China must work to avert negative effects of CPTPP

By Luo Zhen Source:Global Times Published: 2018/3/12 21:23:40

Illustration: Xia Qing/GT


In January, a year after the US announced its withdrawal from the Trans-Pacific Partnership (TPP), the 11 remaining TPP countries agreed on a new version of the pact: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The pact could enhance Japan's role in Asia-Pacific economic and trade cooperation, and the new international trade environment will pose a challenge for China, making it necessary for China to give careful thought to cooperation potential. There are various important factors that should be considered.

First, the CPTPP has made the Regional Comprehensive Economic Partnership (RCEP) less attractive. The CPTPP will bring competitive pressure to the RCEP, which is promoted by China. Also, the RCEP negotiations are at a less advanced stage. The formal signing of the CPTPP will take place in four months. In contrast, the RCEP negotiations are still stuck at discussions over tariff reductions, and only a quarter of the 15 RCEP terms have been completed.

In terms of the attractiveness of the pacts, a "low profile" CPTPP is actually more competitive than a high-standard TPP. One of the important reasons why the TPP could not be agreed upon quickly during the administration of former US president Barack Obama is that the high standards it required are more conducive for the US than countries such as Vietnam or Malaysia. A major change in the CPTPP has been the lowering of certain standards.

There are seven overlapping members of the CPTPP and the RCEP: Japan, Singapore, Brunei, Malaysia, Vietnam, Australia and New Zealand. Also, Indonesia, South Korea, the Philippines and Thailand are expected to join the CPTPP.

As for the economic benefits, the Peterson Institute for International Economics has predicted that by 2030, the RCEP will have global revenue of $286 billion. Even though the total GDP of the so-called TPP 16 that includes five additional economies having shown an interest in joining the TPP is only half that of those in the RCEP, the TPP 16 will still generate income of $449 billion, substantially more than the RCEP.

In addition, Douglas Lippoldt, HSBC's chief trade economist, said in a research note in late 2017 that "an accord among the 'TPP-11' could boost trade in the region by 6 percent and provide welfare gains of $157 billion." Due to trade diversion benefits, non-signatories like China could face $10 billion in net trade losses.

Second, the CPTPP's precedence in terms of trade rules has increased the pressure on China in terms of catching up.

The CPTPP has been widely praised by the Western media as a representative of East Asia and the Asia-Pacific region, and for bringing state-owned enterprises into international trade agreements for the first time. China not only needs to be a big trading nation, but also needs to be strong in terms of making trade rules. The CPTPP's advanced status has further increased the pressure on China to catch up with it.

Third, it is imperative to continuously increase the economic and trade cooperation with the other BRICS countries and the EU.

The CPTPP is integrating economic and trade resources in the Asia-Pacific region with the help of higher international trade standards, but such standards obviously do not apply to all countries. China should not close the door to entering the CPTPP. By revitalizing its own advantages, new pressure can be dealt with more easily. China, along with the other BRICS, is looking forward to a new golden decade based on increased trade between the five countries. And this may also promote the growth of trade between East Asia, South America, Eastern Europe, South Asia and Africa.

Additionally, the EU is the largest trading block in the world, China's largest trade partner and an important cooperation partner in China's Belt and Road initiative. It's worth considering how best to use these connections and advantages to boost China's influence in creating international trade rules while also expanding economic cooperation.

The author is a research fellow at Beijing-based think tank the Pangoal Institution.

Posted in: INSIDER'S EYE

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