China and South Korea intend to join CPTPP, what are Taiwan’s options?|Peter C.Y. Chow
Immediately after China and other 14 Asia Pacific countries signed the Regional Comprehensive Economic Partnership (RCEP), Chinese leader Xi Jinping said at the APEC summit meeting that China will actively consider joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Whether China is taking a U-turn in the Trump-Biden transition period or it intends to get it even after Washington’s efforts to isolate China, there is a need to dig into Xi’s real plan.
It is known that the U.S.-led 12-nation Trans-Pacific Partnership trade pact (TPP-12) was a hallmark of the Obama administration, which said it was the U.S., not China, that should set the rules for international trade. The U.S. said TPP was a new ‘gold standard’ with a high threshold for entry so as to keep China out. No wonder experts, including Shelley Rigger, said Trump’s withdrawal from the pact was the biggest gift for Beijing.
Hard for member countries to say No to China
CPTPP is an unprecedented multilateral trade agreement. It marks a higher level of free trade, substantially lowering tariffs on merchandise imports, including ‘WTO plus’ elements which provide greater access to the services sector. The pact also requires reforms in state-owned enterprises, intellectual property rights, environmental protection and labor standards (including the right to organize trade unions and strikes). The entry threshold is pretty high (WTO extra). It is widely believed that China is unlikely to meet the standard, nor will the CPTPP members give China a free hand. All these have made it difficult for China’s accession to the CPTPP. This is certainly true, but Taiwan should think the other way around.
If China wants to join CPTPP, since seven of its members (Japan, New Zealand, Australia, Brunei, Vietnam, Malaysia and Singapore) are all members of RCEP, they are unlikely to opt Beijing out. Some say China may agree to accept all the rules and terms to enter CPTPP, just like it did before joining the WTO. China’s previous strategy has served as a wake-up call for the members of CPTPP, but we can’t deny the possibility that it will act as a spoiler for the CPTPP talks.
South Korea also said it is evaluating the possibility to enter CPTPP. Since it has signed the RCEP, which already covers the majority of its Asia-Pacific trading partners, many believe there is no need for Seoul to join the CPTPP. It should be noted that RCEP mainly opens up the trade-in merchandise goods, but South Korea has strength in the services sector, and it certainly wants to expand the market for the competitive industry. Therefore we can’t rule out South Korea’s intention to participate in the pact.
China and South Korea have expressed their interest in joining the CPTPP. Britain and Thailand have submitted their application, with Japan pledging strong support. (Japan and the U.K. have closed bilateral trade deals. Japan has a large automobile assembly plant in Thailand.) I expect many more countries will formally apply to join. For Taiwan, the sooner it can join, the better. Or it will face more uncertainties.
The U.S. President-elect Joe Biden has said he will adopt a multilateral approach to check China’s predatory behavior. In its Indo-Pacific strategy, the CPTPP plays a very important role. However, Biden will mainly focus on the domestic economy after taking office, including control of the Covid-19 pandemic, upgrade of infrastructure, recovery of manufacturing industry, galvanizing its economy and technology, and improving the lives of workers who have suffered losses due to globalization. The U.S. is unlikely to return to the CPTPP in the short term.
Also, the U.S. Trade Promotion Authority (TPA) will expire on July 1, 2021. Biden seems to have no time and thought to seek its extension. Without it, the likelihood for the U.S. to sign a trade agreement in any form with any country in the near future is quite low.
Difficult to expect Washington to help Taiwan to join
If Biden faces pressure from home and abroad, especially from the big donators behind him, he may shift priorities and policies. But Taiwan should not wait for Washington’s return to the CPTPP, and wishfully expect it to help Taiwan join.
The good news is the technological cooperation between Taiwan and the U.S. is not bound by the TPA. Since executive agreements are not subject to Congressional review, there is room and chance for Taiwan to seek ways that can help enhance Taiwan-the U.S. ties in economy, trade, and technology.
So far, Taiwan has signed free trade agreements with Singapore and New Zealand. Another country that can help Taiwan’s entry to the CPTPP is Japan, which will host the CPTPP leaders’ summit in 2021.
Each international trade agreement is a two-level game, in which national and international politics often collide. At the international level, governments give and take in negotiations. Whether a deal can be reached depends on participants’ national strength. At the national level, trade agreements have to weigh gains and losses. The administration decides which sectors should be opened up, which should be protected, which should be gradually opened up over time. If a nation has no strength to resist foreign pressure, nor the government is able to quell domestic opposition, the country and the public will have to bear the consequences of exclusion from trading blocs.
Taiwan’s foreign trade accounts for more than 70% of its GDP, and it is the national consensus to join the CPTPP. Does Taiwan have a say to refuse to open up some items? Is there any room for negotiations? Taiwan has imposed a total ban over safety concerns on food imports from five populous Japanese prefectures. But the ban is not based on any scientific evidence. The three of the five prefectures, Chiba, Ibaraki and Fukushima, account for 25 seats of the Parliament. The ruling Liberal Democratic Party, which is trying to keep its seats in the 2021 general elections, is getting impatient with Taiwan’s unfriendly ban. It wants Taiwan to lift the food ban in accordance with international criteria. Can Taiwan keep delaying the lift while seeking Japan’s support for the bid to join CPTPP?
Rely on beneficiaries to counterbalance opposition
If the food from the five prefectures meets international food safety, can Taiwan keep the ban intact? It is the issue facing both the government and the opposition. The opposition has every right to rationally oppose opening up. But if an irrational boycott continues, Taiwan will lose the window of time for the application for CPTPP, dealing a blow to the lifeline of Taiwan’s survival and development.
Known as a public choice theorist, James Buchanan, a Nobel laureate in economics, believes government should forge a consensus among beneficiaries (industries that can gain from a policy), encouraging them to stand out to counterbalance the opposition so that the government will not have to confront the opposition on its own. Food safety in Taiwan has now been manipulated as a political tool to stir up opposition. If the industries that will benefit are well informed, they can be mobilized and encouraged to stand out in support of the government’s policies. That’s what we call to double the effect with half the efforts.
(Peter C.Y. Chow, Professor of Economics, City University of New York)
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