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New democratic framework can bolster CPTPP

China's bid to join trade pact requires members to devise bold plan B

The flags of the 11 members of the CTPP are displayed.  A rejection of Chinese style state capitalism is a core idea of the group.

TOKYO -- As Japan looked for a partner in its first-ever free trade agreement, it picked Singapore. When Prime Minister Goh Chok Tong came to Tokyo to meet with counterpart Keizo Obuchi, they agreed to start talks on the matter. There was a widespread view at the time that opening up the Japanese agricultural market was out of the question, but Tokyo moved ahead nonetheless because there was only limited trade with the city-state.

The World Trade Organization, however, required that free trade deals cover "substantially all" trade to prevent the fragmentation of the globe into economic blocs. If a deal did not cover at least 90% of overall trade, it would not be recognized as a free trade agreement.

When asked about the negotiations, Hitoshi Tanaka, then the director of the Foreign Ministry's economic affairs bureau, was unruffled. There is no need, he said, to get hung up on striking a "traditional" free trade deal.

A new type of agreement aiming for an "economic partnership for a new era," would also serve just fine, Tanaka said, adding that such an agreement could cover broad range of issues, such as rules for simultaneous listings on the two countries' stock markets, cooperation on competition and environmental policies, and relaxation of visa requirements for tech workers, Tanaka said.

As it turned out, the deal ultimately signed in 2002 met the WTO's requirements. But having a bold, game-changing plan B in case it did not left a strong impression.

This lesson can also apply to China's bid last month to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. While the discussion around it tends to focus on whether Beijing will be accepted, there should be a similarly groundbreaking plan B ready.

The CPTPP, originally the TPP, was negotiated with China very much in mind, and not only to enclose it geographically. The deal would restrict market interference by state-owned enterprises and promote rule of law and free flows of data.

"The TPP was a loyalty test to demonstrate a rejection of state capitalism and a commitment to a liberal economy," recalled one representative long involved in the negotiations.

The U.S., which had taken the lead in the talks, withdrew from the deal in 2017 under then-President Donald Trump. It is ironic that China has moved to fill the gap left by its absence.

Some say bringing the U.S. back into the fold is the solution, but experts are skeptical that will happen. President Joe Biden has pledged to conduct "foreign policy for the middle class," with an eye toward Rust Belt voters who supported Trump. The odds that a president who is seeking a second term will cast that aside are vanishingly small.

If China joining the CPTPP spurred domestic reform there, that would be fine. But the CPTPP allows countries to exclude areas related to security, and, according to diplomatic sources, China is seeking exemptions to core provisions of the agreement related to reform of state-owned enterprises, labor disputes, and cross-border data flows.

Japan, Australia and other members oppose such exemptions out of concern that they would violate the spirit of the treaty, but Beijing is engaging in a diplomatic offensive that has raised concern that it could find its way in.

Arrangements are needed that extend beyond trade deals, like the Quad, the security grouping of the U.S., Japan, India and Australia that was formed as a counterweight to China. While it has mainly moved forward on defense so far, the Quad could be used as a foundation to build an economic arrangement that includes other countries. It is a good idea to develop an economic framework involving other countries based on the Quad.

Beyond the group's ongoing discussions about supply chains for strategically important goods, the Quad could also consider a wide-ranging economic security agreement that covers, for example, export controls on advanced technologies or collaboration on research and development, said Vice President Tetsuya Watanabe at the Research Institute of Economy, Trade and Industry.

The digital trade deal with Asian countries being proposed by the U.S. to ensure the free flow of data could be made into a digital supply chain agreement that also covers cyberattack countermeasures and places limits on state data collection.

Trade deals in the postwar era revolved around trade and investment. But with U.S.-China tensions and the coronavirus pandemic heightening supply risks for medical products, semiconductors and rare resources, trade security is now an acute concern as well.

It is natural for countries with shared values to pursue complementary agreements in case of contingencies. That contributes to stable U.S. engagement and partnerships in Asia, which will be crucial to ensure regional stability in Asia as China gains momentum.

Of course, there must be persistent dialogue with China to clear up any uncertainty. Agreements that encourage decoupling or protectionism are to be avoided. What is needed are frameworks that not only have real benefits, but also embody liberalism and democracy.

This would reflect the world that members seek to build and confer legitimacy on such arrangements, unifying the countries involved and preventing opposition from becoming a goal unto itself.

Bold, game-changing ideas need robust principles behind them.

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