Two 800-Pound Gorillas?

Q: Where does an 800-pound gorilla sleep?

A: Anywhere it wants to.

I was recently interviewed by the South China Morning Post [SCMP] with respect to Premier of China Li Keqiang’s comment this May about China and the Comprehensive and Progressive Trans-Pacific Partnership [CPTPP]. A short article written with a quick turn-around time for publication does not allow those interviewed to provide an in-depth response. It is a good piece and gives an accurate snapshot of my “at this moment” view that now is not the time for China’s entry into the CPTPP.

But of course, that was not Premier Li’s aim. His short remark—”China has a positive and open attitude toward joining the CPTPP”—was made during a wide-ranging press conference at the Third Session of the 13th National People’s Congress in Beijing this May. This hardly represented a “full-court press” for immediate entry into the 11 Asia-Pacific country pact. The SCMP article correctly reflects a consensus that China is not ready to join the CPTPP. China is not ready to meet its cutting-edge standards of liberalised market access, transparency, and its tough disciplines on state owned enterprises (SOEs), IP, financial services, and investment. Many consider that the CPTPP sets the “gold standard” as it covers “new areas” like telecommunications, e-commerce, competition and anti-corruption, and protections for high labour and environmental standards.

There is more than a little scepticism about China’s ability to make the market-based economic transformation and its willingness to play a more responsible role in the global community in times of the COVID-19 crisis and the current trend toward “de-globalization.” (See our previous column, The Global COVID-19 Challenge: Health and Economic Risk Curves.)

However, consider a longer-term view–one that includes reflection on what has happened in terms of international trade and China over the last 40 years. Preparing for the interview, I looked back at my experience as a Government of Canada negotiator during the early days of China’s GATT/WTO accession process. Even with growing détente between China and the western democracies in the 1970s, China’s integration into the liberal trade regimes was difficult to imagine. Then as now, much scepticism met China’s early expressions of interest in joining the GATT and its formal application in 1986. Ultimately though, China did accede to the World Trade Organization (WTO, the successor to the GATT) in December 2001. To put the CPTPP question in perspective, China’s demarche survived a long hiatus in the negotiations following world-wide condemnation of its actions on Tiananmen Square in June 1989. However, after it introduced a new series of economic reform measures that increased the role of the market in its economy, China was able to re-start negotiations in late 1991.

The WTO road entailed long and arduous negotiations on many of the same core issues that are now cited as roadblocks by trade experts in the CPTPP contest: the dominance of State Owned Enterprises (SOEs), the lack of transparency, currency convertibility, many non-tariff barriers (NTBs) and a discriminatory tax system. To attain WTO membership, China had to demonstrate a credible and measurable commitment to open its market and to pursue serious economic liberalization. WTO members negotiated an Accession Protocol with China that included several transitional measures and other provisions that allowed China to meet WTO standards in a graduated way. Arguably the same thing could happen—over several years—with the CPTPP. However, currently there is a big difference may prevent that from happening. Political will existed back then, particularly with the two economic superpowers. Today, China and the United States are more like two mythical 800-pound gorillas fighting over one big chair.

As with the WTO process, the underlying motivations vis-à-vis China’s CPTPP membership are the same. For China, membership would mean preferential access to 11 leading Asia-Pacific economies which currently account for more than 13.5 % of the global economy. The CPTPP is currently the third largest trade bloc in the world. With China as its anchor, the CPTPP would be second only to the WTO in size. According to a report by the Peterson Institute for International Economics, China’s accession to the CPTPP would yield “massive economic benefits” to both China and current members: a 50% trade expansion and a 76.7 % increase in global income (in the range of US$632B).

There are also important domestic political considerations as well. Chinese authorities are still aiming at extensive economic reform and modernization. Recent policy documents affirm its commitment to a building a more market-based economy and increased State Owned Enterprises (SOE) reforms. As was the case with the WTO, the goal of CPTPP membership and global leadership can be used as a strong lever in terms of maintaining domestic support for the ambitious and painful adjustments required to for China to be consistent with international trade rules and practices.

For CPTPP members, there are similar motives that drove the WTO process. Since the CPTPP took effect in December 2018, many in the region have advocated for China’s entry. Improved and preferred access to the world’s largest market is a leading factor. China is the second largest economy in GDP terms and set to move past the United States by 2050 or sooner. China is the world’s second largest merchandise importer and is the largest single source of outward foreign direct investment (FDI) among developing countries. Even now, in the midst of significant diplomatic tensions, Japan and Korea continue to pursue bilateral free trade agreements with China and Australia already has one in place. For Japan, Korea, Australia and other members in the geographic core of the region (like Malaysia, New Zealand, Singapore and Vietnam), China’s membership would bring added potential in making Asia-Pacific the centre of the globe’s economy. And with Vietnam already a member, China could look to a long-time ally with a similar economy for both support and proof of concept. Vietnam has been able to join and comply with the labour and SOE provisions and thrive as a member.

Aside from economic gains from such an expansion, many argue that it would accelerate China’s market-oriented reforms and provide an opportunity for China to influence the reshaping of global trade rules and standards of the next generation. As with the WTO process, many see the negotiating process itself will accelerate China’s market-oriented reforms. In the end, the agreement’s transparency, monitoring and dispute settlement provisions would help ensure compliance

The politics–the geopolitics–could be the determining factor. This was the case with the WTO accession. Led by the United States, WTO members found the will to address China’s need for transitional measures and exceptions. For its part, China took many difficult steps to reform and open itself to the scrutiny and trade dispute challenges of WTO members. It made it clear, domestically and to the international community, that WTO membership was a vital national goal. In the CPTPP context, now the case can be made that China could fill a vacuum left by the U.S. decision to abandon the agreement.

That many are looking to China to “fill the vacuum” and embrace such leadership is more than a little ironic. The CPTPP is the legacy of the Obama Administration’s strategy to lead a new and advanced initiative of regional economic integration, one that set the highest standards of economic, environmental and labour rules, and one that expressly excluded China. It was seen as form of containment that would put China on the defensive in terms of its economic ambitions. Just what would the “end-game” have looked like? We may never know. One of first acts of the Trump Administration was to withdraw from the process in January 2017. This was the first step in the U.S path away from economic leadership and its traditional role as champion of the objective of a global, multilateral rules-based and liberal trade regime.

Will China ultimately decide to take the steps needed to join the CPTPP and embrace global leadership? Considering the WTO demarche, many of the same important elements in place. But in my view, there is a vital element missing. Back then, the United States understood that China was a rising economic and strategic superpower in the making. However, its belief in the power of multilateral rules-based institutions like the WTO drove it and its allies toward a process of positive engagement and ultimate inclusion. At the same time, China’s leaders had enough wisdom and courage to balance their national aspirations and belief in their economic model and mistrust of liberal democracies to step through the open door. They demonstrated the confidence to respond and adapt once invited inside the club.

Today we find the two superpowers engaged in a costly trade war–one which continues to escalate and cause damage to their citizens and collateral harm around the globe. Consider the Trump Administration’s aggressive, zero-sum, “America First” agenda. And consider Chinese leadership’s equally aggressive foreign policy and “wolf warrior diplomacy”, together with its roll-back of a generation of political reform. The spirit of compromise, and co-operation, and far-sighted ambition that drove the WTO process is missing. Instead, we find two mythical 800-pound gorillas battling each other for global economic dominance.

Thinking about this, I did some reading. It turns out that the 800-pound gorilla does not really exist. The late distinguished psychologist Christopher Peterson reminded us that the analogy is meant to conjure up an image of “… a person or entity so powerful that it can do anything it wants, despite opposition, because it can crush any adversary” but that “800-pound gorillas don’t exist, literally.”

Gorillas, even obese ones in captivity, never weigh as much as 800 pounds. Moreover, gorillas in their natural environment live in troops, and they are highly social and interdependent. Gorilla troops have a leader, typically an older male called a silverback, but the silverback usually mediates conflicts rather than creating or exacerbating them. He often has his own way, as it were, but it is because he is accorded the right to do so because of the responsibilities he has to his troop. Second, and more importantly cliché-wise, 800-pound gorillas don’t exist, metaphorically. Those in a group who always get their way in the face of constant opposition do not stay in charge indefinitely, no matter how much they weigh.

Something for China, the United States and the rest of the global community to consider.