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CHINA’S EFFORT TO JOIN CPTPP| IMPACT ON VIETNAM |

CHINA’S EFFORT TO JOIN CPTPP| IMPACT ON VIETNAM

In the process of globalization, there have been a number multilateral treaties coming into being, among which, RCEP and CPTPP are counted. This brings about numerous benefits and no less risks to the signatories. It is inevitable to Vietnam. Within the limit of this writing, the advantages and disadvantages for Vietnam, resulting from China’s accession into CPTPP are touched upon.

1. China has a positive and open attitude toward joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

Tensions between the United States and China during the presidency of former US President Donald Trump have created a situation in which the global economy is supported on opposing pillars. China wants to immediately normalize its relations with the US in order to compensate for and mitigate the economic losses it has suffered as soon as the US presidential transition happens again in 2021.

On 19 November 2020, Chinese President Xi Jinping surprised everyone when he announced at the virtual Asia-Pacific Economic Cooperation summit that China would actively consider joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade agreement.

China’s state-controlled media (the Caixin Press) has been very candid in stating that Beijing’s desire to join the CPTPP is strategically timed and aimed at a possible reconciliation with the United States under President-elect Joe Biden.[1]

Although China’s registration or admission to the CPTPP has not been officially announced, it can be viewed as a signal to wait for the US reaction. The United States withdrew from the TPP in 2017 and has yet to rejoin the CPTPP. China perhaps may make the next move after receiving an official response from the United States. On the other hand, China has other  deliberations in mind for potential gains from entering the CPTPP, aside from the stated goal of improving the current relationship with the United States.

2. The advantages and disadvantages of China’s participation in the CPTPP for China

China’s decision to join the CPTPP soon after entering the RCEP can be interpreted as an attempt to strengthen and deepen ties with US allies, especially after Biden was elected as the new 46th president of the United States. Is China aiming to take advantage of its strong position to break out of its stagnation and even soar to the top of the world’s economic rankings, in addition to the benefits of easing  the tension in relations with the US?

For the advantages, China has always been one of the countries that has benefited the most from joining the CPTPP, similar to the gains garnered from entering the RCEP. The prominent benefits China can get from joining the CPTPP shall include:

  • Joining the CPTPP, according to Wang Hui Yao, President of the Center for China and Globalization (CCG), provides Chinese businesses with several options to survive and grow in international markets. Chinese enterprises such as Huawei and TikTok, for example, will not face repression when conducting business abroad.[2] This can be viewed as the beginning of the healing process following China’s restrictions.
  • From an economic perspective, according to Reuters, China is the most successful country to overcome the Covid-19 pandemic in the top 10 economies in the world. The country’s economic growth in 2020 reached 2.1%, 5.8% higher than the figure of the US. Therefore, joining the CPTPP is a viable and practical approach for this country to overtake the United States as the global leader.
  • That is not to say China’s growing status is taken into account as the preeminent superpower in the West Pacific as a result of its participation in the CPTPP.

For the disadvantages, China’s main roadblock to joining the CPTPP is obtaining approval from 11 existing members. In accordance with Article 30.4 of the CPTPP,  if a State or separate customs territory seek to accede to this Agreement by submitting a request in writing to the Depositary, the Parties so agree to establish a working group to negotiate the terms and conditions for the accession. Therefore, in order to be  admitted into CPTPP, China must receive no objections from any CPTPP members. It is well-known that China is currently embroiled in a number of trade and territorial disputes with several members of CPTPP including Australia, Vietnam, etc,. China would have to give up  its interests correspondingly to the member countries in return for their approval.

3. Effects of China participation in CPTPP to Vietnam

Being an active member of both the RCEP and CPTPP, and also a neighboring country to China, Vietnam is subject to certain impacts  in cases China joins  CPTPP.

For positive impacts, since China is the world’s second largest economy, China’s involvements will help increase group benefits, that  will benefit Vietnam as well:

  • In terms of trade, Vietnam has been China’s largest trading partner in ASEAN for four years and has been becoming  China’s seventh largest trading partner globally since mid-2020; China has been Vietnam’s largest trading partner since 2004.
  • A recent example of China’s impact on the Vietnamese economy is the price and quantity of building materials imported from China. Steel price has been increased by 40% in the first quarter of 2021, surprising and alarming many investors. This is said to be due to the region’s complete reliance on steel prices, especially from China. Iron and steel of all kinds are mainly imported into Vietnam from five major  markets, but  it has been increased in Chinese market only, while the rest of the markets have been  dramatically on decline.  . China’s imports, in particular, have been increased by 70%, about  63 million tons (compared to 2020.) Due to  the rise in raw material prices, the price of construction works currently being done and about to be done has risen in comparison to the bidding price. A project’s gap in cost can be hundreds of billions of dong, causing delays in implementation. Furthermore, this can result in a high rate  of inflation (predicted to reach 4-5 percent in the Second quarter of 2021).[3]

For negative impacts,   CPTPP will also lead to extremely high competition and Vietnam will be faced with  risks of being out of the game  if Vietnam is not competitive enough. For Vietnam, this is both an opportunity and a threat. This becomes an even greater challenge as technology 4.0 spreads, posing a danger to anyone or any groups that cannot get themselves adapted. This is a typical problem when entering a free trade agreement, but it will be amplified if our partner is China, because of  the following issues:

  • China, in addition to having a long history of culture and a huge cultural heritage, also has a special geographical position next to  Vietnam, which shares a 1500-kilometer borderline with our nation. Integration has a major impact on maintaining the underlying Vietnamese national identity and culture, not just economically but also socio-culturally.
  • If China and even the US joins the CPTPP, the provisions of the CPTPP that have been postponed in comparison to the TPP could be reactivated. With the clause in the CPTPP that one of the partners is China – a country known as being involved in maritime territorial disputes with many countries –  National security should be prioritized. Despite possible compromises and concession made by  China in the accession phase, China’s it will be difficult for China  to abide by the signed agreements.. According to Mr. Miyake – a former career diplomat and former member of  Japanese  Cabinet, The fact that China is willing to consider joining the CPTPP is a mere  “Based on my experience as Japan’s chief expert  for trade in services at the World Trade Organization from 1994 to 1996, I don’t expect China to abide by the ordinary rules or regulations for joining the free trade agreement” Miyaki opined.[4]

Conclusion:

China is in the way to join CPTPP, a multilateral organization of APAC countries in place of TPP, and Vietnam should, as a signatory to this treaty, get itself well prepared, so that Vietnam can make use of benefits and minimize risks brought about by this accession.

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DISCLAIMER

This LBN newsletter are NOT legal advice. Readers are advised to retain a qualified lawyer, should they wish to seek legal advice. VCI Legal are certainly among those and happy to be retained, yet VCI Legal is not to be hold responsible should any reader choose to interpret/apply the regulations after reading this LBN without engaging a qualified lawyer.

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