Canadian Trade Policy Experts Discuss Taiwan Joining the CPTPP

At a recent webinar hosted by the Canadian Global Affairs Institute, several Canadian trade policy experts commented on the prospects for expansion of the CPTPP to include Taiwan (and to a lesser extent, China) during a panel on "Taiwan and Canada: How to Build Closer Economic Ties." The moderator was Deanna Horton (Fellow at the Munk School of Global Affairs and Public Policy), and the speakers were Meredith Lilly (Associate Professor at Carleton University), Eric Miller (Fellow at the Canadian Global Affairs Institute), and Hugh Stevenson (Vice Chair of the Canadian Committee on Pacific Economic Cooperation). (The full text of their discussion is provided at the end of this piece.)

The discussion began by looking at how accession by Taiwan to the CPTPP would affect a possible accession by China. Eric Miller noted that "there is an established practice of having Taiwan engage within these multilateral trading processes," and also that "if China were to join CPTPP, it would profoundly change the nature and context of the agreement." He also said, "China sits alongside Taiwan and APEC and in WTO and in other processes, and well, there may not be a particular amount of joy about that process within the context of CPTPP."

Meredith Lilly was skeptical that China would join. She also stated that, "the bottom line for Canada, is that we really should be taking the position that only CPTPP members and those who are officially seeking to join should have influence on those deliberations." Until and unless China and the United States "officially seek to join," they "should not have an official role for undue influence on those processes," and she concluded "that is kind of the little tunnel through which Taiwan can find its way."

Hugh Stevenson stated that "it's very much in Canada's economic interest to have a rules based agreement with Taiwan, particularly if the US pushes Taiwan into a bilateral agreement." He argued that "we need to have an agreement with Taiwan," and "[t]he way to get there is through the CPTPP." While China would object, he said that "if the TPP members stick together, if there's a combined effort, if several countries perhaps join at the same time as Taiwan, that will mitigate the pressure and leeway for us to get to yes on this issue."

Later in the discussion, Meredith Lilly elaborated on an argument that Taiwan should join along with other countries in order to make this less of an "an overtly political China position." By looking at Taiwan together with other countries, she said, "you're making this a much more process heavy deliberation" and "it's a way to depoliticize the Taiwan-China issue."

Deanna:

So I think if you look at the papers, all of you to some extent, because this is an economic discussion, has focused on Canada and Taiwan's accession to this CPTPP. So it's been said that China would be welcome to join the CPTPP, which, of course, presents a much higher level of ambition than RCEP, of which China is a member. And that was finalized in November 2020 at an ASEAN meeting in Hanoi. So going back to the TPP, if Taiwan were to join, which is what you are suggesting, how do you think that would affect China's eventual accession? And do you think this would also impede the chances of the USA eventually joining CPTPP. So if we could start perhaps with Eric.

Eric:

So as you quite rightly lay out, it's a complex regional map with respect to CPTPP and RCEP, the alphabet soup of trade policy. So the Comprehensive Progressive Trans Pacific Partnership has 11 members, eight have ratified to date, but Taiwan has certainly made clear that it wants to join. Now when we look at other regional processes, we see that Taiwan is a member of APEC; when we look at global processes, we see that Taiwan is a member of the World Trade Organization. And so in essence, there is an established practice of having Taiwan engage within these multilateral trading processes. And because trade is ultimately about economics, the idea would be to bring Taiwan into the CPTPP process.

Now, if China were to join, that would be a profound game changer. Certainly, it would mean that the Japanese would have to agree to China joining. It would likely mean that the US would not come back anytime soon. Not that there's any guarantee that they will anyway. Certainly, Taiwan and the United States are edging towards a bilateral free trade agreement. So if that were to happen, having Taiwan in CPTPP and a US re-entry wouldn't be any obstacle. But certainly, if China were to join CPTPP, it would profoundly change the nature and context of the agreement.

Now, China sits alongside Taiwan and APEC and in WTO and in other processes, and well, there may not be a particular amount of joy about that process within the context of CPTPP. That in and of itself would not be a challenge if the two were to be a member. But I think fundamentally, the existing members of CPTPP would have to ask the hard questions of, is it desirable to bring China into this forum, or are there other ways to deal with China in terms of trade rules.

Meredith:

So I don't think China will ask to join CPTPP. And I say that because I think that CPTPP is increasingly regarded as a regional alternative to China led trade through the RCEP agreement, which has happened simultaneously to the conclusion of CPTPP. And China leads RCEP. And it's a much more traditional trade deal. It's focused much more on tariff elimination, less so on government elements, state owned enterprises, currency, these are all the kinds of things that you do see in CPTPP. So if you think about the two agreements, CPTPP is kind of a trade deal with strings attached in a way that RCEP is not. And so the things that are reflected in CPTPP, like governance elements, currency disciplines, standards on labor and environment, those are all things that I don't really think China wants in on that kind of trade deal. But it is the kind of agreement that Western countries want to be part of, and would like to, quote, unquote, discipline, is the term that's used in trade, discipline in the region. And so the United Kingdom wants that kind of agreement, the United States wants that kind of agreement. And so it's this kind of focus on standards and governance that I think is actually also the opening for Taiwan to enter TPP in a way that it's not going to achieve that success within RCEP or some other kinds of agreements. And part of that is that, just for audience members that aren't aware, Taiwan is a full and recognized member of the WTO. And so that would allow Taiwan to join this agreement in a way that it isn't necessarily able to join other kinds of non trade agreements.

And so CPTPP members, current members, that are inclined to want to support Taiwan and its democracy project and its sovereignty project, can find a way to sort of balance two ideas together: both the idea of the one kind of policy, as well as allowing Taiwan to negotiate accession to the TPP. And so that would be countries like Canada and Japan, and then Australia and New Zealand. But there are other CPTPP members that are not going to want to see see Taiwan enter, out of deference to China. China's a very important trade partner for everyone in the region. And they're going to be looking to Beijing for signals. And so I think the bottom line for Canada, is that we really should be taking the position that only CPTPP members and those who are officially seeking to join should have influence on those deliberations. And China, unless it officially seeks to join, and the United States similarly, should not have an official role for undue influence on those processes, until and unless they seek to join. And I think that is kind of the little tunnel through which Taiwan can find its way.

Hugh:

Well, with respect to China's interest, you know, its professed interest in joining the CPTPP. I agree with Meredith. I think it's highly unlikely, in fact, what China is really doing is laying down a strategic marker, it's not closing the door forever. So by putting that counter on the chessboard, so to speak, it's keeping its options open. It's muddying the waters to some extent. China is not in a position to accept the disciplines of the  CPTPP. And besides which is focused, as Meredith says, on RCEP, but also on the BRI and other other areas where it can more easily control its agenda.

So I think, you know, never say never. And that's what the Chinese are doing in terms of keeping that option open.

In terms of Taiwanese entry to the CPTPP, it is problematic. There will be some members of the current agreement who are less enthusiastic than others. And for Canada, as much as anybody else, it poses a problem because as we've pointed out in the previous panel, we have a de facto one China policy. We have for many years been very careful about that. I mean, I would personally say we've probably been excessively cautious in being in not reaching out beyond the veils of what we think that policy entails. We do have more scope to develop our relationship with Taiwan, not just on the CPTPP by the way, but also in terms of doing more bilaterally. After many years, we finally concluded an avoidance of double taxation agreement. We have not yet completed a foreign investment protection agreement, but we could we could also do more on the trade promotion front. We haven't had a Minister of Trade or minister of small business ever visit Taiwan. ...

So there's more that we can do within the within the parameters of our one China policy. And that includes doing more on the bilateral promotion. But also, in order to get to where we want to be with Taiwan, it's very much in Canada's economic interest to have a rules based agreement with Taiwan, particularly if the US pushes Taiwan into a bilateral agreement, that will be trade diversionary, it will affect Canada negatively because we compete with the US on so many issues. And so we need to have an agreement with Taiwan. The way to get there is through the CPTPP. China will object, there will be bluster. But if the TPP members stick together, if there's a combined effort, if several countries perhaps join at the same time as Taiwan, that will mitigate the pressure and leeway for us to get to yes on this issue.

Deanna:

Can I just do a quick follow up with you Hugh? Because this was also a question that came up in the Q & A earlier about the the FIPA, the foreign investment agreement. So why do you think Canada hasn't managed to negotiate something like that? And also, you know, all of my years in Asia, I was always looking at what Australia is doing. So can you comment on how Australia is dealing with Taiwan? And what the competition, i.e., Australia is doing with Taiwan?

Hugh:

Well, the big difference between Australia and Canada and Taiwan is Australia has a trade agreement with China. We do not. There is a pattern, if you want to negotiate a trade agreement with Taiwan, you do it first with China. That was the pattern that New Zealand followed and completed a trade agreement with China and then it had its own trade agreement with Taiwan. Australia does not have a trade agreement with Taiwan. To be honest, I don't know if it has an investment agreement. It may do it may not do.

I don't know why Canada has been slow. My understanding is that the slow pace is more due to the Canadian side than to the Taiwanese side. I think Taiwan would be ready, there may be some substantive issues that are holding it up. But I just think it's something that hasn't been given a priority, it's been sort of pushed off the side of the desk. And this is something that we should do. There's a good potential for Taiwanese investment in Canada, a FIPA would help. We finally concluded as people know a FIPA with China some years ago, so I don't understand why we don't do it.

We do compete with Australia in many ways. I wouldn't say that Australia has been any more advanced, the Canadian office in Taiwan and the Australian office in Taiwan perform essentially the same functions. Australian politicians visit Taiwan in a private capacity as do Canadian politicians. What I would like to see is to kind of take a bit more leadership within the parameters that we've set for our one China policy, and that would include unofficial visits by senior officials and ministers responsible for economic, non political type portfolios, functional portfolios.

Deanna:

I'm going to turn back to Meredith, going back to CPTPP. You make a very interesting argument in your paper that it might be better for Taiwan to enter into accession negotiations together with South Korea and Thailand, for example. So if you could comment on that. And the other thing is, and this was mentioned in the previous panel, when you look at the level of Taiwanese investment in China, and also, you know, there's been some move by the Thai government pushing Taiwanese companies to leave China. I'd love to hear your perspective on all of that.

Meredith:

Okay, well, so the reason that I suggest that Taiwan joins with several other countries, and I'm not the only one to have made this point, but it's really that if if Taiwan is the only next country to join, it's sort of like just putting a big giant spotlight on this issue. And it runs a danger of being an overtly political China position, that all those CPTPP countries would be taking if the only country they're adjudicating is the entry of Taiwan. And so by looking at Taiwan together with other countries, what you can do, the kind of strategy that you're employing there, is that you're making this a much more process heavy deliberation. And it's a way to depoliticize the Taiwan-China issue. And it does that in three distinct ways.

And so one of them is that it allows CPTPP members to take the position that they're just considering all countries according to a preset set of criteria, and they'll look at each one, and isn't this boring and we haven't gotten to the final set of, you know, sentences about, you know, these big long proposals to join. And so that piece, by the way, also would help other countries that have politically difficult issues with CPTPP to join. So, you know, separate from Taiwan, there's some kind of Korea, Japan stuff that isn't super pleasant, but if several of these countries join together, they can all sort of set aside those political bilateral issues and treat this purely as economic.

The second piece is that for Taiwan, it just kind of lets them tuck in and avoid being the sole focus of this, which isn't good for Taiwan to be solely set up as a kind of China versus Taiwan case.

And then the third piece is that it also gives, and I think this is the most important piece, it gives China the ability to ignore the whole thing, if they want. So it actually gives a face saving strategy for China to say, well, there's just a process happening, there are these whole sets of countries that want to join CPTPP, we think RCEP is better, we're just going to kind of set this aside.

I don't think that's what's going to happen, but it creates the opportunity in different ways for everyone to kind of use this as a way to to allow Taiwan in.

And then one other little piece, I think is important to note is that Taiwan really has to do this properly. Because one of the aspects around sovereignty that is important is this concept of recognition sovereignty. And so if Taiwan seeks to join and is rejected, that's actually very bad for Taiwan's broader project. Not just economically, but with ICAO, with WHO, with all these other things. So doing this in a way that, you know, consulting with other CPTPP countries and asking them, what is the best way to get you to say yes to are joining, and then following that kind of path, is a good idea for Taiwan in order to kind of address the broader, longer term game around Taiwanese sovereignty.