Media  Global Economy  2021.11.10

China’s application for admission to the TPP: whether to make the most of it or not depends on Japan ~Most important are the role played by the EU and the leadership taken by Japan~

The article was originally posted on JBpress on October 19, 2021 

Trade Policy

1. China’s application for admission as seen from a global perspective

On September 16, China applied for admission to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and six days later, Taiwan followed suit.

In response to these moves, while Prime Minister Fumio Kishida showed his intention of welcoming Taiwan’s admission to the CPTPP, he indicated his slightly negative stance to China’s participation, suggesting that it was unclear whether China could meet the requirements for admission to the partnership.

For this reason, in Japan, attention is focused on the relationship between China and Taiwan over the CPTPP.

However, as the highest level of infrastructure to advance the free trade system, the CPTPP has large impacts on, and is highly significant in ensuring sound development of, the global economy, and if that is taken into consideration, it does not seem that the problems between China and Taiwan are issues that the world should place emphasis on and give high priority to.

A look at many of the recent discussions indicates that the tremendous significance of the CPTPP created under the leadership of the Japanese government is not fully understood.

As the World Trade Organization (WTO) fails to make progress in reforming its organization because it is difficult to form a consensus among its member countries, while its malfunctioning has long been regarded as problematic, it is expected that the CPTPP will replace the WTO in providing a platform covering goods and services which supports the free trade system in the next generation.

Currently, all important organizations aimed at forming an international consensus, including the United Nations, WTO, North Atlantic Treaty Organization (NATO), and G20 and G7 summit meetings, see conflicts of opinion intensifying among their member countries, making it difficult to form a consensus on effective policy to solve important global issues.

If, in addition to the membership of eleven countries on December 30, 2018 when the CPTPP took effect, the EU, South Korea, and many other countries of the world as well as the United Kingdom, China, and Taiwan join the partnership in the future, the CPTPP will replace the WTO and become an effective platform that offers even higher free-trade standards.

The significance of its existence is extremely high under the recent circumstances under which the malfunctioning of international organizations is conspicuous.

It is important to further understand this weighty significance of the CPTPP and grave responsibility of Japan as a leader of the partnership and strive to discuss the CPTPP from a broader perspective in a well-balanced manner.

As shown above, Japan’s approach to the CPTPP will be an important test of whether Japan can fulfill its functions as a reliable country in the international community in the future as expected by various countries of the world.

Politically, it is needless to say that it is important to give consideration to its relationships with China, Taiwan, the United States, and other countries.

In addition to that, however, the world is paying attention to whether Japan’s basic stance to endeavor to contribute to the global economy through the advancement of the CPTPP wavers.

2. Touchstone for maintaining Japan’s independence

In relation to the CPTPP, there is another reason attention is focused on Japan.

That is the fact that without the support of the U.S., Japan took leadership independently and finally managed to bring the CPTPP to its effectuation.

After World War II, Japan consistently took a cooperative line toward the U.S. and achieved great success in economic and social development.

But Japan attracted little attention in many of the important international conferences and failed to display leadership by itself. It always took the stance of following the U.S.

One of the initial reasons Japan participated in negotiations for joining the CPTPP was probably to follow the U.S. in order to maintain favorable relations with it.

The U.S. began to consider joining the TPP in 2008, and a general agreement was reached in 2015. Japan took part in the negotiations for admission in 2013.

During this interval, negotiations for the Transatlantic Trade and Investment Partnership (TTIP) progressed between the U.S. and the EU.

Subsequently, however, the Donald Trump administration discontinued these negotiations, and at the end of 2016, the EU announced that the TTIP negotiations had ended without agreement.

In January 2017, the Trump administration withdrew from the TPP, too.

If Japan’s previous stance of following the U.S. was taken into account, it was predicted that like the EU, it would discontinue the TPP negotiations.

Contrary to the expectations of the world, however, the Shinzo Abe administration took leadership in continuing negotiations to join the TPP, and at the end of 2018, it achieved the effectuation of the CPTPP.

This surprised the entire world, including the EU and U.S.

Japan led the creation of an organization that is important to global politics, economy, and society for the first time in the postwar period.

This was taken as a step towards outgrowing its long deference to the U.S. and shift its policy toward displaying its independence and was highly rated by Western experts.

Behind this favorable evaluation was the international trust in Japan’s sincere, consistent attitude.

Japan had had an established reputation of being trusted but lacking in its ability to display leadership.

Because of that it should be understood that Japan’s recent independent display of leadership was all the more welcomed.

One major reason Japan was able to display its independence in addressing these important issues was probably Prime Minister Abe’s steady efforts to express his opinions actively in the international arena and the stability of his administration’s political foundation in the country.

Whether the U.K. is allowed to join the CPTPP in the future (Negotiations for admission began in June) is a matter of time, and subsequently, the EU is also likely to apply for admission.

If the EU is admitted to the CPTPP, the influence of the CPTPP member countries will be remarkably heightened.

If, on the contrary, the EU does not join the partnership, it will be difficult to maintain the independence of the CPTPP as it is embroiled in the conflicts between the U.S. and China even if the U.K. joins the current membership of the CPTPP.

It highly likely that it will become difficult to make neutral and objective decisions on the admission of China to the CPTPP.

3. Purposes and reasons for which China decided to apply for admission

China has three purposes in applying for admission to the CPTPP.

One is to reinforce its defenses, based on its geopolitical intentions, against the iron ring the U.S. is forming to encircle China.

It is needless to explain this point here because it is most widely recognized.

Another is China’s commitment to maintaining the free trade system.

With its admission to WTO in 2001, China steadily expanded its exports as the free trade system was maintained and achieved economic development driven by exports and investments.

In this sense, China enjoyed the benefits of free trade most.

Just because of that, the Chinese government’s stance is to object strongly to the growing trade and technology frictions with the U.S. and the possible collapse of the free trade system.

A third reason is that China aims at accelerating reforms of economic structure in the country using negotiations for admission to the CPTPP as pressure from outside.

The following section offers detailed explanations on this point.

The Xi Jinping administration strove to push the economic reforms it had clearly presented at the Third Plenary Session of the 18th Central Committee of the Communist Party of China in November 2013 but was unable to embark on such reforms in earnest under the pressure of the below-listed important issues it had to handle.

A succession of urgent issues occurred, urging the Xi administration to grapple with them. Examples include the anti-corruption campaign in 2013 and organizational reforms of the Liberation Army that were advanced in parallel with the campaign, the handling of huge bad debts that had grown sharply owing to economic stimulative measures after the collapse of Lehman Brothers, responses to risks of business recessions and the confusion in the financial and exchange markets in 2015 and 2016, measures taken to cope with the trade and technology frictions triggered by the Trump administration in 2017 and thereafter, and the spread of the COVID-19 pandemic in 2020.

Future prospects indicate, meanwhile, that China will see the end of its period of rapid economic growth in the middle of the 2020s and a rapid shift to a period of stable growth in the second half of the decade and thereafter.

Since the risk of an economy becoming unstable rises with the rapid decline of the growth rate, China needs to hold factors for economic and social confusion in check in advance as it prepares for them.

To that end, the Chinese government gives priority to working on reforms to reduce three major risks: financial and fiscal risks, disparities between the rich and poor, and environmental pollution.

Maintaining economic stability is essential to push forward with reforms boldly. This requires structural reforms to cooperate smoothly with the global economy.

Specifically, structural reforms aim at reforming state-owned enterprises, standardizing conditions of competition between state-owned enterprises, private enterprises, and foreign-affiliated businesses (such as conditions for market entry and subsidies), ensuring the transparency of accounting standards for enterprises irrespective of whether they are stated-owned or private, and making government procurement fair, among others.

Opposition to such reforms is strong among state-owned enterprises, provincial governments, financial institutions, and other parties with vested interests, which fear losing such interests through the reforms.

Therefore, the central government intends to use pressure from outside. This is the same method as one the Japanese government once used.

The Foreign Investment Law, which came into force at the beginning of 2020, has improved the investment environment for foreign-affiliated businesses using pressure from the U.S.

The Comprehensive Agreement on Investment (CAI) on which the EU reached a general agreement with China at the end of 2020 has used pressure from the EU to promote the establishment of global standards in the Chinese market.

And China has recently set an even higher reform goal by applying for admission to the CPTPP.

Through these initiatives, China attempts to use external pressure to raise standards for setting goals of domestic reforms and accelerate their implementation.

It is not as difficult for China to meet the requirements for admission as generally thought.

Since China has advanced reforms of its domestic market using external pressure as described above, it is no longer difficult for China to satisfy most of the requirements for admission compared to many other developing countries.

There are some exceptions, however.

For example, the “labor” chapter, which requires member countries to grant the right to organize labor unions voluntarily, is highly likely to conflict with the constitution of China, and attention is focused on how the Chinese government responds to it.

. The views of Americans are not monolithic

It is generally understood that the U.S. is opposed to the admission of China to the CPTPP.

America’s basic approach is to fear that as the U.S. cannot join the CPTPP owing to domestic political restrictions, China establishes stronger economic cooperation with other countries by joining the partnership.

In other words, the U.S. objects to China’s admission from a geopolitical perspective.

In addition to this, some experts in diplomatic and national security issues are opposed to China’s admission to the CPTPP since they are concerned that the admission will advance reforms of economic structure in the country, prompting the Chinese economy to achieve sustained development and exceed America’s in scale.

Those opposed to China’s admission to the CPTPP hope that Japan will prevent China from joining the partnership.

In fact, however, there are many among American experts who support the admission of China to the CPTPP. But they do not constitute a majority of Americans.

These experts believe that the U.S. should also join the CPTPP, an important system launched under America’s leadership to strengthen the global foundation of free trade.

They favorably evaluate American initiatives, saying that the U.S. encouraged China’s economic reforms and achieved certain results. They believe that the view that the U.S. policy of engagement toward China was entirely a failure is wrong and that the U.S should continue to make efforts to bring the Chinese economy as close to the global standards as possible.

The CPTPP comes as an extension of the efforts the U.S. has made in the past.

The current U.S. administration’s refusal to join the CPTPP represents a short-sighted approach restricted by domestic political circumstances, harming the long-term national interests of the country.

Experts with such a view hope that Japan will contribute to urging both the U.S. and China to join the CPTPP.

Japan is a truly trusted ally of the U.S. that contributes to it in a way that underpins its long-term national interests when it is moving in a wrong direction in the short run owing to its domestic political circumstances.

If it supports the long-term national interests of the U.S., Japan’s reputation as its ally will be further heightened.

5. Position of Europe

European experts regard China as a systematic rival, basically having almost the same view of China as their American counterpart.

But their opinion of specific measures to be taken toward China are different from those of American experts.

Many of the European experts vested in China assess America’s hard-line policy through military pressure and economic sanctions as ineffective, unrealistic, and naive.

These experts argue that it is a correct policy to deepen mutual understanding through dialogue with China and lead China to change itself by sharing such platforms as the CAI and the TPP as mentioned above.

Recently, the rift between the U.S. and Europe has widened over issues such as the campaign to withdraw from Afghanistan, the provision of nuclear submarine technology from the U.S. to Australia, and the cancellation of the submarine agreement between Australia and France.

Under these circumstances, there is a tendency among experts in the EU to support moves to become more autonomous from the U.S.

This tendency has long been observed among EU countries, including Germany and France, but recently, as such awareness grows, it appears that there has been a somewhat lack of concerted action between the U.S. and the EU in terms of policy toward China as well.

. Roles of Japan

This last section discusses the roles Japan should play in the future taking into consideration the global political and economic situation that surrounds the CPTPP as described above.

What should be emphasized more than anything else is that Japan should fill the role of contributing greatly to the global economy by taking the initiative in actively supporting sound development of the CPTPP as the highest platform to advance the free trade system.

Such a contribution would certainly enhance Japan’s status in the international community.

The ideal type of leadership for Japan is not to be in the forefront and lead all CPTPP members as Westerners would do but to pay carefully thought-out attention and back up harmonious cooperation to help encourage the smooth formation of a consensus among them – a “caretaker” type of leadership.

This type of leadership is suitable for Japan. It makes it easy for Japan to display its sincerity and garner the trust of member countries.

Based on the prerequisite mentioned above, in order to ensure that the U.S. can join the CPTPP early, Japan should make preparations as much as possible to alleviate the conflicts between the U.S. and China.

By minimizing the qualification clauses against China when meeting the requirements for admission, Japan should help the country to push reforms of economic structure in the country by overcoming the high hurdles through its own efforts.

This would also help China to recover the trust of the world, including the U.S.

As a fair and just judge, Japan should concentrate on maintaining the reliability of the platform from a neutral and objective standpoint. It should work closely with the EU and the U.K. and seek their support for Japan’s position.

Ensuring neutrality is important to develop the CPTPP as the U.S. and China confront with each other.

Partly because of strong pro-American and anti-Chinese sentiment in Japan, it is extremely difficult to maintain neutrality in the context of tripartite relationships among Japan, the U.S., and China.

One expected effective solution is that the EU joins the CPTPP and works with Japan to move toward ensuring neutrality.

If they cooperate with each other, Japan and the EU can lighten pressure from the U.S. If this point is taken into consideration, the key to the development of the CPTPP in the future is the admission of the EU to the partnership.