China’s TPP Supply Analysis | Nippon.com

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In September 2021, China applied to join the Trans-Pacific Partnership, sending shockwaves across Asia-Pacific and prompting economies like Taiwan and South Korea to launch their own applications. Some analysts see it as a Chinese statement that even with the elimination of tariffs, the country’s products can now hold their own. How should TPP leader Japan react?

Beijing’s candidacy comes as a shock to many

The TPP is a free trade agreement between 11 countries in the Asia-Pacific region, including Japan, Australia, New Zealand and Singapore. With over 500 million people living in the region and a gross domestic product totaling over $11 trillion, it accounts for almost 10% of the global economy. It was established in 2015 with 12 member countries, but President Donald Trump declared the withdrawal of the United States after taking power in 2017. As Japan and other members struggled to ensure the organization would not would not collapse, the remaining members established the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) without the United States, which came into effect in 2018.

This bloc is marked by a high level of trade liberalization and advanced rules on rights and data protection. Participating countries are in principle required to eliminate tariffs on industrial and agricultural products, but must also comply with a high level of rules in areas such as the protection of intellectual property rights, public enterprises and the work. In 2015, as negotiations drew to a close, then-lead U.S. negotiator, Trade Representative Michael Froman, said the deal represented a strategic framework for forcing liberalization of the economy. and investments in China as its economic power grew.

Thus, there are those who view the TPP as a bulwark against China. And yet, on September 19, 2021, the Chinese government demanded to be part of this very framework, sending shockwaves through Japan and the other members of the TPP, as well as the United States. A senior official in charge of trade negotiations in the Japanese government said that even within the Chinese government, the departments that were in charge of trade negotiations, the Ministry of Commerce and the Ministry of Foreign Affairs, apparently did not know the details. until before the release of the application. It appears that the central leadership under Xi Jinping took direct action in postulating.

A diplomat from a TPP member country also suggested the application process may have been rushed, saying applications are usually made directly in the depository country, which is New Zealand, but the Chinese government has handed over the documents to a New Zealand diplomat stationed in Beijing.

TPP details

Impacts of the American absence

So why did China choose this moment to apply to join the TPP?

Negotiation experts have all pointed to Taiwan’s potential membership as an influence. Taiwan is home to the world’s largest semiconductor contract manufacturer, Taiwan Semiconductor Manufacturing Company, and will therefore be eligible for tariff reductions and preferential access to the region’s supply chain if it joins the agreement. .

The planned location of a new TSMC factory in Kikuyo, Kumamoto Prefecture. (© Kyōdō)

Additionally, if Taiwan-made semiconductors and automotive engine control components incorporating these semiconductors are certified as being made by TPP, it will be easier for Japanese automakers to export cars that use them. As the idea of ​​Taiwan joining the TPP has gained momentum in some quarters since the spring of 2021, a diplomat from a member country offered the analysis that Chinese President Xi took a preemptive measure to prevent Taiwan to join the TPP with a look at the One China policy.

A second reason given is an attempt to restrict the United States, which is vying for economic and advanced technological hegemony. Democrat Joe Biden took office as US president in 2021 with the promise of a return to international cooperation, and Japan and other TPP members have expressed hope that the US will join.

Joining the TPP is a very low priority for the Biden administration. However, if the administration goes in this direction, given the problems of human rights violations in the Xinjiang Uyghur Autonomous Region, a representative of Japan’s Ministry of Economy, Trade and Industry said that Washington would most likely reopen talks about implementing tougher labor rules. . And so many see China’s candidacy as a way to sway TPP members before the US calls for tougher articles on labor and human rights issues.

Will external pressures lead to internal reform?

China, however, showed interest in the TPP long before these more recent developments, so it seems likely that the request was part of a long-term strategy rather than just a sudden decision.

The TPP ministerial meetings in Hawaii in March and July 2015, and the strategy meeting in October of the same year, were important sessions on the road to global approval. A standout sight around the Hawaii venue was a group of Asian men in suit jackets trying to make personal connections with negotiators and industry representatives from the 12 countries involved.

One such industry representative later remarked that the men were Chinese officials investigating details of the TPP for future membership. And, according to a former USTR official, many experts in the field believe China has wanted to join the TPP since the early 2010s, when the United States first got involved.

An International Monetary Fund and China expert says reformists among Chinese bureaucrats recognize the need for free market mechanisms and economic rules, and look to outside pressure through agreements and negotiations (such as the TPP) to advance national reforms.

Confidence to lower prices

Hanyūda Keisuke, the chairman of Owls Consulting Group who has been involved in METI’s negotiations and policy proposal activities, raised the possibility that China’s foreign economic policy has entered a new stage. It indicates the apparent confidence that China displays regarding the elimination of tariffs.

Until now, many in Japan believed that the Chinese were not ready to abolish tariffs on finished Japanese cars, which was an obstacle to their joining the TPP, but Hanyūda thinks it is likely that the circumstances have changed.

He points out that it will take about three to five years before China can join the agreement. As the international adoption of electric vehicles grows and Chinese EV and battery manufacturers continue to grow accordingly, he says the Chinese government may have decided that Japanese cars, especially EVs, will not posed no threat in their market projections in three to five years.

Thus, this application to the TPP can be read as a declaration of victory over Japanese car manufacturers, and could also be the same for industrial and agricultural products from other member countries.

However, Hanyūda also points out that China will find it difficult to comply in this short time with rules in non-tariff areas like elimination of preferential treatment for state-owned enterprises and strict protection of intellectual property rights. Of course, the TPP’s “high standards” are not flawless, such as Japan’s exemption from the removal of tariffs on agricultural and other products, and Vietnam’s exemption from the immediate application of rules. strict on state enterprises.

If China offers to eliminate tariffs on industrial and agricultural products in exchange for an exemption from the immediate application of the rules on state-owned enterprises when its accession negotiations are in full swing, it is likely that its huge market of over 1.4 billion people will be a strong draw for some TPP members.

Some, like Malaysia and Singapore, are already expressing support for China’s membership. Ozaki Hiroshi, director of the Osaka Chamber of Commerce and Industry and adviser to Osaka Gas, told a press conference just after China’s bid that it was a “development welcome”.

TPP as a foreign policy map

As China expands its international influence during the pandemic, friction between the United States and China will only intensify. As the United States continues to surround itself with allies and friends, Japan, sandwiched geographically between the two powers, is finding it increasingly difficult to keep its foreign economic policy on track.

Kishida Fumio’s administration aims to submit a bill to the ordinary session of the Diet in late February to promote economic security, with a focus on resilient supply chains, strengthening basic infrastructure and improving economic security. strengthening measures to develop advanced technologies and prevent information leaks. Kobayashi Takayuki, Minister of Economic Security, points out that the bill does not target any particular country, but it is well known that the expansion of the economic security system implies that China is positioned as a threat.

The TPP, which is a key part of Japan’s entire Asia-Pacific strategy, is also an asset to its foreign policy. In September last year, the government was quick to grant Taiwan’s application for membership, but maintained its more cautious stance on China’s application, saying TPP members must first determine whether the country is truly prepared to meet the extremely high standards of the agreement. At the moment, Japan is reluctant to admit China, as are other economies with trade frictions with the country, such as Australia. This position itself could be used as leverage in various economic and diplomatic negotiations with Beijing.

(Originally published in Japanese. Banner photo: International ministers pose for a photo before the TPP signing ceremony. © Kyōdō.)

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