’s high standards and broader governance elements around transparency and safeguards on state-owned enterprises. By contrast, RCEP’s emphasis is on tariff reductions and market access and does not aspire to the same standards as CPTPP. This offers the latter an advantage in attracting large countries such as the U.K.

But while the benefits offered by the U.K.’s membership are broad and diffuse across CPTPP members, the drawbacks will be felt most acutely by individual countries over niche issues. For example, Canada will be predictably difficult about cheese, while Australia will be sensitive about U.K. animal health regulations that it regards as protectionist to Australian beef exports. As the U.K. advances bilateral negotiations with major CPTPP countries, many of these issues can be resolved. The affable and blustering Boris Johnson is the right kind of leader to weather the political controversy, and it would benefit all CPTPP partners to work quickly and avoid drawn-out negotiations that can quickly become toxic for even the most buoyant politician.

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Don’t Wait, but Leave a Place Set for the Americans

Although the new Biden administration has left the door open to rejoining the CPTPP, it is unlikely to be an early priority for U.S. Trade Representative Katherine Tai. Biden’s Democratic base of support is further to the left and more openly hostile to trade than former president Barack Obama’s. Even more challenging is that many of the same Republicans who Obama counted on to advance the original TPP through Congress now oppose the deal, after following Donald Trump down the rabbit hole of protectionism. It will be easier for Biden to demonstrate international leadership and co-operation through other forms of multilateral engagement that more closely reflect the political interests of his supporters.

If the domestic political context increases support for the U.S.’s return to the deal, the country will have an easier time than other aspirants renegotiating the agreement to serve American interests. American exceptionalism is expected and accommodated due to the size of the U.S. economy, the geopolitical benefits and the country’s global influence. In addition, if the Americans seek to dust off suspended provisions from the original TPP, existing members will find it challenging to refuse terms that were acceptable just a few years earlier. This was the primary reason that Canada was forced to accept new dairy concessions in the USMCA: Canada had already agreed to those concessions in the original TPP.

One thing is clear: the U.S. will not seek to rejoin the CPTPP if the agreement’s high standards and governance elements fail to be strongly enforced. Thus, the best way CPTPP members can ensure the agreement remains attractive to the U.S. is to diligently implement its standards and adjust their respective domestic laws to enable all parties to compete. CPTPP’s benefits can be further highlighted by early demonstrations that its dispute settlement mechanisms are operational and adjudicated fairly, and that parties adhere to decisions without unwarranted litigiousness. 

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Consider Taiwan on its Own Terms

One goal of the original TPP-12 was to create an alternative to China-led trade dominance in the region. While Obama sometimes mused that China could join the completed pact, he was also clear that China would be forced to accept CPTPP’s high standards in areas such as non-tariff barriers and state-owned enterprises. Given China’s rising influence and its leading role in RCEP, it seems unlikely that China will seek to rejoin the CPTPP, and certainly not as the deal-taker Obama previously imagined.

Taiwan’s potential accession will force CPTPP members to confront the pact’s geopolitical origins. Some members will resist Taiwan’s entry to avoid provoking Beijing. However, Canada’s position should be to welcome Taiwan’s interest and assess its application on its own merits. After all, Taiwan is a full member of the WTO, which removes any legal barrier to its ability to negotiate accession. Similarly, China is not a party to CPTPP and should have no influence over accession deliberations. Just as Canadians balked at the sovereignty implications of the non-market economy clause inserted into USMCA (Article 32.10), they should be equally suspect of arguments to narrow consideration of new CPTPP members advanced by non-member countries.

Although there is a strong values-based argument to include the tiny democracy in CPTPP, Taiwan’s commercial strengths allow its accession to be considered on economic and strategic grounds. For example, Taiwan is a world leading manufacturer of semiconductors used in everything from smartphones to computers to medical equipment. As China seeks to weaponize aspects of the global chip market for political gain, Canada is vulnerable to supply chain disruptions of these essential components. Taiwan’s accession to CPTPP could help secure stable access to its high-quality products for all CPTPP members.

Yet despite its strong economic case for accession, Taiwan would be smart to delay until the U.K. has largely completed negotiations. Other potential members such as South Korea and Thailand will also be watching and learning from the U.K.’s experience. In fact, joining together with several countries could reduce the politicization of Taiwan’s entry. Taiwan should also take this time to present its diplomatic case for accession, asking supportive CPTPP members to advance its role among those who would be cautious about provoking China. In short, Taiwan must be reasonably confident of its successful accession before formally applying, to avoid the damaging sovereignty implications if rejected.

In this respect, Canada must not falter. Canada must work constructively with China as the world’s second largest economy and a major bilateral trading partner, but the role of Taiwan in CPTPP must be treated separately from Canada’s bilateral relationship with China. As one of the only CPTPP countries with the luxury of an ocean of distance from the Indo-Pacific, Canada should support Taiwan’s efforts to join the pact and urge other members to consider its accession on its economic and strategic merits, without deference to any non-member’s position.

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Conclusion

The U.K.’s accession to CPTPP can reinvigorate a deal that must demonstrate its value relative to other trade blocs in the dynamic Indo-Pacific region. Canada and other countries should work quickly to negotiate with the U.K. while also encouraging additional entrants that are prepared to embrace CPTPP’s high standards. In this respect, countries such as South Korea should be invited, having already demonstrated their willingness to implement next-generation trade agreements with major partners such as the U.S. This will require both Japan and South Korea to see beyond their bilateral disputes to recognize the mutual interest served by bolstering CPTPP as the region’s most important trading bloc. Similarly, if countries such as Thailand, Indonesia and the Philippines are able to raise their ambitions to meet CPTPP’s standards, they should also be welcomed. Finally, small Indo-Pacific states that are highly dependent on China can be offered an alternative path to prosperity through CPTPP’s rules-bound approach to trade. As a major economy and original member of the pact, Canada has an important role to play in its expansion.

GDP Rankings for CPTPP Countries and Potential New Entrants (US$, Billions) CPTPP Membership
United States  21,433 Withdrew
China  14,280 No
Japan 5,082 Full member
United Kingdom 2,829 Accession negotiations
Canada  1,736 Full member
South Korea 1,647 No
Australia 1,397 Full member
Mexico 1,269 Full member
Indonesia  1,119 No
Taiwan 586*  No
Thailand 544 No
Philippines 377 No
Singapore 372 Full member
Malaysia    365 Unratified signatory
Chile 282 Unratified signatory
Vietnam 262 Full member
Peru 227 Unratified signatory
New Zealand 207 Full member
Brunei Darussalam 13 Unratified signatory
Source Data: World Bank 2019; for Taiwan*, United States Trade Representative 2019

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About the Author

Meredith Lilly is a member of the Canadian Global Affairs Institute’s Advisory Council. She is Associate Professor and Simon Reisman Chair in International Economic Policy, Norman Paterson School of International Affairs, Carleton University.

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Canadian Global Affairs Institute

The Canadian Global Affairs Institute focuses on the entire range of Canada’s international relations in all its forms including (in partnership with the University of Calgary’s School of Public Policy), trade investment and international capacity building. Successor to the Canadian Defence and Foreign Affairs Institute (CDFAI, which was established in 2001), the Institute works to inform Canadians about the importance of having a respected and influential voice in those parts of the globe where Canada has significant interests due to trade and investment, origins of Canada’s population, geographic security (and especially security of North America in conjunction with the United States), social development, or the peace and freedom of allied nations. The Institute aims to demonstrate to Canadians the importance of comprehensive foreign, defence and trade policies which both express our values and represent our interests.

The Institute was created to bridge the gap between what Canadians need to know about Canadian international activities and what they do know. Historically Canadians have tended to look abroad out of a search for markets because Canada depends heavily on foreign trade. In the modern post-Cold War world, however, global security and stability have become the bedrocks of global commerce and the free movement of people, goods and ideas across international boundaries. Canada has striven to open the world since the 1930s and was a driving factor behind the adoption of the main structures which underpin globalization such as the International Monetary Fund, the World Bank, the World Trade Organization and emerging free trade networks connecting dozens of international economies. The Canadian Global Affairs Institute recognizes Canada’s contribution to a globalized world and aims to inform Canadians about Canada’s role in that process and the connection between globalization and security.

In all its activities the Institute is a charitable, non-partisan, non-advocacy organization that provides a platform for a variety of viewpoints. It is supported financially by the contributions of individuals, foundations, and corporations. Conclusions or opinions expressed in Institute publications and programs are those of the author(s) and do not necessarily reflect the views of Institute staff, fellows, directors, advisors or any individuals or organizations that provide financial support to, or collaborate with, the Institute.

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