CPTPP increasingly fashionable but hard to enter

After the announcement of the Regional Comprehensive Economic Partnership (RCEP), many observers have voiced the possibility that the US administration may reconsider its participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the ultimate outcome of the Trans-Pacific agreement that the US earlier negotiated with a number of Asian and Latin American countries during the Obama’s administration but later abandoned by Trump as soon as he took office. Even in the European Union, RCEP’s announcement has led to a soul searching as regards extending trade agreements in Asia and, potentially, exploring participation in CPTTP. At the same time, President Xi at the APEC meeting expressed willingness for China to join the trade and investment agreement. One can imagine that ASEAN countries still out of CPTTP but in RCEP may also consider joining.

The reality is, however, that participating in CPTPP requires a higher-level of commitment than RCEP as it covers more areas of trade and investment well beyond tariff reduction. Looking at the membership, the coverage of the RCEP is basically Asia-Pacific but CPTPP extends the membership further to Latin America (Chart 1). Furthermore, CPTPP includes countries with a higher income per capita on average (1.5 times higher). Average applied tariffs were already only 2.7% for the CPTPP member countries in 2019 whereas they are 4.4% on average for the countries which have entered RCEP (Chart 2). As such, the gains from entering RCEP would be higher in principle than CPTPP as the potential reduction in tariffs is larger. However, this very much depends on the number of exemptions and the transition period until tariffs are reduced (both are larger for RCEP). Furthermore, the scope of CPTTP is broader as it goes beyond tariffs to non-tariff barriers as well as requirements for fair competition and market discipline. For example, the CPTTP includes a specific chapter on state-owned enterprises (SOEs), which specially stipulates that non-commercial practices should not have adverse effects on other members. And each member shall provide its courts with jurisdiction over civil claims against an SOE based on the commercial activity carried on in its territory. Finally, the CPTPP has also detailed rules on labor, environment and other criteria relevant for international trade and investment.

Finally, the reality that the CPTPP is an established agreement with existing members having potential veto power. This offers less negotiation room for newcomers to alter existing rules. It is particularly the case if the incumbent members have signed other bilateral trade agreements outside of the CPTPP, which further complicates the negotiation process between them and the potential newcomers. For example, Mexico has signed the CUSMA with the US and Canada, with clauses that might impact Mexico’s decisions as concerns potential new members to CPTPP.

All in all, CPTTP seems poised to receive a lot of attention from several countries in the next few months but the actual expansion of its membership might not be as fast. It is indeed a more complex agreement than RCEP for a number of reasons, one of the most important ones being the treatment of SOEs. Second, the existence of veto power can make accession by new members more difficult. As such, despite the current interests shown from many countries, we should expect the expansion of the CPTPP to be in a slower pace.