Wang.Huiyao:China.Should.Join.Trade.Deal.theU.S.Abandoned

By Wang Huiyao | President of the Center for China and
Globalization(CCG)
From Bloomberg Opinion
The Covid-19 pandemic is intensifying the most destructive
trends in global trade. Support for free trade has given way to
talk of decoupling and de-globalization. Tensions between the U.S.
and China are rising, as are calls for protectionism and re-shoring
of far-flung supply chains. It is no longer seen as desirable, or
even possible, to integrate countries that possess different
economic systems or ideologies.
Reversing these trends will require dramatic action. One
decision could make a real difference — for China to join the grand
Pacific trade agreement the U.S. led and then abandoned.
Eighteen months ago, the Comprehensive and Progressive
Trans-Pacific Partnership — heir to the more concisely named TPP —
came into effect. Billed as a “next-generation” trade agreement for
its high-standards and focus on emerging sectors, the pact covers
11 nations, nearly 500 million people and more than $13 trillion of
GDP.
The agreement is notable for accommodating very different
economies and political systems. Its members include industrialized
Western democracies such as Canada and Australia, emerging markets
in Latin America and Asia, and the socialist state of
Vietnam.
At a time of unprecedented challenges to global trade, the
CPTPP’s deep, interlocking commitments offer a way to boost growth
and reduce uncertainty. Several countries have shown interest in
joining. Thailand has set up a committee to decide whether to seek
membership. The U.K. is soon to launch bilateral trade negotiations
with Japan, which Prime Minister Boris Johnson’s government sees as
a stepping stone to joining CPTPP.
At the end of May, even Chinese Premier Li Keqiang suggested
that China might join the CPTPP. The idea is gaining traction in
Chinese policymaking circles.
There are two obvious stumbling blocks to Chinese membership.
First, China’s economic system doesn’t yet meet the standards for
membership. Rules on subsidies for state-owned enterprises and
restrictions on cross-border data transfers, for instance, still
need to be upgraded.
Yet, domestic reforms and the “phase one” trade deal with the
U.S. are beginning to close this gap. Over the past three years,
efforts to improve the environment for foreign investment have
accelerated. These include a new Foreign Investment Law, market
opening in financial services and manufacturing, and stronger
intellectual-property protections.
More such reforms can be expected. The Chinese government
recently pledged to shrink the negative list of sectors closed off
to foreign investment even further and to dismantle informal
barriers to such investment. On June 2, a new plan was published to
build Asia’s largest free-trade port on the island of Hainan, which
will serve as a testbed for deeper liberalization. This follows the
release of a sweeping new economic blueprint for broad pro-market
measures and reform of state-owned enterprises.
Of course, these words need to be translated into action. But
the other CPTPP nations can obviously judge China’s record before
allowing it to join.
More problematic may be the pact’s origins. At least some of
its American authors clearly saw the agreement as a means of
binding the U.S. closer to Pacific economies and weaning them away
from China.
With the U.S. pullout, however, such considerations have been
muted. Most current members appear open to the idea of including
China. Beijing’s warming ties with Tokyo are also a promising sign,
as Japan is a driving force in CPTPP as well as a close ally of the
U.S.
American officials might still oppose Chinese membership, of
course. But they should consider this: CPTPP rules would
incentivize China to make many of the structural reforms that U.S.
officials have been demanding, such as subjecting state-owned
companies to market discipline and improving intellectual-property
protections. Accession would boost economic reformers within China,
who can argue that the changes demanded by the pact align with
national development objectives — from innovation and efficiency to
environmental protection.
Having China in CPTPP would benefit members and the wider
global economy. It would add the huge consumer market that was lost
when the U.S. pulled out. With China, CPTPP would cover over 28% of
global GDP. That would more than quadruple worldwide gains from
CPTPP to $632 billion, according to projections by the Peterson
Institute for International Economics. Chinese membership would
also bring more of the regional economy under a formalized set of
rules driven by multilateral consensus, supporting growth and
stability.
For China, the benefits should be equally obvious. Accession
would give Chinese companies greater access to a vast, dynamic
market. In particular, CPTPP would help Chinese technology firms
“go global,” given its emphasis on services and e-commerce.
Joining would also bolster China’s role at the heart of Asia
at a time when the region’s economic landscape is shifting. Supply
chains are being restructured as companies and governments seek to
diversify production. This process will unfold more favorably for
China if it is part of CPTPP, since moving components between China
and other member states will become cheaper and more stable.
Membership would give Beijing greater say in shaping future trade
rules and show the nation’s commitment to free trade and
integration.
In the long-term, an enlarged CPTPP could provide a blueprint
for reforming the World Trade Organization and getting the global
free-trade agenda back on track. Democratic nominee Joe Biden is
open to rejoining the pact, so there is even a chance that China
and the U.S. could one day come under CPTPP’s common umbrella. And,
regardless of what the next U.S. administration decides, Chinese
membership could help reduce frictions by aligning China closer
with progressive global trade norms.
In the wake of Covid-19, we face the worst global recession of
our lifetimes. Free trade can aid the post-pandemic recovery. If
there were ever a time to consider an idea as improbable as China
joining CPTPP, this is it.
From Bloomberg, 2020-6-26