Digitrade Digest #26
EU-US Trade and Tech Council see fireworks even before it starts; China, Taiwan and US all eyeing CPTPP!
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EU-US Trade and Tech Council
EU confirms transatlantic Trade and Tech Council to proceed
Politico: The EU-U.S. Trade and Tech Council will proceed as planned on September 29 in Pittsburgh, the European Commission confirmed Thursday.
"The Commission confirms that the Trade and Technology Council (TTC) will take place in Pittsburgh next week," Commission spokesperson Miriam García Ferrer tweeted.
France's fury over a new security alliance between the U.S., U.K. and Australia had raised doubts about whether the TTC would take place as scheduled. But U.S. President Joe Biden sought to calm tensions on Wednesday in a call with French President Emmanuel Macron, conceding Washington should have consulted Paris over an Indo-Pacific security pact, especially since it scuppered a multi-billion dollar submarine supply deal Paris had planned with Canberra.
EU holds fire on delaying Trade and Tech Council
Politico: An attempt to build a trans-Atlantic framework for cooperating on trade and technology looks cursed before it’s even started.
Even before a trans-Atlantic flare-up over submarines, which now looks likely to delay the first session of the Trade and Tech Council (TTC) planned for Sept. 29, Washington and Brussels had widely diverging visions of what they wanted out of this new diplomatic initiative.
China was a huge divider. While Washington saw the format as a prime opportunity to gang up against China on forging common tech and trade standards, the European camp was at pains to play down any sense that Beijing was a target. The EU was also frustrated over how Washington was using the new forum to steamroller forward with its own tech agenda.
As far as next week goes, those differences may prove academic as the European Commission is ambiguous about whether the discussions will even take place thanks to French fury over a new defense alliance between the United States, Australia and the U.K., dubbed AUKUS, that torpedoed a multibillion-dollar French submarine deal with Canberra.
A European Commission spokesperson on Tuesday said Brussels was still “analyzing the consequences of the announcement on AUKUS in terms of its possible impact on the date” for the trade and tech meeting. EU Internal Market Commissioner Thierry Breton meanwhile hinted at a delay by saying: “It is probably time to pause and reset our EU-U.S. relationship.”
For those in favor of closer cooperation, derailing the Pittsburgh summit sounds like a waste. The more free-trade-minded countries are already fuming about the way the French try to link their security files with the EU’s trade agenda, with the EU-Australia trade deal now in peril because of the French pique.
“This is too big to fail,” said one EU trade diplomat. “Let’s hope that it’ll be a success, there shouldn’t be any questions on it.”
Anti-China?
Europe’s sudden misgivings over the TTC are peculiar in that it was the EU that initially proposed the initiative back in December.
European diplomats seized upon President Joe Biden’s victory in last year’s U.S. presidential election to patch up the battered trans-Atlantic relationship after Donald Trump’s presidency. It took some time for Washington to reciprocate. When Biden agreed to the alliance at a June summit, Brussels saw it as a victory.
But from the beginning, Brussels and Washington had different expectations.
China is key.
“Ultimately, for the U.S., it’s all about China. If the EU doesn’t want that — if EU countries see this as a Trojan horse for the bloc to buy into the U.S. strategy on China — that’s a pretty fundamental issue,” said Paul Triolo, head of geo-technology at consultancy Eurasia Group.
A draft statement officials were preparing to be adopted in Pittsburgh next week, dated Sept. 20 and seen by POLITICO, listed a number of concrete actions to respond to “the challenges posed by non-market economies,” such as sharing information and “exploring ways of working together and with other partners with a view to addressing the negative effects of such policies and practices.”
Parts on artificial intelligence and investment screening also bore the hallmarks of the United States' China policy, Triolo said.
But Brussels saw this as only a part of the discussion and didn’t want to use the TTC purely to clobber China. EU countries, especially economic powerhouses France and Germany, are hesitant to push back too hard against China because of their significant economic ties to Beijing.
As negotiations intensified over the last few weeks, Brussels pushed back against the anti-China stance.
“The TTC is not a dialogue on China,” the European Commission’s Rupert Schlegelmilch told a civil society gathering last week. The same message was conveyed to MEPs and trade diplomats in meetings behind closed doors, several officials who attended those meetings said. European Commission Executive Vice President Margrethe Vestager also told POLITICO recently that the trans-Atlantic alliance was not aimed against China.
Europe has a history of not wanting to confront China too hard, and of riling the U.S. in the process. When China wanted to claim market economy status at the World Trade Organization, Washington dismissed the notion and was irritated by the EU’s fuzzy response. More recently, Brussels at the end of last year rushed to close an investment deal with China just before Biden took office, raising doubts in Washington as to whether the White House will ever be able to see eye-to-eye with Brussels — and indeed Berlin — on China’s role.
Trade and tech agenda
Brussels had originally hoped to pressure the Americans into following Brussels’ regulatory line on tech and trade.
But during the process, Washington flexed its muscles in the early stages to press its own priorities. It pushed for a new political deal on trans-Atlantic data flows, to be adopted on the margins of the TTC meeting, to replace the so-called Privacy Shield agreement, which was struck down by an EU court ruling last year. But the suggestion triggered frustration with EU officials, who stressed negotiations on such a new legal framework were far from done.
The U.S. also pushed to cut off trade in digital services with China by inserting mentions of democratic values in tech regulation, in line with Washington’s yearslong campaign to stop Chinese tech from overtaking that in the West.
When it came to more immediate domestic interests in Europe and the U.S., the two sides seemed to struggle to come up with ambitious plans.
Officials wanted to put forward a joint, trans-Atlantic solution to the crisis in the semiconductor industry after supply chain shocks hit European carmakers, U.S. consumer tech makers and many others in the past year. But draft language from earlier this week showed the sides were just as concerned about potential pitfalls as they were about benefits.
The chips partnership “must be balanced and of equal interest for both parties,” officials said, focusing on “avoiding a subsidy race.” The draft statement also looked to ensure export controls of chips technology are designed in ways that avoid a negative “impact on each other’s industries” — an apparent rebuke by EU officials of Washington’s attempts to ban the sale of high-tech Dutch microchip printing technology to China.
The language in the draft EU-U.S. statement contrasts starkly with draft language from the U.S., Japan, India and Australia for a “Quad” meeting this week, according to a report in Nikkei Asia Saturday. The Quad draft oozed the levels of ambition that EU-U.S. negotiators could only dream of in their preparations.
In trade, negotiations have been faring better, and EU officials were more optimistic about concrete outcomes, for example on investment screening and export controls. Both Brussels and Washington were eager for quick wins to avoid the TTC facing the same fate as prior similar initiatives, such as the Transatlantic Economic Council.
A lot of the work that has been done threatens to be lost if Europe pulls out of the process, or undermines it by delaying the first meeting.
“If they postponed it, the momentum is gone. The U.S. will lose interest and say: ‘We’ve seen this before, it was called TTIP,'” said Tyson Barker, head of technology and global affairs at the German Council on Foreign Relations and a former U.S. State Department official.
Beyond the outcomes, the mood music of the first meeting is equally important to reviving the trans-Atlantic relationship. After the Afghanistan debacle, the submarine deal has been another reminder for EU leaders of the American disdain that they remember from their dealings with previous U.S. presidents.
“It may not be right to think it is just about what happened last week,” Breton told reporters in Washington, mentioning the EU travel ban, past U.S. export restrictions on Covid vaccines, and the Afghanistan pullout as factors that also displeased EU leaders.
“The diplomatic tensions between France and the United States over the Australian submarine deal have added an extra layer of mistrust to the transatlantic discussion,” said Noah Barkin, managing editor at research firm Rhodium Group’s China practice.
“The Europeans are asking themselves whether the Biden administration is interested in meeting them halfway, or going its own way. And the Americans are growing impatient with the slow pace of European engagement on their top foreign policy priority — China,” he added.
Or, as Bernd Lange, chair of the European Parliament’s trade committee, told reporters on Monday: “The honeymoon is over.”
CPTPP
Citing China’s CPTPP bid, Carper and Cornyn urge U.S. trade leadership
Insidetrade: Leading members of the Senate Finance trade subcommittee are urging the administration to assert U.S. leadership in the Asia-Pacific region in the wake of China’s formal application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
China on Thursday announced it had formally applied to join CPTPP by sending a letter to the depositary for the agreement, New Zealand. The Trump administration in 2017 withdrew the U.S. from CPTPP’s predecessor, the Trans-Pacific Partnership. Since then, several lawmakers, including Finance trade subcommittee Chairman Tom Carper (D-DE) and ranking member John Cornyn (R-TX), have argued the decision was shortsighted and urged the Biden administration to consider joining CPTPP before China does.
Carper and Cornyn on Monday said it “shouldn’t come as a surprise to anyone” that China applied to join CPTPP – a move the two called “troubling.”
“For quite some time, we have been warning about China’s subtle yet deliberate moves to join the CPTPP – the very trade pact crafted to counter China’s trade influence that the United States mistakenly walked away from,” the two senators said in a statement. “We’ve long believed that United States trade leadership is critical for our country’s economy and national security – and it’s clear that China is not waiting to assert itself in the region. The U.S. cannot afford to continue waiting in the hallway – we must get our seat back at the table to re-engage our Asia Pacific allies in trade.”
Carper and Cornyn, in an op-ed in The Washington Post in June, argued the U.S. should not let China “beat” it “to the punch” in joining CPTPP. The lawmakers pledged to use their positions “atop the Senate’s trade panel” to “speak with one voice on the need to reengage in this region.” The two used a trade subcommittee hearing later in June as an opportunity to explore the reasons behind a lack of support in Congress for TPP as well as the chances the U.S. might join in its successor.
President Biden has said he will focus on domestic initiatives before pursuing new free trade agreements – and that CPTPP would have to be reformed for the U.S. to consider joining.
Asked last week whether President Biden would think about joining the deal if it could be renegotiated, White House Secretary Jen Psaki left the door open, contending that “if there's an opportunity to negotiate, then that could be a discussion we could be a part of.” But, she said, the U.S. is “obviously not there at this point.” She added that labor groups and environmentalists would have to be “at the table” in any such discussions.
Psaki said the administration would “leave it to” CPTPP member countries to determine whether China should be allowed to join.
However, China’s “non-market trade practices” and “use of economic coercion against other countries” likely will factor into CPTPP members’ evaluation of China as a candidate, the Office of the U.S. Trade Representative said last week.
CPTPP was signed by 11 countries – Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – in 2018. China’s chances of accession to CPTPP are thought by many analysts to be slim, considering entry requires a consensus among member states. Some members, including Australia and China, have strained relations with Beijing.
Singapore last week – before China’s announcement that it had applied – said it “welcomed” Beijing’s interest in the deal. Malaysia’s Ministry of International Trade and Industry this week said it was “encouraged” by China’s bid as well, according to a Kyodo News report.
Australia, meanwhile, stressed that China’s accession would require consensus from all members. Dan Tehan, Australia’s minister for trade, tourism and investment, contended that CPTPP parties would want to be “confident” any candidate could meet the standards of the agreement and “has a track record of compliance with its commitments in the WTO and existing trade agreements.”
Sen. Rob. Portman (R-OH) told Inside U.S. Trade last week that CPTPP countries should “recognize the dangers of doing a trade agreement with an anti-free market, techno-nationalist country like China.”
Portman, a former USTR, added that he was “very worried” about what China’s accession to CPTPP would mean for the U.S.-Mexico Canada-Agreement. Both Canada and Mexico are parties to CPTPP. Article 32.10 of USMCA allows members terminate the agreement if another enters into a free trade agreement with a “non-market” country.
The U.S. “cannot lose all the gains we made in USMCA to support American farmers, workers, and businesses,” Portman said. "So I hope the administration is working closely with Mexico and Canada to protect USMCA.”
CPTPP members are required to make a decision about China’s entry within a “reasonable period of time,” according to the deal’s accession protocol. They already are considering the United Kingdom’s bid to join the agreement.
China Applies to Join Asian Trade Deal U.S. Abandoned
· President Xi Jinping first expressed interest in CPTPP in 2020
· Beijing will need to get the agreement of all 11 members
Beijing has applied to join an Asia-Pacific trade pact once pushed by the U.S. as a way to isolate China and solidify American dominance in the region.
China submitted the formal application letter to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to New Zealand, according to a statement late Thursday in Beijing. Commerce Minister Wang Wentao had a follow-up call with his counterpart Damien O’Connor, as New Zealand is the depositary nation for the agreement.
The application is certain to spark a reaction from Washington, where a number of lawmakers had already expressed concern about China’s efforts to join. However, there’s no sign the administration of President Joe Biden is interested in rejoining the deal.
The original deal was envisioned by the U.S. as an economic bloc to counterbalance China’s growing power, with then-President Barack Obama saying in 2016 that the U.S., not China, should write the regional rules of trade. His successor Donald Trump pulled out of the deal in 2017, with Japan leading the revised and renamed pact to a successful conclusion the following year.
The application is the result of months of behind-the-scenes discussions after President Xi Jinping said in 2020 the nation was interested in joining. China is the second country to apply to join the 11-nation deal, after the U.K. asked to become a member earlier this year.
“It’s a perfectly rational calculation by the Chinese leadership,” according to Hosuk Lee-Makiyama, director of the European Centre for International Political Economy in Brussels. “Given how the Chinese market is driving the economic recovery, their cards will never be this strong again. Or rather, the cost of rejecting China’s application will never be this high.”
Australia Dispute
The negotiations about joining won’t be simple -- China and CPTPP member Australia are in the midst of an economic and trade dispute which has seen China apply tariffs or block billions of dollars of Australian exports. Still, China last week publicly lobbied Canberra for its support to join the deal.
Canada is also in a dispute with China, with one Canadian citizen jailed for 11 years and another still awaiting sentencing in cases that are seen as linked to the arrest in Canada of the daughter of the founder of Huawei Technologies Co.
Negotiations could also take a long time. The U.K. is seeking to conclude talks to join by the end of 2022, the former British trade secretary said in August.
A former U.S. trade official said China’s membership in the group isn’t assured given its trade regime and direction toward more central control of its economy.
Trade Rules
“It’s extremely difficult, if not impossible, to see how they could embrace the CPTPP rules governing state-owned enterprises, labor, e-commerce, the free flow of data, among others, as well as comprehensive market access commitments,” said Wendy Cutler, vice president of the Asia Society Policy Institute and a former acting deputy U.S. Trade Representative.
Another expert was more confident China will be successful.
“In the long term, they will be able to work out some of the differences, especially as these countries realize that China is going to be the biggest market for them and the U.S. is not going to join anytime soon,” said Henry Gao, associate professor of Law at Singapore Management University, who has written extensively on Chinese law and the World Trade Organisation.
But it won’t happen anytime soon, he said, as “the accession process would probably drag on for a couple of years.”
The U.S. administration hasn’t announced any concrete trade policies for the region, although there are reports it’s discussing a digital trade deal covering Asia-Pacific economies.
The CPTPP ranks third among the largest free-trade agreements behind the $26 trillion Regional Comprehensive Economic Partnership and the $21.1 trillion U.S.-Mexico-Canada Agreement. China’s addition to the CPTPP would make it the most valuable free-trade agreement ever signed.
The 11 signatories of the CPTTP have combined economic value worth about $13.5 trillion, or about 13% of global gross domestic product.
China has applied to join CPTPP - does this make the US more or less likely to ratify CPTPP/TPP?
Reuters: China has filed an application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the country's commerce ministry said on Thursday, as the world's second-biggest economy looks to bolster its clout in trade.
Commerce Minister Wang Wentao submitted China's application to join the free trade agreement in a letter to New Zealand's trade minister, Damien O'Connor, the Chinese ministry said in a statement.
The CPTPP was signed by 11 countries including Australia, Canada, Chile, Japan and New Zealand in 2018.
Before that, it was known as the Trans-Pacific Partnership (TPP) and seen as an important economic counterweight to China's regional influence.
It was central to then-U.S. President Barack Obama's strategic pivot to Asia but his successor, Donald Trump, withdrew the United States from the pact in 2017.
Accession to the CPTPP would be a major boost for China following the signing of the 15-nation Regional Comprehensive Economic Partnership (RCEP) free trade agreement last year.
Beijing has lobbied for its inclusion in the pact, including by highlighting that the Chinese and Australian economies have enormous potential for cooperation. However, relations between the two countries have soured.
Britain and Thailand have also signalled interest in joining the CPTPP.
Wang and O'Connor held a telephone conference to discuss the next steps following China's application, the Chinese Ministry of Commerce said.’
Taiwan applies to join CPTPP
Insidetrade: Taiwan has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership less than a week after China submitted its own bid, Taiwan’s Deputy Minister of Economic Affairs Chen Zhengqi said on Wednesday, according to reports.
Bloomberg first reported on Wednesday that Taiwan had sent a formal application to join the pact to New Zealand, the depositary for the agreement. China sent its application to New Zealand last week. Taiwan plans to announce it has applied and provide additional details on Thursday, according to the Bloomberg report and the Taiwan government-backed Central News Agency.
The decision to apply to CPTPP comes a week after Taiwanese Economy Minister Wang Mei-hua questioned whether China’s bid to join the agreement would affect its own potential candidacy. Wang expressed concern about China’s “sudden” move to join the pact.
China’s policies don’t align with the principles of a free economy and lack transparency, Wang said. Beijing, she suggested, might not be able to meet CPTPP’s high standards. “They also have friction with some CPTPP member states,” Wang said, according to the Reuters report.
Taiwan has been making preparations to join CPTPP, Wang noted. Taiwan’s top trade negotiator, Minister John Deng, recently told Inside U.S. Trade that if the country applied at the “right time,” it would be able to garner CPTPP members’ support. Lawmakers from Japan’s ruling party recently said they welcomed Taiwan’s interest in the deal. Taiwan’s interest in CPTPP has sparked backlash from China.
Beijing’s chances of accession are thought by many analysts to be slim, as it will require a consensus among member states – some of which have strained relations with Beijing. China’s “non-market trade practices and use of economic coercion against other countries” likely will factor into CPTPP members’ evaluation of China as a potential candidate, the Office of the U.S. Trade Representative said last week. Some CPTPP members, including Singapore and Malaysia, have said they welcomed Beijing’s interest in the deal.
China’s bid also has raised questions about the potential for U.S. participation in the pact. The Trump administration withdrew the U.S. from CPTPP’s predecessor in 2017. Since then, several lawmakers, including Senate Finance trade subcommittee Chairman Tom Carper (D-DE) and ranking member John Cornyn (R-TX), have urged the Biden administration to consider joining CPTPP before China does. Carper and Cornyn on Monday labeled Beijing’s bid “troubling” and again called for the U.S. to “assert” leadership in the Asia-Pacific.
The Biden administration has said CPTPP would have to be reformed for it to consider joining. White House Secretary Jen Psaki last week said the U.S. might be willing to participate in negotiations down the road, but said the administration was “obviously not there at this point.”
The Digitrade Digest is a weekly publication of the Digital Rights Program at Public Citizen.