Is China's move to resolve Australia barley row masking a 'strategic' bid to join the CPTPP?

China and Australia's decision this month to take a dispute on barley outside the courts of the World Trade Organization (WTO) shows Beijing is keen to put a "bilateral irritant" to bed - but it also masks a separate, more strategic motive by Chinese authorities, say trade lawyers and analysts.

China is keen to get some of its messy trading relationships in order, according to observers, as it steps up its campaign to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), one of the Asia-Pacific's largest trade pacts.

Joining the agreement aligns with Beijing's desire to be an upstanding multilateral - or collaborative - trade and investment partner. Analyses show China's inclusion would not only benefit it but also many other countries in Asia including Vietnam, Malaysia and Singapore.

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Deborah Elms, executive director of the Asian Trade Centre in Singapore, said Beijing's agreement to settle a three-year trade dispute informally with Canberra solved a number of problems for China while also achieving some of its goals.

She said it enabled China to get along better with Australia while its pursued its soft-power strategy through multilateralism, whether in trade or geopolitics.

"It's a bit of both - a desire to put a 'bilateral irritant' to bed and an interest in showing that disputes can be resolved even if the WTO dispute system itself is broken," Elms said. "China has always claimed that it is a champion of the multilateral system since it started the path to become a [WTO] member."

In general, when countries such as Australia and China bring their disputes to the WTO, they are encouraged to resolve their conflict informally.

With the WTO's appeals panel crippled after the US blocked the nominations of judges about four years ago, seeing through a case at the WTO could be complicated and time-consuming, Elms said.

With China next in line to advance its bid to join the CPTPP after Britain's application was recently approved, time is ticking for Beijing to spruce up its global trade image.

Aspiring CPTPP members usually start their campaign by undertaking bilateral consultations with founding members, one of which is Australia, to convince them to support their applications.

This will be made easier for Beijing following a breakthrough meeting between President Xi Jinping and Australian Prime Minister Anthony Albanese at the G20 summit in Bali last year, said Weihuan Zhou, co-director of the China International Business and Economic Law (CIBEL) Centre at the University of New South Wales.

An imminent reconciliation would also support China's strategic needs in relation to the CPTPP, Zhou said.

"Existing WTO litigation would have put China's multilateral reputation at stake," Zhou said. "Australia should [in fact] take advantage of the CPTPP process to continue to remove existing restrictions. Trade restrictions must be removed [anyway] before Australia will move forward with China's CPTPP application."

Bryan Mercurio, trade law professor at the Chinese University of Hong Kong, said Beijing was serving its own interests.

"I don't believe that the thawing of relations is due to the change in government in Australia, but more that China is acting in its own interest," he said.

Aside from seeking entry into the CPTPP, China also needed to boost its muted post-pandemic economic recovery through more trade, Mercurio said.

"Moreover, with the US moving further towards protectionism over free trade, the time is ripe for China to appear less confrontational and transactional in trade relations," he said. "So while Australia will benefit economically from the expedited reviews and move back to normalised trade relations, it appears to be a beneficiary of a broader Chinese strategic shift."

The CPTPP is a trade bloc comprising 11 founding member countries - seven are in the Asia-Pacific including Australia and New Zealand - and one new entrant, Britain. Along with the Regional Comprehensive Economic Partnership (RCEP), another major trade bloc with the 10-country Asean as a key member, the two promise to generate increased export potential and more wealth for the Asia-Pacific region.

The CPTPP accounts for 14 to 15 per cent of the global economy and has high trading standards on matters such as market access, sanitary and phytosanitary requirements.

Importantly, the near-full relaxation of barriers between the countries means members trade tariff-free. Should China join the pact, income, economic growth and the wealth of CPTPP members are expected to increase further.

Early research by the Peterson Institute for International Economics in 2019 showed that the income of CPTPP members would quadruple to US$632 billion if China joined.

Expanding the CPTPP further to include China and others such as South Korea, Indonesia, the Philippines, and Thailand would generate global income gains of about US$1.2 trillion annually - a sevenfold increase compared to the current grouping, the institute's research found.

A more recent study by Shandong University of Technology last year showed that if China acceded to the CPTPP, not only would its gross domestic product grow by about 2.9 per cent, the GDP of other CPTPP nations would increase by nearly 7 per cent, especially if they were also RCEP members.

Meanwhile, countries and regions that are not in either the CPTPP or RCEP - such as the US and the EU - would experience diminishing GDP as they were outcompeted by these trade blocs, Shandong's research showed.

A survey earlier this year by Singapore's ISEAS-Yusof Ishak Institute revealed that most Southeast Asian nations viewed Chinese CPTPP membership positively, as they believed it would benefit both the bloc and non-members by easing regional economic tensions and pushing through further reforms in China's economy.

Some respondents were concerned about China's ability to comply with CPTPP rules, such as promoting transparency in state-owned enterprises and increasing intellectual-property protections.

But if China managed to achieve these reforms, the economic spillover into the region would be positive, said Jayant Menon, senior fellow at the ISEAS-Yusof Ishak Institute.

"Southeast Asia's trade and investment prospects, and therefore its economic growth, are heavily dependent on China. This is mainly because its supply chains are still China-centred [and] this is unlikely to change in the foreseeable future, despite escalating US-China trade tensions," Menon said.

This article originally appeared on the South China Morning Post (SCMP).

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