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Will China end its deep freeze of Australia to join the CPTPP?

Posted By on October 20, 2021 @ 14:30

China’s application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership free-trade agreement is dead in the water unless its commerce minister, Wang Wentao, agrees to meet his Australian counterpart, Dan Tehan.

Tehan has been careful not to present this as an ultimatum. When Chinese officials indicated to Department of Foreign Affairs and Trade officials that they were planning to apply, they were told it was ‘just the practical reality—that as part of the accession process, we need to be able to sit down at the ministerial level to work through it’.

‘This isn’t a condition,’ he told the National Press Club last month. ‘These are ultimately decisions which always end up at the ministerial level. There’s never been a free trade agreement that’s purely been negotiated at official’s level.’

But the consequence is the same: Australia will veto China’s application unless China drops its ban on ministerial-level meetings with Australia.

The government also expects that if and when Wang meets Tehan, he should be prepared to explain that China is withdrawing its series of informal barriers to Australia’s exports, which are illegal under the World Trade Organization’s foundation rules prohibiting discrimination against individual trading partners.

Again, that hasn’t been stated as a condition. Tehan says that for any new applicant, there would have to be confidence that ‘the candidate would meet, implement and adhere to the high standards of the agreement and has a track record of compliance with its commitments in the WTO and existing trade agreements which it is party to’.

The hard line that Tehan has taken to the Chinese application isn’t shared by all Australian officials.

Joining the CPTPP is a multi-stage process. First, all members must agree to start the accession process, and then a committee with representatives of all members negotiates the terms to their individual satisfaction, with unanimity again required.

There are some economic advisers who believe Australia should give a green light to starting the process of China’s accession and then negotiate the terms on which it would join, which could then include dropping all informal barriers and ministerial meetings.

Their reasoning is that the issues that would have to be negotiated for China’s entry to the CPTPP are precisely the central problems that China creates for the world trading community: the subsidies to state-owned enterprises, intellectual property protection, barriers to digital trade and labour rights.

Without settlement on these issues, there’s little chance of the United States re-engaging in the WTO and advancing its reform. China’s application to join the CPTPP presents a unique opportunity to tackle these issues without the added complication of the rivalry between China and the US.

If Australia stops the accession process at the outset, that opportunity will be lost.

However, there’s considerable anger within the Australian government about China’s campaign of economic coercion which is seen to breach the requirements of both the WTO and the China–Australia Free Trade Agreement, signed in 2015.

China doesn’t formally acknowledge that it has imposed barriers on Australian exports—to do so would expose it to Australian counteraction before the WTO.

Beijing has a long history of using trade coercion and usually maintains the fiction that its boycotts of particular nations are simply the spontaneous result of Chinese businesses and consumers aggrieved by foreign insults. That was its stance in its campaigns against South Korea after it allowed the installation of a US missile-defence system and against Norway after the Nobel Peace Prize was granted to the imprisoned government critic Liu Xiabao.

The closest it has come to taking responsibility for its campaign was the Chinese embassy in Canberra’s distribution of a set of ‘14 grievances’ against Australia last year, along with the declaration by an unnamed embassy official that ‘China is angry. If you make China the enemy, China will be the enemy’.

There wasn’t the slightest trace of this sentiment in the Chinese embassy’s extraordinary submission to the Australian parliamentary inquiry underway into whether CPTPP membership should be expanded. The inquiry was launched in late 2020 in view of the interest in joining expressed by the United Kingdom, China, Taiwan, South Korea and Thailand.

The Chinese submission asserted that the implementation of the China–Australia Free Trade Agreement had ‘led to rapid development of our bilateral economic and trade relationship’ and had created ‘favorable conditions for depending, broadening and improving our bilateral economic relationship’. The statistics for Australia–China trade it cited were all from 2019, before China’s coercive campaign began. The numbers for 2020 would have shown that, under the weight of China’s discriminatory boycotts, exports apart from iron ore had dived by 25%.

The need for China to obtain Australia’s assent before its application to join the CPTPP can proceed has led some to question whether it was acting in good faith or simply using the process to drive a wedge between Australia and CPTPP members who would gain from China’s accession, including Malaysia and Singapore.

However, China’s intent has been repeatedly expressed over the past year, including by President Xi Jinping, who told the 2020 APEC leaders’ summit that China would ‘favourably consider’ joining.

A commerce ministry spokeswoman, Shu Jueting, says that China will offer the other CPTPP members ‘unprecedented market access’ if it is permitted to join and that it is ready to meet the pact’s requirements. ‘China has conducted comprehensive assessment of the rules of the pact and sorted out potential reform measures and revisions to laws and regulations that it may need to make to join the CPTPP,’ she said.

The CPTPP is the replacement for the Trans-Pacific Partnership that was initiated in 2008 by the US as the economic component of President Barack Obama’s ‘pivot to Asia’ but rejected by President Donald Trump on his first day in office. The TPP was originally intended to include provisions that would be difficult for China to meet but would cement the US primacy as the standard-setter in Asia–Pacific trade.

However, a series of less-developed nations, including Vietnam, Brunei and Peru, have surmounted the bar to become CPTPP members, and some academic commentators believe China would be able to do so too.

UNSW’s Weihan Zhou and Singapore Management University’s Henry Gao say the CPTPP’s demands for state-owned enterprises are less onerous than the China-specific requirements designed for its accession to the WTO.

China has accepted the right to cross-border data transfer and the prohibition of data localisation rules under the Regional Comprehensive Economic Partnership, the ASEAN-led trade agreement signed last November. The CPTPP has provisions banning the forced transfer of source codes, but includes exemptions for financial services and government procurement, which are the most sensitive areas for China.

The most difficult provision for China to meet would be a requirement that it pass laws to incorporate rights enshrined in the International Labour Organization’s declaration. These include bans on forced labour and rights to collective bargaining and freedom of association in independent trade unions.

China would simply deny it uses forced labour in its camps in Xinjiang, but granting the right to form independent trade unions would be anathema to the Chinese Communist Party, which resists independent organisation of any sort. Collective bargaining would also be seen as a threat. Breaking the monopoly of the state-run union movement may have been a difficult reform for Vietnam, but it is impossible to envisage in Xi’s China.

If Wang persists with China’s deep freeze on ministerial-level contact with Australia, the issue will never arise.

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[1] National Press Club: https://www.trademinister.gov.au/minister/dan-tehan/speech/national-press-club-address-economic-statecraft-challenging-time

[2] would have to be confidence: https://www.afr.com/world/asia/china-applies-to-join-pacific-trade-bloc-as-security-tensions-rise-20210917-p58sgv

[3] set of ‘14 grievances’: https://www.smh.com.au/world/asia/if-you-make-china-the-enemy-china-will-be-the-enemy-beijing-s-fresh-threat-to-australia-20201118-p56fqs.html

[4] submission: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Foreign_Affairs_Defence_and_Trade/CPTPPMembership/Submissions

[5] Shu Jueting: https://www.caixinglobal.com/2021-10-02/china-vows-unprecedented-market-access-if-it-can-join-pacific-trade-pact-101783085.html

[6] Weihan Zhou and Singapore Management University’s Henry Gao: https://www.unsw.edu.au/news/2021/09/china-s-entry-to-cptpp-trade-pact-is-closer-than-you-think