By Sarah Pittman & Carlo Dade
Published in The Globe and Mail
August 25, 2019
The Comprehensive and Progressive Trans-Pacific Partnership – also known as “the largest, most complex, and potentially most impactful [trade] agreement Canada has been a part of” – will soon have new members. Several countries have voiced interest in applying to join the CPTPP, and which ones the trading bloc allows to join will have implications for every member, including Canada.
Taiwan has expressed clear interest in joining the CPTPP and has already taken domestic reforms necessary to join; this presents CPTPP members with a dilemma. On one hand, Taiwan would be a clear asset to the CPTPP. On the other, China could react harshly – and as much as we might be tired of China and its reactions, this could have very serious economic consequences.
There is a compromise. Canada should support Taiwan’s accession, but not as a full member. Rather, Canada should support Taiwan’s partial accession as a “separate customs territory’ (not as a country), à la APEC and the World Trade Organization, and Taiwan’s trade agreements with Singapore and New Zealand. This will have economic benefits but is also sensible to the One-China policy.
Some will argue that Canada shouldn’t support Taiwan at all, given the potential blow-back from China; some argue that this is a chance to “hit back” at China. Neither argument should motivate Canada. What Taiwan will bring to the CPTPP makes taking some risk worth it.
While Taiwan is a small market, what it produces and what Canada produces are complementary – that is, Taiwan needs what Canada produces, and vice versa. This is particularly true for Western Canada: Important commodities, including coal for steel manufacturing, lumber, zinc, wood-pulp and iron scrap exports to Taiwan earned Canada a cool $800-million in 2018.
Our trade exports to Taiwan could be much higher. For example, we sell a lot of pork to Taiwan, about 25 per cent of its total pork consumption. Several European countries also sell significant amounts of pork to Taiwan. But if Taiwan were to enter the CPTPP, the European countries would still have to pay the 12.5-per-cent tariff, whereas Canada wouldn’t have to pay anything. This could make Canadian pork producers hundreds of millions of dollars. This isn’t the only meat sector that could benefit – Canada could have Taiwan reduce tariffs on meat products that range from 12.5 per cent to 40.8 per cent (depending on the product) in order for it to join the CPTPP. There are opportunities to expand exports to Taiwan, as well, particularly in energy: Taiwan imports 98 per cent of its energy.
Taiwan has demonstrated that it is eager and ready to join the CPTPP. Taiwan is known for actively courting, and working well with, foreign investors and companies. Additionally, Taiwan has already even changed some domestic intellectual property laws, to be aligned with CPTPP standards. According to the executive director of the Asian Trade Centre, “they are – by far – the most prepared” country that wants to join the CPTPP.
Taiwan is so active in trying to garner support to join the CPTPP because it stands to benefit enormously, having very few trade agreements worldwide. Beyond economics, there is perhaps also an ideological impetus for supporting Taiwan joining the CPTPP. Taiwan is a member of few trade agreements not because it’s a poor trading partner (quite the opposite), but because it is blocked by China. Taiwan is a progressive democracy and ideologically aligns with Canada on many things.
Which leads us to the elephant in the room: How can Taiwan become a member of the CPTPP without China reacting in a way that will economically harm Canada and other CPTPP members? China is a crucial economic partner for all signatories of the CPTPP. It is counterproductive to encourage Taiwan’s accession to the CPTPP if that puts a country’s trade with China at serious risk.
To manage this risk, Canada could champion Taiwan’s partial accession to the CPTPP as a separate customs territory. Taiwan would have the ability to participate as an economic but not political actor in the bloc. If China were to join the CPTPP, perhaps Taiwan could be granted full membership after China. The exact details would need to be ironed out and there are several variations as to how this could be done. But this path is an extension of the current compromise accepted by China and Taiwan on the form and order of Taiwanese participation internationally – for example for Taiwan’s membership in APEC, the WTO and Taiwan’s trade agreements with Singapore and New Zealand.
This will not completely satisfy Taiwan or China, but there seems to be no other path that allows Taiwan major economic benefits while respecting China’s policies regarding Taiwan. It may just be a path forward for everyone involved.
There is of course the chance that China does not accept this special membership status, and will still threaten serious economic harm. At that point Canada – and all CPTPP members – would have a hard decision to make.
Sarah Pittman is a policy analyst and Carlo Dade is the Director of the Trade and Investment Centre at the Canada West Foundation.