CPTPP criteria, an opportunity for Australia, and the latest China trade trends
Weeks of 7-ish to 26 November 2023
Is Australia’s position on China in the CPTPP shifting?
Australian Minister for Agriculture, Fisheries and Forestry Murray Watt speaking to ABC RN Breakfast on 7 November about China and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP):
“[W]e would only support China’s bid if they do have a track record of abiding by and sticking to those sorts of commitments, that’s something that they will need to demonstrate. … [I]t’s really up to China to be able to develop that track record that they will stick to those sorts of deals.”
Quick take:
This comment from Minister Watt seems to leave the door for China to enter the CPTPP ever-so-slightly ajar. Despite Australia’s openness to China joining still being clearly conditional, the Minister’s message is likely to be received in Beijing as a (highly caveated) positive sign. Assuming China can establish a track record of trade agreement compliance, then the implication seems to be that Canberra might seriously consider Beijing’s bid for CPTPP entry. Minister Watt’s hypothetical thereby seems to not shut the door to China’s entry as firmly as Minister for Trade and Tourism Don Farrell’s October 2022 assessment that he doesn’t “believe there’s any prospect that China could join [the CPTPP].”
Despite the differences in tone and framing between ministers Watt’s and Farrell’s comments, Australia’s position on China’s CPTPP entry has probably not shifted substantially. First, Australian officials and ministers (e.g., here and here) alike have repeatedly stressed that Canberra’s “position on CPTPP applications has been consistent and has not changed”. Second, and more importantly, Australia doesn’t need to continue overtly saying no to China being in the CPTPP to still deliver a negative verdict. In contrast to the Australian Opposition, which is loudly and proudly against China’s CPTPP entry (e.g., here and here), the Albanese government is probably still in practice averse but only saying so by implication.
Australia (like the broader CPTPP membership) typically emphasises three factors when responding to queries about future CPTPP membership: meeting the CPTPP’s high standards, a track record of complying with trade commitments, and the pact’s consensus-based decision-making. Considering these three criteria, it’s clear that rebuffing China doesn’t need to be done explicitly. The three criteria for membership deliver an indirect negative verdict all on their own: China’s bid is a nonstarter given the seemingly yawning gap between CPTPP standards and Chinese policies, the sustained, severe, and still-ongoing Australian experience of China’s economic coercion, and the likely stiff opposition to Beijing’s bid in other CPTPP capitals like Tokyo.
Even if China ditches all its remaining trade restrictions against Australia in the coming months, as is widely expected (e.g., here, here, and here), it’ll presumably take a couple of years, if not much longer, to truly demonstrate a “pattern of compliance with trade commitments.” And even at that long-distant future point, it’s hard to imagine that Japan will want to bring China into the CPTPP or that Beijing will be able to meet the agreement’s standards on, for example, state-owned enterprises. So, it doesn’t seem there’s a plausible interpretation of the three criteria for entry that would see Canberra back Beijing’s bid any time soon (or perhaps ever).
The opportunity in the CPTPP challenge
China’s Brisbane Consul-General Ruan Zongze writing in The Australian on 3 November:
“China’s application to join the [CPTPP] will be crucial to China’s institutional opening-up and the upgrading of China-Australia economic co-operation.”
Quick take:
As I’ve previously flagged in BCB (e.g., here, here, and here), China is mounting a full-court press to get into the CPTPP. Beijing is pushing its case via Chinese diplomats, the state-controlled media, and public and private messaging at the highest political levels. I’d previously been inclined to see China’s CPTPP aspirations as a challenge for Australia. They seemed to put Canberra in the awkward position of being forced to choose between two unappealing options. On the one hand, reject Beijing’s bid, risk again suffering China’s ire, and definitively deal oneself out of added economic opportunities. Or, on the other hand, back Beijing’s bid but frustrate Tokyo, Washington, Taipei, and other capitals, embrace the risk of yet more export dependence on China, and potentially reward the Chinese government with a trade access win after years of malfeasance at Australia’s expense. This summary is obviously far from a complete tabulation of the costs and benefits of different approaches to Beijing’s CPTPP bid. But it’s at least enough to suggest that both opposition and support look unappealing for a range of reasons.
Yet as time passes, China’s CPTPP aspirations look more like an opportunity for Australia. Although it might seem wildly unrealistic viewed from the perspective of the three criteria for assessing prospective CPTPP members (see above), Beijing seems to genuinely want to wear away Canberra’s opposition to its CPTPP entry and eventually even garner Australian support. This makes the CPTPP a big carrot that Australia could potentially wield to induce better behaviour from China. As well as a compelling reason for China to keep faith with its trade commitments by removing the remaining restrictions and not imposing new ones, the CPTPP might also be used to encourage Beijing to further liberalise its domestic economy and be less belligerent on a broad range of bilateral sticking points. It doesn’t need to be put so bluntly and certainly doesn’t need to be fully explained publicly, but Canberra can easily and persuasively say to Beijing: “If you really want to make us more amenable to your CPTPP accession, then you’ll need to totally cease and desist with economic coercion, not throw us back in the diplomatic deep freezer, and play nicer with us in the relationship in general.”
Even if one accepts the above logic, it raises two conundrums. First, is this the kind transactional approach to bilateral ties that the Albanese government has disavowed? And second, won’t this encourage Beijing to develop dangerously inflated expectations about Canberra’s eventual support for its entry into the CPTPP? The first question is, I think, largely moot. The Albanese government has denied taking a transactional approach to the Australia-China relationship. But recent history suggests that it’s at least plausible that a quid pro quo dynamic is already at play. Perhaps more importantly though, there’s nothing to stop the Albanese government from being transactional with China on the CPTPP but claim otherwise, especially because one can leverage Beijing’s desire to get in without explicitly saying so publicly (which is arguably what Canberra has already done on other issues). So, yes, this approach to Beijing’s CPTPP bid might be transactional, but it’s not clear that that’d be a departure from past Albanese government practice. And even if it’s a shift, the Albanese government wouldn’t need to publicly admit as such (and, in any case, the CPTPP leverage over China will probably work best if it isn’t used nakedly).
The second question is more ticklish. It seems prima facie plausible that Beijing will get increasingly impatient with Canberra if it’s still (indirectly) rebuffing China’s CPTPP entry after the next federal election—by which time the remaining trade restrictions will have presumably been removed. And yet even in that scenario, Canberra will still be able to take cover thanks to the CPTPP’s consensus-based decision-making and the trade pact’s standards. Tokyo, Ottawa, and London will presumably remain (to varying degrees) sceptical of Beijing’s CPTPP bid, meaning that China probably won’t garner the consensus support needed regardless of what Australia does. Moreover, it’s not obvious that China will ever meet CPTPP standards because of its approach to market-state relations. There’s therefore a good chance that Canberra will have a readymade reason for rejecting Beijing’s bid in perpetuity.
So, perhaps Australia should welcome China’s enthusiasm for CPTPP entry. Not necessarily because Canberra should ever actually endorse Beijing joining. (And I don’t presume to offer an answer here to the question of the eventual position that Australia should take.) But because Beijing’s eagerness offers a powerful piece of leverage that successive Australian governments might be able to use to secure better treatment from China. Canberra could keep saying no by implication without saying so explicitly (i.e., merely by referencing the three factors for assessing prospective members), all the while shaping Beijing’s behaviour with the inducement that China might eventually win Australia’s support. To be clear, I’d be utterly unsurprised if Australian officials already fully appreciated these points. If that’s the case, more power to them.
Australia-China trade trends and Canberra’s diverging economic and security interests
China’s share of the total value of Australia’s merchandise exports, 2000-23 (with 2023 data based on the first nine months of the year to September):
Quick take:
While Australia doubles down on its security relationship with the United States, its goods export dependence on China is again growing. China reached a peak of accounting for just shy of 41% of the total value of Australian merchandise exports in 2020 before dipping down to slightly more than 29% during Beijing’s economic coercion campaign in 2022. Although this meant that China was still 148% of the value of the next biggest goods export market (Japan) that year, the drop was still dramatic. But with China’s trade restrictions being progressively removed and the price of key Australian export commodities like iron ore, coal, and gold still relatively high, the Chinese market accounted for 36% of the total value of Australian merchandise exports in 2023 (up to September this year, which is the last month of available data). It remains to be seen whether China will eventually regain its all-time high of nearly 41% of the value of Australia’s total goods exports, but the numbers from the first nine months of this year suggest that 2023 is on track to be the year with the fourth highest percentage (behind 2019, 2020, and 2021). (These figures are based on goods exports alone and it’s unclear whether the 2023 data for Australia’s services exports to China will show a similar rebound. Owing to the slower release of services exports data, we’ll have to wait until next year to know.)
Consistent with past ministerial messaging, the Albanese government continues to emphasise the contemporary intermingling of economic and security interests. Here’s how Assistant Minister for Foreign Affairs Tim Watts put it recently (and reiterated the message here): “We appreciate we can’t go back to the days of 2016 when our security and our economic interests were completely separate.” The intertwinement of economic and security interests (rightly/wrongly/for better/for worse) is occurring to varying degrees in many arenas, including critical mineral supply chains, investment screening, technology policy, and the application of naval power to safeguard global shipping lanes. And yet the trade data above points to just how much Australia’s economic and security interests still pull in vastly different directions.
In recent weeks alone, prickly security issues with China have continued to bubble up, at times approaching boiling point. These include recent acute tensions (e.g., here and here) over injuries sustained by Australian navy divers because of People’s Liberation Army (PLA) Navy actions, Australia’s first publicly reported naval transit of the Taiwan Strait since 2018 (to which China objected), and China’s cyber-attacks and Australia’s attributions (e.g., here and here). Despite these and Canberra’s other longstanding security concerns vis-à-vis Beijing, China has this year further consolidated its position as a uniquely valuable merchandise export destination and, by extension, the source of a hefty chunk of Australian corporate tax receipts and mining royalties, which in turn bankroll government spending and services.
Recent comments from Opposition Leader Peter Dutton also put into stark relief the delta between Australia’s economic and security interests. Speaking at the 2023 NSW Liberal Convention on 25 November, Dutton said: “We have an incredibly important trading relationship with China. It’s sacrosanct and we’ll continue to build it.” This followed an interview on 29 October in which Dutton emphasised the importance of growing Australia’s trade relationship with China. Even for a staunch supporter of AUKUS and a strong critic of the Chinese Communist Party like Dutton, China’s economic importance for Australia is beyond doubt. Managing the downside security risks of exposure to China might be one of the organising principles of contemporary Australian statecraft. And yet at the same time, Australia’s prosperity still depends on deep and deepening trade ties with the Chinese market.
This is neither to criticise nor endorse Australia’s current approach. (Doing so would require a much longer excursus.) The modest analytical point is simply that, on some level, Australia is still running a dual-track national strategy in which the country’s economic and security interests are being pursued by simultaneously intensifying trade interdependence with the Chinese market and more actively counterbalancing China’s military power. The growing security concerns about China don’t seem to be resulting in a meaningful reduction in Australia’s acute merchandise export dependence on the Chinese market at the aggregate level (though, of course, the story might be different in specific industries). Meanwhile, Australia’s surging trade ties with the Chinese market don’t seem to be shifting the broad contours of Canberra’s generally China-sceptical security policy.
On one level, this dual-track strategy is hardly surprising considering the contrasting positive-sum and zero-sum logics of economics and security. It’s also to be expected given the deep and abiding economic complementarities between Australia and China and the growing security concerns stemming from the stupendous scale and ambition of the PLA’s military modernisation. Yet it also underscores the enduring difficulty of taking an integrated approach to Australia’s economic and security interests when each set of interests lends itself to (on many, albeit not all, policy questions) conspicuously different goals and strategies.
As always, thank you for reading, and please excuse any errors (typographical or otherwise). Any and all objections, criticisms, and corrections are very much appreciated.