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CPTPP: The Future of World Trade or Paper Tiger?

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Image: White House.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, for short, is the new kid on the block–at least when trade is concerned.

It has 11 members, all located on the Pacific Rim, and derives from two previous trade negotiations, the second of which included the United States, which pulled out after Donald Trump was elected President in 2016. Consequently, the CPTPP now comprises a bit of a question mark. The immediate forerunner, the TPP, was hugely ambitious and constituted a US-backed effort to raise trade standards in order to gain an institutional advantage over China. But when the U.S. pulled out, it was left to Japan to reignite interest in a pared-down organization. It is still ambitious, and sets high standards, but has yet to fully establish its bona fides.

Now that it has come into being, however, it has caught the imagination and has a growing list of interested parties. Last year China signaled its interest in joining, while lobbyists in Washington are now trying to reawaken U.S. favor. Beating them all, however, the United Kingdom formally applied to join on February the 1st of this year. Is this just a post Brexit rebound relationship, or is the UK onto something? Does the CPTPP itself herald a novel initiative in world trade? I argue it does, for reasons that shine a light on the evolving ecosystems of world trade. Like it or not, the WTO is a shadow of its former self, and the liberal assumptions that inform trade discourse are under assault from non-compliant rising powers, COVID fallout, and political uprisings from those ‘left behind’ in the eternal corporate search for lower labor costs. Into this fast-moving context emerges the CPTPP. What future awaits?

Unsettled Consensus?

For those of us who think and write about the turmoil of international politics the one arena where there is little real debate is on the question of trade. Largely a subset of economics and dominated both by institutions like the WTO and the EU and generously funded think tanks like Cato, the debate about trade long ago surrendered to a kind of simplistic boilerplate. More of it is better, apparently, and deficits don’t matter. As a field it is overwhelmed by ‘insiderism’, your status depends on how close you are to being ‘in the room’ where the deals are ‘cut’ and the hatchets buried. Abstractions like ‘national interests’ are rarely specified, though universally invoked. The world is divided between ‘rule makers’ who preside and decide, and the despised ‘rule takers’ who suffer what they must.

There are also, however, some curious oversights in the public understanding of trade and trade agreements. This is not surprising as it is a fairly technical field, dominated by a cohort of officially non-partisan specialists who speak the language of optimality and hard choices rather than politics and preferences. But whereas much of the discourse of trade since the 1940s has focussed on progression towards a single global trading framework, it could be argued that the spread of regional agreements was always a substitute for the wider project, and even threatened at one time to supersede it. Now, however, new and ambitious trade agreements like the CPTPP have sprung up precisely because the WTO engine has stalled. Indeed the U.S. push to establish the TPP was a direct consequence of the failure of the Doha round of trade negotiations in 2006. The whole focus of the Doha round sought to upgrade the WTO with greater IP protections and mechanisms to pursue higher standards, the very things that mark out the CPTPP as a ‘high standards’ organization.

TPP became a strategic priority for the U.S. under Obama after the relative success of China’s economic expansion came at the expense of, rather than complementary to, overall US growth. Instead of increasing protectionism, towards which trade specialists are almost universally hostile, TPP proposed improved trade arrangements for select countries in the hope that collective action between this narrower membership might then prove a useful inducement for further China reforms as it sought to catch up. It was, in effect, conceived as a more exclusive club through which the US could recover some of the influence lost when China first joined the WTO.

The key thing to understand though is that CPTPP only exists today because of the failure of the WTO to complete the Doha round of negotiations. And herein lies the reason why the CPTPP and other similar agreements and organizations herald the increasing irrelevance of the WTO as a whole, possibly prefiguring a breakdown in the idea of a globally significant baseline for world trade, being instead superseded by large blocs making their own arrangements among themselves and with others.

Marking the Dance Card

So far, the CPTPP is a bit of an open book, but the UK’s application to join has precipitated a flurry of interest. The UK is in an unusual position having left the EU and turbocharged its efforts to secure trading agreements around the world. Partly this has been to underwrite leaving the EU by ensuring continuity for existing trading relations, but there has also been an important diplomatic effort to project an outward focus, reinforcing the idea of ‘Global Britain’, and it is this that informs the application to the CPTPP. Equally, many of the members are already close friends of the UK, making the UK a very good fit at one level. Some members (significantly, Japan, Vietnam, and Mexico) have already agreed by treaty to support the UK’s application. There is, however, some speculation as to whether other states might join before the UK.

The Lowy Institute in Australia recently published a ‘runners and riders’ guide to the potential new applicants which noted that the UK was not really in the right region, but was otherwise an interesting applicant. This is a fair point, but rather sets aside that for many members, and importantly for the UK, part of the attraction of the UK’s potential membership is precisly that it is not in the region. It is certainly active in the region, with many close trading links already, but on the UK’s accession, the CPTPP would no longer be simply a regional organization. Instead, it would become a more global organization united by a commitment to certain standards.

While therefore the authors list the obvious regional candidates of Korea and Taiwan while noting possible objections, the real issue isn’t about regional expansion at all, it is about shifting the terms of global trade. If the UK joins, the CPTPP may become a sort of global archipelago of higher trade standards which many other open economies may see an advantage in joining.

A Common Misperception

Regional trading organizations and free trade agreements constitute the global architecture through which much trade is conducted. Historically, however, trade tended to be facilitated bilaterally or within imperial blocks. This all changed in the aftermath of WWII with the development of the General Agreement on Tariffs and Trade (GATT). The idea behind this treaty was simply that signatories granted one another equal treatment on trade terms. Thereafter, if any state wished to reduce tariffs or increase quotas with another signatory state, it needed to do the same for all signatory states. The same principle underwrites the WTO. Every member state must be treated equally. There are, however, exemptions, the main one being Regional Trade Agreements, in which states can gain an exemption from the general commitment and offer preferential trade terms within a more select grouping.

In other words, a Free Trade Agreement is on one level an exemption from liberalizing trade universally and sets up what is in effect a protectionist block within the wider context of progressive WTO liberalization. To some extent, this is an inevitable tension and has always been a question mark over the precise direction of global trade liberalization. Would trade blocks like the EU and NAFTA facilitate global trade, or evolve beyond the general provisions into protectionist regional blocks? CPTPP raises the same question more starkly. And potential UK membership tests the meaning of what a ‘region’ is to destruction. The UK does have sovereign possessions within the Pacific Ocean, so it could be argued that it qualifies, but the justification for UK membership has little to do with Pitcairn island and everything to do with the strong technology and service sectors of the UK economy, not to mention that it is a deficit country habituated to absorbing imports.

If, however, a global organisation emerges that has high trading standards, a strong services and intellectual property dimension and commitments on data rules etc. there is the possibility that such an organisation could aggregate significant leverage over time. Indeed, if the UK joins CPTPP, the organization will comprise three G7 members, the 3rd, 5th, 10th, 13th, and 15th largest economies in the world, with the possible accession of the 12th to follow. Such an organization might accommodate further trade liberalization, but on a more selective basis than before. An outcome that could run contrary to the aims of the WTO, creating what would amount to two-tier of global trade. Basic WTO, and advanced CPTPP.

CPTPP vs Belt and Road

None of this is happening in a vacuum. The CPTPP may be challenging conceptions of what a ‘region’ is, but every region has had a debate about its boundaries. Most importantly, the emergence of China’s Belt and Road Initiative heralds a sort of super-region in which privileged terms are agreed under Chinese leadership. The detail of the BRI is actually quite hard to pin down beyond a few general statements and thick layers of rhetoric, but the direction is clear. The world is moving away from deepening links between regional blocks built on a foundation of WTO equality, towards looser, more distant agreements organized around trading standards and mutual recognition. Organizations that are potentially global in scope, and able to withstand the slow withering of the WTO.

Where the 1980s and 90s saw deepening regional ties threaten the primacy of the WTO, which responded with the Doha round to raise global trading standards and reinforce the huge advances globalization made in the 1990s, the failure of the Doha round now looks to mark the high point for truly global trade. The US will inevitably align with the CPTPP, though likely won’t join for now, but if the UK is successful in its application then global trade will begin to look more layered than simply regional. Indeed, if the CPTPP embraces its future as a flexible, global, high standards trade organization with significant levels of compliance between broadly friendly states then it is clearly a star in the making, though there is still much work to do.

Douglas Bulloch is a Former Fellow at the London School of Economics and a Contributing Editor for 19FortyFive.
Written By

Douglas Bulloch is a Former Fellow at the London School of Economics and a Contributing Editor for 19FortyFive.

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