By Bob Savic, Advisor to Dezan Shira & Associates
Actual benefits compared with Westminster trade spin are rather different animals
On Tuesday morning, 22nd June 2021, the UK officially commenced negotiations to apply for membership of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which according to UK Prime Minister Boris Johnson “would open up unparalleled opportunities for British businesses and consumers in the fast-growing Indo-Pacific”.
According to the UK’s Department for International Trade (DIT), exports to this Asia Pacific bloc of countries are expected to expand by 65%, to around £37 billion, from 2021 to 2030, with an additional increase in trade of £3.3 billion arising from the UK’s accession. These benefits are expected to grow over time as other regional economies which have expressed an interest to join, such as South Korea and Taiwan, amid fast-growing developing economies including the Philippines and Thailand, also come on board.
Significance of certain UK bilateral relations in upcoming negotiations
Currently, the CPTPP is a grouping of eleven countries located across the entire pacific rim. Originally, the trade bloc was founded as the Trans Pacific Partnership by the United States and Japan, but which the former broke off under Donald Trump’s presidency.
Since then, Japan led the process of negotiations for the eleven remaining nations that formed the CPTPP following the US departure. The country also holds this year’s chairmanship of the trade grouping and will oversee the introduction of Britain’s application for membership resulting in the UK’s international trade secretary, Liz Truss, kicking off virtual negotiations by speaking with Japan’s Yatoshi Nishimura.
The discussions are likely to be held in a positive context given that both countries had signed a Comprehensive Economic Partnership Agreement, in the previous year, for the purposes of expanding bilateral business opportunities and diversifying trading arrangements. Should the UK eventually join the CPTPP it would also become the trade bloc’s second largest economy behind Japan’s, considering their respective GDP being US$2.71 trillion and US$5.04 trillion in 2020.
Other CPTPP members which signed bilateral trade agreements with the UK, at the end of last year, have been Singapore and Vietnam. In turn, both countries have expressed their willingness to be strong advocates of Britain joining the CPTPP.
Another CPTPP member, Australia, has also been a major supporter of the UK’s prospective membership. This is at a time when a political backlash has been growing against the UK government’s agreement of a free trade deal with Canberra, as the UK farming community have accused Downing Street of selling out to Australia’s more competitively priced farm products and lower animal welfare standards.
Given this negative and increasingly controversial backdrop, much of the backroom chatter has revolved around the possibility that the timing of the Australian deal and concessions made were not entirely coincidental to the commencement of CPTPP talks.
The UK’s geopolitical considerations in joining CPTPP
Ms. Truss will hold the virtual conference in the same room Winston Churchill used to orchestrate Britain’s involvement during the Second World War. In the current environment of Britain’s geopolitical relations with China, the location for negotiations can be viewed as partially symbolic of how the UK plans to manage its otherwise increasingly fraught ties in the Asia Pacific region, namely with China over issues such as Hong Kong, Xinjiang’s Uyghurs, and the South China Sea, where a flotilla of naval ships, including Britain’s newest aircraft carrier, is due to arrive later this year.
For now, though, China is neither a member of the CPTPP nor has it begun formal negotiations, enabling the UK to become the first non-founding member to make an application – a starting position it is likely to use to its advantage as China has reportedly engaged in frenetic behind-the-scenes efforts to join a deal which had been originally designed to exclude it. Partly in this vein, Ms. Truss stated that “our accession [to CPTPP] … will mean stronger trading links with the Indo-Pacific, which is vital to our goals for trade, investment, supply chains”.
The UK CPTPP statement also went on further to say that UK membership “would send a powerful signal about the importance placed on free trade … and help to reinforce the rules-based international system” – an international order which the UK and several western governments assert is often being undermined by the actions and supposed intentions of the Chinese government.
The UK’s geo-economic and political considerations in CPTPP membership
On a geo-economic level, Britain’s prospective membership of CPTPP is driven by the British government’s policy of “Brexit” from the European Union. According to Ms. Truss, “This part of the world is where Britain’s greatest opportunities lie. We left the EU with the promise of deepening links with old allies and fast-growing consumer markets beyond Europe … Membership [of CPTPP] would help [British businesses] sell to some of the biggest economies of the present and future, but without ceding control over our laws, borders, or money. It is a glittering post-Brexit prize that I want us to seize”.
Yet, while much of the UK government’s objective is to clearly promote post-Brexit ambitions, CPTPP membership may only add a marginal 0.1% to the size of the UK economy over time according to various economic forecasters. Moreover, there is a lack of clarity as to what the UK may have to concede in clinching a deal and the speed by which it may be achieved. These concerns may be backed by various economic analyses of the UK’s recent trade deals with Japan, Singapore, Vietnam, and Australia, which are assessed as overwhelmingly favouring these countries’ exporters in accessing the UK market, rather than vice versa.
Nevertheless, various major technology and financial services players in the UK have backed the government’s view that the economic centre of gravity is shifting towards the Indo-Pacific. In the opinions of several major UK tech firms, the CPTPP should help facilitate the UK’s digital and financial sector industries in expanding their reach overseas, which as a trade bloc had a joint GDP of £9 trillion in 2019 made up of a half billion people.
Much of the positive acclaim for CPTPP among City of London digital and financial companies has come at a time when the UK’s relations with the EU have come under increasing strain. This has been particularly attributable to the UK-EU Trade and Cooperation Agreement (TCA), agreed at the end of 2020, which failed to secure free trade in services. The result has led to Brussels’ ongoing unwillingness in granting mutual equivalence for the purposes of recognizing UK financial standards. This is despite UK regulators unilaterally granting recognition of EU standards since the start of Brexit. Meanwhile other broader areas of services, such as education, have increasingly fallen under the ambiguities of the TCA’s system of complex “reservations” system which enables EU member states to discriminate against UK services providers, in multiple specific areas.
It is no wonder, therefore, that UK political and diplomatic figures have been extolling the virtues of the CPTPP for both the UK and CPTPP members, alike, with Liz Truss declaring that stronger trading links with the Indo-Pacific are “vital to our supporting green growth, women’s economic empowerment and high standards for British workers”, while Britain’s ambassador to Japan has claimed that “in data and digitally delivered services, investment and financial services and green growth industries, the UK’s membership would bring increased opportunities and prosperity to CPTPP countries”.
UK trade in goods remains heavily oriented towards EU member economies
By contrast to services, the UK’s trade in goods with the EU has been somewhat of a bright spot lately, as the nearly half of UK trade is carried out with EU member economies. Meanwhile trade with non-EU countries, including future CPTPP partners, exhibited significant declines in recent trade data. For instance, UK exports to the EU rose by 38% in April 2021, compared to the same month a year ago, whereas exports to non-EU countries only gained by 4.8% in the same time period.
More specifically, eight out of the top ten UK export destinations were EU countries with Germany in second place, behind the US, a non-CPTPP economy, as exports to Germany rose by 10.7% over a 12-month period.
Another EU state, Hungary, exhibited the highest increase in UK exports in April 2021 from a year ago, as exports to the country rose by over 1000% placing it in the top ten export markets. Meantime, Canada, a CPTPP member, accounted for the second largest decrease in UK exports of -45% since April 2020, placing it in only fifteenth place, as one of the highest ranked CPTPP economy in UK export terms. The importance of EU economies, relative to CPTPP ones, displays a similar picture in terms of UK imports.
In conclusion, while eventual membership of the CPTPP is an opportunity for certain UK businesses to benefit from the economic dynamism of the Asia Pacific region, nevertheless its significant geographic distance from the UK, and its largely smaller heterogeneous economies, makes it unlikely to make up for the potential loss of economic benefits associated with the UK’s departure from the European Union. Moreover, the UK’s geopolitical pivot to the region in a face-off with China and leveraging off the CPTPP in partially achieving that aim, may only further reduce the benefits of an economic shift to the Asia Pacific.
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Any views or opinions represented in this blog are personal commentary, belong solely to the contributor and do not necessarily represent the views of Asia Briefing Limited or Dezan Shira & Associates.
