Authors: Anne-Marie Oatway, Linden Dales
China and Taiwan recently requested to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The requests were made one week apart, with China submitting a formal application to the Depositary of the agreement, New Zealand, on September 16, 2021, and Taiwan submitting its application on September 22, 2021.
Entry into the agreement requires consensus among the 11 members.
China is the world’s second largest economy but will face challenges in joining the CPTTP. These include the CPTPP’s requirements related to state-owned enterprises (SOEs), cross-border data transmissions and labour issues. China is also currently entangled in various trade and territorial disputes with some CPTPP members.
Taiwan will also face obstacles due to the contentious nature of its political status and the potential risk of economic/trade retaliation from China.
What is the CPTPP?
The CPTPP is a free trade agreement (FTA) between Canada and 10 countries located in the Asia-Pacific. It is fairly recent, as it entered into force provisionally on December 30, 2018. The agreement eliminates tariffs and reduces trade barriers on exports between CPTPP member countries. It covers an array of sectors, including government procurement, trade remedies, investment, intellectual property (IP), labour and the environment and telecommunications.
The agreement is currently in force between Canada, Australia, Japan, Mexico, New Zealand, Singapore and Vietnam. It has still not been implemented in Brunei, Chili, Malaysia and Peru.
In February 2021, the United Kingdom was the first country to formally apply to join the CPTPP. The accession process (negotiations) began in June 2021 for the United Kingdom to join the agreement. Other countries that have expressed interest (but have not formally applied to join) are South Korea, the Philippines, Indonesia and Thailand.
Notably absent from the CPTPP is the United States. In 2017, the Trump administration withdrew the United States from CPTPP’s predecessor, the Trans-Pacific Partnership (TPP), claiming the agreement would undermine the U.S. economy. The Biden administration has expressed openness to the possibility of the U.S. joining the agreement in the future, but currently has no plans to do so.
Implications of China’s Request for Canadian Businesses
The implications of China seeking to join the CPTPP are wide-ranging and significant.
First, China’s accession would have a meaningful impact on supply chains. By joining the agreement, Chinese exports would gain preferential access to Canada as well as to other CPTPP economies with which Canadian companies do business. Given the size of China’s economy, and the deep involvement of the Chinese government in its economy, a further opening to Chinese goods could have profound impacts on Canadian companies’ competitiveness. This impact may be felt especially in sectors where Canada maintains high most favoured nation (MFN) rates of duty and/or tariff-rate quotas.
Second, the CPTPP includes commitments among its members to liberalize access to government procurement. While China is presently seeking to accede to the plurilateral World Trade Organization (WTO) Agreement on Government Procurement (AGP), to which Canada is a party, there are not yet any agreements that grant preferential access for Chinese companies to Canadian government purchases. High-value infrastructure projects in Canada may be particularly attractive to Chinese state-owned entities, which compete globally for such work.
Third, the CPTPP includes rules on the protection and enforcement of intellectual property (IP) rights. Given the contentious nature of Chinese IP protections and practices, some companies may be wary of any commitments by the Chinese government in this area. However, CPTPP members will also need to consider whether China’s desire to join the CPTPP may be an opportunity to secure commitments to minimum standards for IP protection and enforcement.
Canadian companies should monitor this development and consider how they may be impacted by any expansion of the CPTPP. If you have any questions about how this might impact your company, please contact the authors of this article.