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The CPTPP Bids of China and Taiwan: Issues and Implications

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POLICY PAPER

Published in collaboration with:

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by Hugh Stephens and Jeffrey Kucharski
CGAI Fellows
November 2022


Table of Contents


Introduction

The question of China’s and Taiwan’s accessions to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has generated much interest and debate. It is seen as a critical decision point for the CPTPP because of the important implications this decision will have on the future of the bloc, relations amongst CPTPP members, and the geoeconomic and geopolitical situation in the Indo-Pacific region.

The purpose of this paper is to describe the process that will likely be followed in considering the applications for accession by both Taiwan and China, the factors that may influence the decision, the key hurdles both economies face, and our assessment of the probable outcomes and policy implications for member states, including for Canada.

On September 16, 2021, China formally submitted a request to join the CPTPP, and a week later, on September 22, Taiwan1 formally submitted its own application to join the Agreement as a separate customs territory, similar to the approach it used to join the WTO in 2002.

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History and Background

The current CPTPP grew out of the Trans-Pacific Partnership (TPP) trade agreement, the 12-country pact finalized in 2015. In addition to the existing 11 members of the current CPTPP, the TPP also included the United States. The TPP itself was the result of more than a decade of discussions about concluding a trans-Pacific trading framework. The concept originated in 2005 when New Zealand, Chile, and Singapore, shortly to be joined by Brunei, concluded the “Trans-Pacific Strategic Economic Partnership,” colloquially known as the ‘P4 (Pacific 4) Agreement.’1 In 2008, the Obama administration, which was looking to actualize the U.S. “pivot” toward the Indo-Pacific region, announced that it would join the TPP negotiations as a full-fledged participant. Prior to this, the U.S. had been engaged only on financial services and investment issues, two chapters that had been omitted from the original P4 Agreement. The announcement of U.S. participation precipitated announcements from other interested countries, and at the 2008 APEC summit in Lima, Australia, Peru, and Vietnam announced they were also joining the talks. Malaysia jumped in shortly after. At the time, Canada opted not to join the Agreement since it already enjoyed preferential access to the U.S. market through NAFTA, and Canadian leaders at the time saw little to be gained from access to the other relatively small TPP markets.

The Canadian position changed when it became apparent that the TPP was likely to be finalized, giving its members improved access to the U.S. market that might negate some NAFTA gains. Both Canada and Mexico became negotiating partners in 2012, along with Japan, which joined the negotiations in the same year, making up the 12 participating states that finally reached agreement in 2015. This set in motion the ratification process. Because of the TPP ratification formula, it was imperative that both the U.S. and Japan, because of the size of their economies, ratify the agreement for it to come into effect. However, the TPP became an election issue in the 2016 U.S. presidential election, and when Donald Trump assumed office, one of his first acts was to announce that the U.S. would withdraw from the agreement, effectively killing it. At this point, Canada also had not ratified the agreement, waiting to see what the U.S. would do.

Although the TPP was seemingly dead, Japan led efforts to convince the remaining 11 members to rescue what had been negotiated and to keep the agreement alive, save for elements that related specifically to the U.S. The Japanese hoped that a future U.S. administration might take a different view of the agreement, which had been largely negotiated under U.S. leadership, and with U.S. commercial and political interests in mind. In the end, the TPP-11, renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, was signed on March 8, 2018. In essence, except for tariff schedules related to the U.S. market, the full text was adopted with the exception of 22 clauses, primarily of interest to the U.S. and that dealt with issues such as intellectual property and investment protection. These were suspended, although not dropped from the text. Ratification was then fast-tracked by a number of members, including Canada. When the Australian Parliament ratified the CPTPP on October 31, 2018 (meaning six of the 11 signatories had agreed to implementation), the Agreement was set to come into effect 60 days later. It entered into force on December 30, 2018, for the six ratifying states. Since then, Vietnam, Peru, and Malaysia have ratified the CPTPP.

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Accession process

Even though two of the original signatories (Chile and Brunei) have not yet ratified the CPTPP, its expansion is underway. The Agreement (Article 5) specifically provides for new entrants, stating: “After the date of entry into force of this Agreement, any State or separate customs territory may accede to this Agreement, subject to such terms and conditions as may be agreed between the Parties and that State or separate customs territory.”2

It is worth noting that this wording specifically includes Taiwan, which holds membership in the WTO by virtue of the fact that it is a separate customs territory, although not considered a “state” by many countries.

To give effect to Article 5, CPTPP members have outlined a series of steps that aspirants must follow. This includes notification, including informal engagement with members, before formally notifying the depository state, New Zealand, of a request to begin accession negotiations. Upon receipt of a request, the CPTPP Commission (senior representatives of all the member states meeting annually constitute the Commission) must decide by consensus “within a reasonable period of time after the date on which the aspirant economy made the Accession Request” whether to commence the accession process. A “reasonable period of time” is not defined. Aspirant economies are then encouraged to carry out informal consultations with each member prior to the establishment of a formal accession working group. Accession working groups may be constituted to deal with individual applications or may consider several applications simultaneously. Once a working group is formed, applicants have strict timelines for the submission of market access offers and compliance plans. If the Commission does not agree on the launch of the accession process for a given economy, the aspirant may still continue to engage in consultations with the Parties as part of an effort to build consensus. Thus, denial of consensus initially is not necessarily the end of the process, an important consideration when it comes to applications by China and Taiwan. If negotiations are successfully completed, the Commission makes a decision, again by consensus, admitting the new member within six months, following which the new member must ratify the Agreement as must existing members with respect to the new member. Sixty days after this process is completed, the new entrant becomes a full member of the CPTPP. This very complicated process was aptly captured in a graph schematic [https://www.piie.com/sites/default/files/schott_2021-09-20_piiechart.png] by the Peterson Institute for International Economics.3

To date, the only economy to have begun the negotiating process is the United Kingdom, which signalled its intention to join the CPTPP on February 1, 2021. Since then, China, Taiwan (Customs Territory), Ecuador, and Costa Rica have formally expressed their desire to accede to the Agreement. Even though the U.K. is an open economy that is party to a number of international trade agreements, the process is moving slowly. Given other applications in the wings, especially those from China and Taiwan, it is clear that the existing CPTPP members are conscious that the British application will become somewhat of a bellwether for future applications. To date, the Commission has not taken a position on any of the applications other than that of the U.K.

The sixth meeting of the CPTPP Commission occurred in early October 2022 in Singapore. The Commission issued the following statement with regard to the accession of new members:

We note the growing interest from aspirant economies to accede to the CPTPP. In support of the Agreement’s open architecture, we will reflect on the ongoing accession process with the United Kingdom and continue to exchange views on the CPTPP’s expansion. We will also continue efforts to address subsequent applications in accordance with the CPTPP Accession Process and inform ourselves on whether aspirant economies can meet the CPTPP’s high standards, taking into account their experience on their trade commitments. We reaffirm our support for the expansion of the CPTPP by economies committed to the Agreement’s objectives, able to meet and adhere to its high standard rules and comprehensive market access commitments and with a demonstrated pattern of complying with their trade commitments.”4

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Critical background issues

The current members of the CPTPP face a difficult dilemma in evaluating the applications from both China and Taiwan. These two applications come amid an extremely complex international political and diplomatic environment and a period of high tension between the two economies.

Although Taiwan had been signalling for some time that it wished to join the CPTPP, China managed to submit its application before Taiwan, effectively complicating the accession process for Taiwan. There has been speculation that China's bid was really aimed at blocking Taiwan from entering the agreement. Taiwan submitted its application less than a week later, after which China's foreign ministry announced its firm opposition to Taiwan's accession bid.⁠5 Japan, a CPTPP member, publicly welcomed Taiwan’s application saying: “The Japanese government sees the application from Taiwan, which upholds democratic values and the rule of law, as a positive development."6

 As stated earlier, the CPTPP clearly welcomes all APEC economies and separate customs territories that are prepared to comply with the obligations in the Agreement. Taiwan, as a member of APEC and the WTO, is clearly qualified to make an application to accede to the CPTPP.

On the one hand, the CPTPP bloc wants to expand membership to include other economies that support the goals and aims of the agreement for the purpose of broadening regional economic integration and enjoying the gains from enhanced trade. On the other hand, at least some of the current members may want to ensure that prospective members are not only able and willing to abide by the principles and provisions of the agreement, but also are compatible in terms of their fundamental respect for the international rules-based order. This could potentially include non-trade issues such as human rights and security. Therefore, as much as some might view accession to the CPTPP as primarily a decision based on economics, the reality is that it is also inextricably bound up with geopolitics and security issues as well.

With this in mind, what are some of the issues and considerations that the Accession Working Group (AWG) will need to consider?

In terms of economics, both applicants offer significant advantages should they be accepted. China is the world’s second largest economy and is already the largest trading partner of many CPTPP member states. Thus, China represents a lucrative and attractive market for exporters of goods and services. Greater market access to China could also be an opportunity for suppliers to piggyback on China’s advantageous position in global supply chains. In theory, China’s membership in the CPTPP could serve as an impetus for further liberalization in its markets, and the agreement could act as a moderating force on some of China’s more protectionist economic policies.

While Taiwan is a far smaller economy on a global scale, and thus represents a smaller target market for CPTPP members, it ranks around the 20th largest economy in the world and is an out-performer in certain critical, strategic sectors, including advanced semiconductors (e.g.  TSMC, UMC, etc.) on which a range of advanced technologies rely. Taiwan’s strength in advanced manufacturing, such as for smartphones (e.g. Foxconn), and its foreign direct investments in these sectors are also potentially attractive attributes for CPTPP members.

In terms of geopolitics, there is a wide range of complicating factors that may impinge on accession considerations. Many of these complicate China’s bid for membership.

  • Some believe that China’s application to enter the CPTPP may not have been made in good faith and instead was primarily meant to complicate Taiwan’s bid.
  • China’s aggressive military “exercises” and drills in the Taiwan Strait threaten peace and stability in the South China Sea and could be destabilizing to regional trade.
  • The previous United Nations High Commissioner for Human Rights, Michelle Bachelet, handed down a report recently alleging widespread human rights violations in China. China is already subject to economic sanctions by a number of countries, including Canada, for alleged human rights violations.
  • China has ongoing territorial disputes with other CPTPP members, including Japan, Malaysia, Brunei, and Vietnam.
  • China’s willingness to use economic coercion against countries with which it disagrees has strained relations with several CPTPP members. Following the arrest of a Huawei executive in Vancouver, China halted imports of Canadian canola and meat products. Japan was denied access to rare earths by China in 2010, and Australia has suffered from Chinese import bans on its exports.
  • China faces several other issues that could complicate its acceptance, including its support of Russia in the Russia-Ukraine war and negative aspects of its Belt and Road Initiative (BRI).
  • Taiwan’s bid to join the CPTPP faces resistance from some Southeast Asian member nations who fear that their support for Taiwan’s accession could complicate relations with China.
  • All CPTPP member states recognize Beijing as the sole legitimate government of China (although whether Taiwan is a part of China is ambiguous), and none recognize Taiwan as an independent state. (However, it is not necessary to be a sovereign state to be a member of an international trade agreement. A separate customs territory suffices. Hong Kong, China, is an example.)

Compatibility issues

Another complicating factor that would likely impact accession decisions is one of compatibility. Given the CPTPP’s purpose is to create a high-standard trade agreement to promote free and open trade, one would assume that potential members would be expected to adhere to the fundamental purpose, principles, and goals of the agreement.

Politically, Taiwan is a democratic, free, and open society with a market-based economy largely free of government interference. China is an authoritarian state with strong political control exercised by the Chinese Communist Party (CCP). China’s economy has both market and significant non-market aspects, and under the current leadership, there has been greater state intervention and tighter control exerted over the private sector. There are also questions about how committed China is to free and open trade, considering its use of economic coercion.

The original TPP was conceived by the Obama administration in the U.S. as a counterbalance to China’s growing economic influence in the Indo-Pacific. The Trump administration’s withdrawal from the TPP left China free to continue to strengthen its economic influence in the region. With the CPTPP adopting most of the TPP provisions without changes, leadership has shifted to Japan as the largest economy in the bloc. Japan has been keen to maintain fidelity to the strategic aims of the TPP, including the role the CPTPP can play in balancing against China’s economic dominance. As such, there remain important strategic considerations for Japan and presumably other CPTPP members in evaluating the applications of new members.

While the U.S. has not made public comments on whether China or Taiwan should be admitted to the CPTPP, it has been increasing restrictions on China for certain products and technologies (e.g. semiconductors) and has demonstrated strong support for Taiwan both militarily and economically. The U.S. has an interest in the outcome of accession decisions, and given the current situation, one would have to assume that the admission of China to the CPTPP would not be welcomed by the U.S. For the most part, existing CPTPP members hope that the U.S. may someday return to the agreement when U.S. political conditions are more favourable. Thus, it seems unlikely that members would want to admit China knowing that this could have negative repercussions for their relations with the U.S. The admission of China could also have direct implications for Canada and Mexico since Article 32.10 of the Canada-U.S.-Mexico Agreement (CUSMA) specifies that a party to that agreement can terminate it and replace it with a bilateral agreement between the remaining parties should one of the parties enter into a free trade agreement with a non-market economy country (e.g.  China).7

There is also the matter of China’s long-term economic strategy and its compatibility with the vision held by members of the CPTPP. China has developed various economic strategies designed to secure global leadership in certain technologies, the “Made in China 2025” initiative being one example. More recently, China’s “dual-circulation strategy” reflects its long-term goal of becoming self-sufficient. The aim of the dual-circulation strategy is to reduce China’s import dependence on natural resources and certain technologies by building vertically integrated production systems within China. The focus is on promoting self-reliance and serving China’s own domestic market. The dual-circulation strategy may be seen as fundamentally incompatible with the goals of the CPTPP, and the view of regional economic integration held by its members.

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Key hurdles to accession

Although both China and Taiwan have submitted requests to accede to the CPTPP agreement, and both are undertaking initiatives to assist in complying with the provisions of the agreement, there are a number of these provisions that make China’s bid particularly problematic.

 

China

In early 2021, China's State Council appointed an international trade representative to lead the negotiation of trade agreements, including the CPTPP.  According to statements by China’s Vice-Minister of Commerce and Deputy China International Trade Representative Wang Shouwen, “the country is willing to fully meet the high standards of CPTPP through active efforts.”

Before officially applying for CPTPP membership, China said that it had conducted “comprehensive and in-depth studies on CPTPP provisions” and that the country had determined which laws, regulations, and reform measures will need to be modified in order to conform to the agreement.8 President Xi Jinping has stated that China will “take an active and open attitude” in negotiations on issues such as the digital economy, trade and the environment, industrial subsidies, and state-owned enterprises9.Since submitting its formal application, Beijing has been lobbying CPTPP countries to gain support for negotiations on China’s accession.

Some key hurdles for China to overcome in complying with CPTPP provisions may include the following:

Chapter 14 - Digital trade: China may have problems complying with the protection of cross-border data transfers and enterprise source codes. Unlike RCEP, the CPTPP prohibits the forced transfer of source codes and eliminates data localization requirements with some exceptions. This contrasts with the RCEP agreement (of which China is a member), where members enjoy a much more generous waiver. The provisions of this chapter are subject to the CPTPP’s dispute settlement process, which China may also find difficult to accept.

Chapter 17 - State-owned enterprises (SOEs): Much attention has been paid to whether China would be willing or able to make sufficient changes to its SOE system in order to comply with this provision. President Xi stated in 2021 that China is open to negotiations on industrial subsidies and SOEs to help gain acceptance into the CPTPP. However, the changes that China would need to make to comply with the provisions in this chapter appear antithetical to China’s current domestic economic and political structure and at odds with China’s moves to actually strengthen the role of SOEs (see below).

Chapter 18 - Intellectual Property (IP): Interestingly, given the criticism that is often directed at China for a weak IP regime that disadvantages foreign companies, this is one area where China would likely be able to comply (at least in terms of the letter of the agreement) without too much difficulty given that several articles within the original TPP IP chapter, relating to patents and pharmaceuticals, copyright, and ISP liability, were suspended when the U.S. left the agreement.

Chapter 19 - Labour: This chapter incorporates enforceable labour rights and obligations and reaffirms the commitments of the parties to respect internationally recognized labour rights and principles. This chapter includes the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work and its Follow-up (1998) (“ILO Declaration”). The ILO Declaration provides the right to freedom of association and prohibits all forms of forced labour, child labour, and discrimination in respect of employment. Given the allegations against China of human rights violations, including forced labour in Xinjiang and in the aforementioned report by the United Nations High Commissioner for Human Rights, this provision may be a significant barrier for China to overcome.

Chapter 26 - Transparency and Anti-Corruption: China’s regulatory environment has been criticized for its lack of transparency and fairness, especially with respect to the treatment of foreign companies and products. Corruption is also a pervasive problem in China, including in matters that affect trade and investment. The CPTPP sets strong transparency, anti-corruption, and ethical standards, and while China has made some progress in addressing these issues, problems remain.

In summary, the CPTPP contains various provisions that are at odds with China’s current policies and practices. China is unlikely to be able to conform to these provisions unless current members agree to significant concessions in the negotiations. Barring such concessions, it is hard to see how China would qualify or agree to make the level of changes to its laws and regulatory systems required to gain acceptance to the CPTPP.

 

Taiwan

In September 2016, the Executive Yuan designated a Minister Without Portfolio to oversee cross-agency preparatory work for joining what was then the TPP agreement. The Office of Trade Negotiations (OTN) under the Executive Yuan (the Cabinet) is the government agency responsible for the international trade negotiations for Taiwan. This office co-ordinates with other agencies to develop Taiwan’s negotiating positions.

After the CPTPP released its official text, all relevant government agencies in Taiwan were tasked with completing a “gap analysis” to identify any discrepancies between Taiwan’s current domestic laws and regulations and CPTPP obligations. The government examined each article of the agreement to evaluate the rights and obligations expected of new members. Eleven laws were identified for amendment to make them compliant with provisions of the CPTPP. These laws mostly relate to agriculture, fisheries, pharmaceutical patents, cosmetics, pesticides, the environment, and postal regulations. The Copyright Act, Trademark Act, and Patent Act have been amended to increase the level of protection required by the CPTPP. Taiwan has also amended and enacted fishery management regulations to comply with the CPTPP environment chapter’s goal of sustainable fisheries and to reduce overfishing.  As of April 2022, all the relevant laws have now been amended,10 having received support from all the major political parties.⁠⁠11

Taiwan has taken the additional step of aligning domestic rules with international standards, such as establishing maximum residue limits for antibiotics in pork. Another politically sensitive issue that has been addressed was Taiwan’s ban on food products from five Japanese prefectures due to concerns over radioactivity caused by the Fukushima nuclear power plant disaster. The ban was lifted on February 18, 2022, removing an irritant in Taiwan’s bilateral relationship with Japan, and smoothing the way to gaining Japan’s support for Taiwan’s bid to join the CPTPP.

Generally speaking, the CPTPP aims to remove all tariffs for all members with few exceptions. On average, zero-tariff coverage for manufactured goods is 100 per cent and 96.2 per cent for agricultural goods among all CPTPP members. Under the CPTPP, tariffs can be eliminated gradually over “phase-out” periods, which vary by country and are detailed in each country’s respective tariff elimination schedules. As with other countries, this will be subject to negotiation in the case of Taiwan and China.

Taiwan’s average nominal tariff rate on manufactured products is 4.13 per cent, while on agricultural imports, it is currently about 15.6 per cent.⁠⁠12 Achieving zero or near-zero tariff levels for manufactured products should be relatively easy to achieve given the low tariff rates already in force. On the other hand, agricultural products will be the most significant challenge the economy faces, and the impact on the sector will have significant economic implications. Taiwan has identified a list of 20 "sensitive agricultural products"13 that are currently protected by high tariff rates as well as by tariff-rate quotas and special safeguard measures.14 By comparison,  Japan–a country with a highly protected agricultural sector­–eliminated tariffs on nearly 32 per cent of its tariff lines on agriculture and agri-food products when the CPTPP came into force, with further tariff reductions and preferential treatments to be phased in over a period of up to 20 years.15 Therefore, it is possible that Taiwan would be able to negotiate acceptable terms for reducing tariffs on its own agriculture and food products over a similar phase-in period.

 

State-owned enterprises (SOEs)

The issue of SOEs looms large in many analyses of whether China, in particular, could conform its state-owned sector to the requirements of the CPTPP’s Article 17. Both China and Taiwan have SOEs; however, their number, role, and influence in the two economies are quite different.

According to the OECD, the Chinese government controls 51,000 SOEs (the largest number in the world) with a total value of around US$29.2 trillion. In total, they account for between 23-28 per cent of China’s GDP16 and employ more than 20 million people.17 China’s SOEs, many of which are immense monopolies or oligopolies, dominate key industries, including energy, aviation, finance, telecoms, and transportation. The ability of foreign businesses to compete within these sectors is either limited by law or constrained through the monopolistic power exercised by the SOEs. Furthermore, SOEs must act in alignment with the strategic goals of the CCP and, despite recent reforms, transparency of ownership and political influence are still issues of concern. China’s SOEs continue to enjoy implicit guarantees of government support as well as access to capital at lower cost than would otherwise be available to private enterprises.

Under Xi Jinping, there have been numerous SOE reforms, including separating ownership and management and allowing SOEs to become more market-driven and competitive. China views SOEs as playing a special role in providing public services, stabilizing the economy during periods of volatility, and supporting government industrial policy and other initiatives. However, rather than reducing the size and influence of China’s SOEs, China has strengthened them, creating even larger ones with increased oligopolistic power. SOEs are seen not only as key to advancing China’s economic goals (including within the Belt and Road Initiative) but also must contribute to strengthening the CCP.18

By contrast, SOEs play a far less prominent role in Taiwan’s economy. There are only about 15 SOEs in Taiwan, many of which are domestic public utilities (such as Taiwan Power) or primary industry enterprises (such as Taiwan Sugar). Few have international operations of any significance. Taiwan’s Ministry of Economic Affairs has been implementing a program to privatize most of the SOEs under its authority, and a number have already been privatized, although the government itself is likely to remain the majority shareholder in some even after privatization. There is no explicit or implicit role for Taiwan’s SOEs in furthering the strategic goals of the state, nor are Taiwan’s SOEs expected to play a role in favouring one or more political parties as the system acts at arm’s-length from government decision-making.

Taiwan’s government does not believe that it will have any difficulty meeting the provisions of the CPTPP regarding SOEs, as the role of SOEs is to “stabilize the domestic economy and prices” and, therefore, would “not cause significant distortion in international prices.”19

In summary, approval for China may be difficult given global concerns about its support for Russia’s invasion of Ukraine, its trade practices, economic coercion, and industrial policies. Officials from Australia have highlighted trade frictions with China as a potential hurdle, and Japanese officials have questioned China’s ability to adhere to CPTPP commitments. Taiwan’s economic policies may be more aligned with CPTPP criteria, but its participation faces significant political challenges. Given that China has not fully transitioned into a traditional market economy nearly 20 years after its WTO accession is also likely to be viewed unfavourably by many CPTPP members.

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Likely scenarios in the accession process

In evaluating the scenarios regarding the outcome of China and Taiwan’s applications, it is important to note that Article 30.4 of the CPTPP clearly welcomes all APEC economies and separate customs territories that are prepared to comply with the obligations in the agreement. Both Taiwan and China, therefore, qualify to submit applications. 

There are four possible scenarios arising from the applications from China and Taiwan:

  • Both China and Taiwan are accepted;
  • China is accepted and Taiwan is not;
  • Taiwan is accepted and China is not, and;
  • Neither China nor Taiwan is accepted.

Based on our analysis, the evidence presented in this paper suggests that the probability that China is accepted but not Taiwan is low. For similar reasons, the probability that both China and Taiwan are accepted is also relatively low, although cannot be excluded.

That leaves two other possible outcomes. There is a strong possibility that neither Taiwan nor China are accepted, but if this were the outcome, it would most likely arise from the failure to reach a consensus among the CPTPP members on one or both of these applications. Even if one of them was excluded because it failed to meet the criteria for membership, there are likely some countries that would then wish to exclude both in order not to be seen favouring one over the other. In effect, this would unfairly tie a decision on Taiwan to China’s inability to meet the terms of accession.

The remaining outcome is that Taiwan is accepted, and China is not. If CPTPP members evaluate the two applications on their merits­–that is, conformity to CPTPP’s provisions­–then they would most probably choose to accept Taiwan’s bid and not accept China’s. However, there are indications that some ASEAN countries may want to avoid a decision on Taiwan given the current state of cross-strait relations and their own economic relations with China.

The reality is that China’s failure to accede would hardly be an economic blow to that country, given the size of its economy and its membership in a range of existing trade agreements, including the RCEP and a host of bilateral agreements. However, a rejection of Taiwan would serve to reinforce Taiwan’s exclusion from membership in any regional trade agreements, further isolating it from regional integration and leaving it more vulnerable to economic coercion from China and a gradual decline in its international competitiveness. Therefore, a decision to reject both China's and Taiwan’s applications impacts Taiwan much more heavily, a prospect that could be seen as providing a net benefit to China (by preventing Taiwan’s accession) and risk undermining the CPTPP’s credibility on fundamental principles.

There is a fifth scenario to add to the list above. The CPTPP Parties could also choose to delay a decision on the two countries by aggregating all current applications into one process. There is a finite limit to the trade negotiating resources that can be made available to negotiate accession. With four economies now in the formal application line, with possibly more to come, it becomes impractical to negotiate each accession separately. Lumping all current applications together would most likely delay consideration of China’s and Taiwan’s applications, effectively kicking the can down the road until a more propitious time. One has to ask the question, however, as to whether the situation in the future will be any more favourable to a balanced decision than now.

One thing is certain. A non-member (e.g. China) should not be allowed a veto over another aspirant. The same applies to the U.S., although the U.S. can resort to the bilateral commitment through Article 32.10 of the CUSMA made by Canada and Mexico to bring indirect pressure to bear.

Canada must bear all these considerations in mind when developing its position. If Canada were to remain true to the statement released by the CPTPP Commission that stated, “We reaffirm our support for the expansion of the CPTPP by economies committed to the Agreement’s objectives, able to meet and adhere to its high standard rules and comprehensive market access commitments and with a demonstrated pattern of complying with their trade commitments,” then there is no doubt that it should support Taiwan’s application regardless of whether China meets the CPTPP’s standard or not. Whether it will have the political courage to do so is another question.

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Recommendations

Our recommendations as to what approach Canada should take to the CPTPP applications of both China and Taiwan come down to basic principles, giving Canadian decision-makers flexibility within a set of overarching guidelines.

It goes without saying that Canada’s position on the accession process of both Taiwan and China must, above all, be based on the overall Canadian interest. That said, a key consideration must be demonstrated readiness and willingness of aspirants to meet CPTPP terms. Each application should be judged primarily on this basis. While applications can be considered and negotiated together for practical purposes, they should be decided individually, with a lack of a decision on one party not being used as a pretext to hold up other qualified applicants. It is also important that non-members not be allowed to determine who is admitted, nor should prospective applicants have a say over the fate of other applicants. Only fully ratified members should have the power to decide on entry from both a de facto and de jure perspective. Finally, the decision must be made in a timely manner, a term which has some flexibility but does not include indefinite delay.

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References  

1 Elms, Deborah; “Trade Regionalism in the Asia Pacific,” Sanchita Basu Das and Masahiro Kawai (eds), ISEAS Yusof Ishak Institute, Singapore, 2016, pp. 29-49.

2 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (text). Government of Canada. https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/text-texte/cptpp-ptpgp.aspx?lang=eng

3 Schott, Jeffrey; “Joining the CPTPP is a long process and needs consensus among existing members,” Peterson Institute for International Economics, September 23, 2021. https://www.piie.com/research/piie-charts/joining-cptpp-long-process-and-needs-consensus-among-existing-members

4 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Joint Ministerial Statement on the Occasion of the Sixth Commission Meeting, https://www.mti.gov.sg/Newsroom/Press-Releases/2022/10/; accessed October 18, 2022

5 Stephens, Hugh; “China’s CPTPP Application: Serious Economic Move or Strategic Political Gambit?”, China-US Focus, October 18, 2021; https://www.chinausfocus.com/finance-economy/chinas-cptpp-application-serious-economic-move-or-strategic-political-gambit; accessed April 16, 2022

6 Nakamura, Yu; Ebuchi Tomohiro; and Kaneko, Satsuki; Taiwan submits bid to join CPTPP trade pact, Nikkei Asia, Sept. 22, 2021. https://asia.nikkei.com/Economy/Trade/Taiwan-submits-bid-to-join-CPTPP-trade-pact

7 Although Vietnam is arguably also a non-market economy, Article 32.10’s definition of a non-market economy is qualified by the following conditions; “that on the date of signature of this Agreement, a Party has determined to be a non-market economy for purposes of its trade remedy laws; and (b) with which no Party has signed a free trade agreement.” Part (b) thus excludes Vietnam as it was already a member of the CPTPP at the time that the CUSMA came into effect.

8 “China willing to meet CPTPP standards”; The State Council of the PRC, March 2, 2022. http://english.www.gov.cn/statecouncil/ministries/202203/02/content_WS621eab4bc6d09c94e48a5b85.html

9 Tan, CK; “Xi says open to discussion on state-owned companies in CPTPP talks,” Nikkei Asia, November 5, 2021. https://asia.nikkei.com/Economy/Trade/Xi-says-open-to-discussion-on-state-owned-companies-in-CPTPP-talks

10 “Taiwan’s Trade Partnership with the U.S. and Canada and Efforts for Regional Trade Integration” (private presentation). Office of Trade Negotiations, Executive Yuan. 2022.

11 “Overview of Taiwan, Penghu, Kinmen and Matsu’s Trade Regime and Current Preparatory Work .”Office of Trade Negotiations, Executive Yuan. September 29, 2021. https://www.ey.gov.tw/otnen/6035C94D1B8705A1

12 In 2022, the average nominal tariff rate for industrial products was 4.13 percent and 15.06 percent for agricultural products. The overall average nominal tariff rate for imported goods was 6.34 percent. See: https://www.coa.gov.tw/ws.php?id=2503923. The average trade-weighted tariff rates for manufactured goods entering Taiwan is only 1.49 per cent; while the average trade-weighted tariff rate for agricultural imports is 9.44 per cent. See: Lee, Roy. “CPTPP membership for Taiwan: rationales, challenges, and outlook,” Taiwan WTO & RTA Center, Chung-Hua Institution for Economic Research (CIER). September 2022.

13 This includes: rice, peanuts, red beans, garlic, dried mushrooms, dried golden needles, coconut, betel nut, pineapple, mango, grapefruit, persimmon, Longan meat, Oriental pears, bananas, antler velvet, liquid milk, chicken, pork flank meat, animal offal, etc. See: Council of Agriculture, Executive Yuan (in Chinese). https://www.coa.gov.tw/ws.php?id=2503923

14 Taiwan Council of Agriculture. “Common questions regarding the impact on joining the CPTPP: https://www.coa.gov.tw/ws.php?id=2503923 (in Chinese).

15 Government of Canada; “CPTPP and Canada’s agriculture and agri-food sector.” https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/sectors-secteurs/agri.aspx?lang=eng

16 Zhang, Chunlin; “How Much Do State-Owned Enterprises Contribute to China’s GDP and Employment?”; World Bank, 2019. https://openknowledge.worldbank.org/handle/10986/32306

17 OECD; “The size and sectoral distribution of state-owned enterprises, September 14, 2017. https://www.oecd.org/corporate/the-size-and-sectoral-distribution-of-state-owned-enterprises-9789264280663-en.htm

18 Borst, Nicholas; “Has China given up on state-owned enterprise reform?” The Lowy Institute, April 15, 2021. https://www.lowyinstitute.org/the-interpreter/has-china-given-state-owned-enterprise-reform

19 Personal communication with Office of Trade Negotiations, Executive Yuan, Taiwan.

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End Notes

1 The WTO formally recognizes Taiwan as the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei).”

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About the Authors

Hugh Stephens has 40 years of government and business experience in the Asia-Pacific region. Based in Victoria, BC, Canada, he is currently Vice Chair of the Canadian Committee on Pacific Economic Cooperation (CANCPEC), Distinguished Fellow at the Asia Pacific Foundation of Canada, and Executive Fellow at the School of Public Policy at the University of Calgary. In addition, he teaches in the MBA program at Royal Roads University as an Associate Faculty member.

Before returning to Canada in December 2009, he was Senior Vice President (Public Policy) for Asia-Pacific for Time Warner for almost a decade, located at the company’s regional headquarters in Hong Kong. In recent years, he has written and commented extensively on Canada’s engagement with the Asia Pacific region including articles published in The Globe and Mail, National Post, Ottawa Citizen, iPolitics, The Diplomat, Open Canada, and others. He currently maintains an active blog on international intellectual property issues (www.hughstephensblog.net).

Prior to joining Time Warner in 2000, Mr. Stephens spent 30 years in the Canadian Foreign Service with the Department of External Affairs, later the Department of Foreign Affairs and International Trade (DFAIT). His last Ottawa assignment was as Assistant Deputy Minister for Policy and Communications in DFAIT. He also served abroad as Canadian Representative in Taiwan, Counsellor and Charge d’affaires at the Canadian Embassies in Seoul, Korea and Islamabad, Pakistan, among a number other overseas and headquarters assignments, including service at the Canadian Embassies in Beirut, Lebanon, Beijing, China and Mandarin language training in Hong Kong.

Mr. Stephens was educated at the University of British Columbia (BA-Hons), University of Toronto (B.Ed) and Duke University (MA), and has a Certificate in Mandarin from the Chinese University of Hong Kong.

 

Jeff Kucharski is an Adjunct Professor at Royal Roads University and teaches courses in the School of Business. Dr. Kucharski is a strategic thinker, policy entrepreneur and international business facilitator. Over the course of his broad and diverse public service career, he held roles responsible for international business and trade development, policy development, strategic planning, strategic partnership building, national and international government relations, energy regulatory affairs and project management. Dr. Kucharski spent almost half his working career in Japan in various roles including with the Seibu Group, as the Government of Alberta’s trade representative in Tokyo and as Consul and Senior Trade Commissioner with the Federal Department of Foreign Affairs and International Trade in Nagoya. As Assistant Deputy Minister at the Alberta Department of Energy, he co-led various federal-provincial task groups on energy issues, led a major regulatory review of Alberta's energy sector, and negotiated formal energy cooperation agreements with the governments of China and Japan to enhance energy security and expand energy cooperation.

Prof. Kucharski’s academic research interests include international trade, energy policy, energy trade, and the geopolitics of the international energy business. He has published peer-reviewed research in several international journals and with various academic institutions, including the Canadian Global Affairs Institute, the Macdonald-Laurier Institute, University of British Columbia School of Public Policy and Global Affairs and the University of Calgary Policy School.

Prof. Kucharski holds a Doctor of Energy Science degree (Ph.D) from the Graduate School of Energy Science, Department of Socio-environmental Energy Science, Kyoto University in Japan and MBA and B.Com degrees from the University of Alberta.

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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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