Policy Memo: Countering China's Application to the CPTPP

Summary: The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the consolidated version of the abandoned Trans-Pacific Partnership (TPP), represents 13.5% of global GDP[i] and presents an opportunity to expand U.S. commerce and economic ideals. As China applies to join the CPTPP, the U.S. must reconsider its economic relationships in the Pacific region to maximize economic progress relative to China and promote American economic values, such as free trade and intellectual property (IP) rights. The Bureau of Economic and Business Affairs recommends negotiating an entrance to the CPTPP to capitalize on its economic benefit, build relationships within the Pacific region, and instill American economic values in the region.

Background: In 2016, experts projected a U.S. admission to the TPP to increase annual U.S. exports by $357 billion within 15 years[ii]. However, the U.S. failed to join the TPP due to disputes over IP regulations. IP violations are estimated to cost the U.S. economy $225 - 600 billion[iii] each year. After the U.S. exit from TPP negotiations, the remaining members formed the CPTPP, which lacks robust IP rights. However, members of the CPTPP[iv] and U.S. allies such as Japan[v] and the U.K[vi] increasingly support a U.S. entrance to the CPTPP, particularly now as China attempts to join. On September 16, China submitted its application to join the CPTPP[vii]. Acceptance of China would result in the CPTPP accounting for 30%+ of global GDP[viii] and further accelerate China’s rapid economic progress, exacerbating Sino-American economic competition.

Key proponents of the CPTPP include former President Obama, Senator Warren, Senator Schumer, and President Biden[ix]. However, their support depends on the willingness of CPTPP members to increase IP law enforcement, which is currently unknown. Key detractors include former President Trump, Senator Sanders, Vice President Harris, and Rep. Joe Manchin (D-WV)[x]. Polling in 2015 indicated that public opinion was slightly in favor[xi] of the original TPP agreement, although the majority noted they did not know enough about the agreement[xii]. Entrance to the CPTPP would require a Congressional-Executive agreement that requires a simple majority in both houses of Congress and the signature of President Biden.

Options:

Option 1: Unconditional CPTPP Entrance. Entrance into the CPTPP free trade agreement would cut over 18,000 tariffs imposed on U.S. businesses, allowing American businesses to export to massive, developing Pacific markets[xiii]. Free trade could also result in significant price cuts for American consumers on imported goods and services. The CPTPP’s substantial increase in American exports is also expected to provide over two million jobs[xiv] for Americans in the agricultural and manufacturing sectors. Estimates also predict that all households' incomes would grow by similar percentages, with slightly greater growth in lower and middle-class households, decreasing economic inequality[xv]. Entering the CPTPP would also allow the U.S. to lead Pacific countries in combatting climate change and could promote IP enforcement in the future. However, entrance to the CPTPP would likely accelerate the short-term loss of manufacturing jobs to developing CPTPP member states[xvi]. Public concern about job loss and economic inequality may provoke domestic political backlash. Entrance to the CPTPP does not guarantee IP protection in the future, even with a significant U.S. negotiating effort post-entrance.

Option 2: Negotiate CPTPP Entrance. South Korea and the U.K. have shown a willingness to join the CPTPP if the U.S. is party to the agreement. As the U.S., South Korea, and the U.K represent ~19% of the global economy, the CPTPP would represent a third of the global economy if all three were admitted. The U.S. could use the collective size of these economies as a bargaining chip to renegotiate IP enforcement with current CPTPP members while reaping the benefits of a massive free trade agreement. Terms may include guarantees of enforcement mechanisms that levy sanctions/tariffs on corporations or states found guilty of repeated IP violations. However, significant IP protection is not guaranteed as the TPP agreement was unsuccessful in part due to overly strict IP requirements by the U.S. A significant increase in IP enforcement may also result in China rescinding its application, which may not be a risk CPTPP members are willing to take, as China is a significant trading partner for the region. Negotiations will also require significant diplomatic resources and may not produce substantial benefits in IP protection, resulting in public disapproval and indicating a failure of U.S. global leadership.

Option 3: Economic and Diplomatic Force. Rather than risk public discontent and the short-term economic ramifications of entering the CPTPP, the U.S. could use economic force to enforce IP laws in Pacific Rim states. Multilateral sanctions by the U.S. and CPTPP-hopeful allies, such as South Korea and the U.K., could be levied against corporations suspected of repeatedly violating international IP laws in the Pacific Rim. If multilateral sanctions prove difficult, the U.S. could impose unilateral sanctions and secondary sanctions. Diplomatic retaliation may include denouncement in international forums and the recall of U.S. ambassadors. Harsh bilateral trade negotiation terms could also be used to encourage IP law enforcement. Bilateral free trade agreements could be negotiated with Pacific Rim states that enforce IP laws, benefitting both states’ economies and encouraging American economic values. However, such a use of force would damage relations with many rising powers in the Pacific, many of which are U.S. allies, and push them closer to China. Economic sanctions may also harm U.S. businesses that rely on Pacific Rim economies.

Recommendation: This office recommends Option 2: negotiating a U.S. entrance to the CPTPP. A thorough evaluation of the CPTPP’s effects on the U.S economy can be completed by the U.S. Departments of Treasury and State. U.S. diplomats in South Korea and the U.K. can then discuss the possibility of a U.S, South Korea, U.K. entrance. If successful, President Biden can attend the next Asia-Pacific Economic Cooperation to show U.S. interest in joining. Significant effort in evaluating the economic impact of the CPTPP and communicating with South Korea and the U.K is required by the U.S. Departments of Treasury and State. President Biden is also required to frequently communicate with CPTPP leadership. It is in the U.S.’s interest to promote free trade and protect IP rights while benefitting economically relative to China. The U.S. should therefore negotiate an entrance to the CPTPP, even when considering the potential for short-term job loss and failed negotiations.

Works Cited: [i] “Global and Regional Trade Systems.” 2020. Atlantic Council (blog). July 7, 2020. https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/global-and-regional-trade-systems/. [ii] “The Economic Effects of the Trans-Pacific Partnership: New Estimates.” 2016. PIIE. March 13, 2016. https://www.piie.com/publications/working-papers/economic-effects-trans-pacific-partnership-new-estimates. [iii] “IP_Commission_Report_Update.Pdf.” n.d. Accessed November 11, 2021. https://www.nbr.org/wp-content/uploads/pdfs/publications/IP_Commission_Report_Update.pdf. iv “Will CPTPP Welcome US Back?” n.d. Accessed December 17, 2021. https://ajot.com/premium/{path=. v “Japan Foreign Minister Calls for U.S. to Join CPTPP.” n.d. Nikkei Asia. Accessed December 17, 2021. https://asia.nikkei.com/Politics/International-relations/Indo-Pacific/Japan-foreign-minister-calls-for-U.S.-to-join-CPTPP. vi Balmer, Crispian. 2021. “Britain Sees Tran-Pacific Trade Deal next Year, No Date yet for U.S. Accord.” Reuters, October 13, 2021, sec. Business. https://www.reuters.com/business/britain-sees-tran-pacific-trade-deal-next-year-no-date-yet-us-accord-2021-10-13/. vii Solís, Mireya. 2021. “China Moves to Join the CPTPP, but Don’t Expect a Fast Pass.” Brookings (blog). September 23, 2021. https://www.brookings.edu/blog/order-from-chaos/2021/09/23/china-moves-to-join-the-cptpp-but-dont-expect-a-fast-pass/. viii “China’s GDP Makes up over 17% of the World Economy in 2020: NBS - Global Times.” n.d. Accessed November 11, 2021. https://www.globaltimes.cn/page/202102/1216746.shtml. ix “Schumer: Without Improvements To Trade Deal, Significant Number Of Manufacturing Jobs Would Go Overseas; Schumer Urges Senate To Support Bipartisan Bill To Crack Down On China Currency Manipulation & Other Predatory Practices; China’s Trade Practices Over The Past Decade, Including Currency Manipulation – Has Erased Nearly 180,000 NY Jobs | U.S. Senator Chuck Schumer of New York.” n.d. Accessed October 10, 2021. https://www.schumer.senate.gov/newsroom/press-releases/schumer-without-improvements-to-trade-deal-significant-number-of-manufacturing-jobs-would-go-overseas-schumer-urges-senate-to-support-bipartisan-bill-to-crack-down-on-china-currency-manipulation-and-other-predatory-practices-chinas-trade-practices-over-the-past-decade-including-currency-manipulation_has-erased-nearly-180000-ny-jobs. x “The Presidential Candidates on the Trans-Pacific Partnership.” n.d. Council on Foreign Relations. Accessed October 10, 2021. https://www.cfr.org/article/presidential-candidates-trans-pacific-partnership. xi Poushter, Jacob. n.d. “Americans Favor TPP, but Less than Those in Other Countries Do.” Pew Research Center (blog). Accessed October 10, 2021. https://www.pewresearch.org/fact-tank/2015/06/23/americans-favor-tpp-but-less-than-other-countries-do/ xii “The Trans-Pacific Partnership Trade Deal: Public Opinion on TPP and TTIP.” n.d. Ballotpedia. Accessed November 11, 2021. https://ballotpedia.org/The_Trans-Pacific_Partnership_trade_deal:_Public_opinion_on_TPP_and_TTIP. xiii “How the TPP Lives on Without the United States.” n.d. The Balance. Accessed November 11, 2021. https://www.thebalance.com/what-is-the-trans-pacific-partnership-3305581. xiv TPP-Economic-Benefits-Fact-Sheet.Pdf.” n.d. Accessed November 11, 2021. https://ustr.gov/sites/default/files/TPP-Economic-Benefits-Fact-Sheet.pdf. xv “Adjustment and Income Distribution Impacts of the Trans-Pacific Partnership.” 2016. PIIE. March 23, 2016. https://www.piie.com/publications/working-papers/adjustment-and-income-distribution-impacts-trans-pacific-partnership. xvi “Trans-Pacific Partnership, Currency Manipulation, Trade, and Jobs: U.S. Trade Deficit with the TPP Countries Cost 2 Million Jobs in 2015, with Job Losses in Every State.” n.d. Economic Policy Institute (blog). Accessed November 11, 2021. https://www.epi.org/publication/trans-pacific-partnership-currency-manipulation-trade-and-jobs/.