The United Kingdom has begun accession talks to join the CPTPP, a group of nations around the Pacific and it is fair to ask the question why a country firmly planted in the North Atlantic would want to do so.
Firstly, let’s look at what is the CPTPP it stands for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It is a trade agreement between 11 Pacific Rim nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Between these nations. The grouping represents around 15% of the worlds trade and has a population more than 500 million people, this is not too dissimilar to that of the EU which has 448 million after the departure of the UK.
Unlike the EU though, it is neither a customs union nor a single market, but member counties are required to cooperate on regulations without having identical standards. From a UK point of view, the most important thing is member countries are free to strike their own trade deals outside the partnership.
The attraction to members is access to each other markets with the elimination of 95% of tariffs, with specific exceptions such as rice farming in Japan and Canadian dairy products. Importantly, sourcing goods from within the grouping will allow Rules of Origin to come into force if 70% of the products are sourced therein.
So, what is in it for the UK you may ask? Given the recent agreement with New Zealand it means that the only countries we do not already have a trade deal with are Brunei and Malaysia. Membership would allow negotiation of higher-level agreements than those already in place.
Additionally, the UK would be the 2nd largest economy in the grouping. In 2017, the CPTPP nations accounted for about £1 in every £12 of foreign investment in the UK. It is also a high-level agreement that not only reduces trade tariffs for goods, but also sets new rules in areas such as services, investment, intellectual property, digital trade, and state-owned enterprises.
The greatest hope is that other countries join the club. South Korea and the Philippines have expressed an interest. –Under its previous incarnation TPP, the US was set to join. The hope remains they may rekindle their interest, although the current administration does not seem to see this as a priority. This would be a golden ticket for the UK as the US accounts for around twice as much UK trade as the current CPTPP members.
Membership of the UK is attractive to current CPTPP members as it allows access to British expertise which will encourage modernisation of their economies. British services and the knowledge that comes with it is highly prized in many of these markets.
If the UK is successful in its application, it will be the first non-founding member to join which helps with the Global Britain vision as a forward thinking and open economy keen to trade. It is also worth mentioning that the UK shares a common language with many of the existing member states.
It is unlikely that joining the CPTPP will make a significant difference to the UK’s post-Brexit economic prospects. Joining this agreement will require the UK to make compromises that it frequently objected to when an EU member.
CPTPP membership may bring UK exporters limited benefits but risks drawing the UK into increasingly complex Asia Pacific geopolitical dynamics. Another regional agreement – the Regional Comprehensive Economic Partnership (RCEP) – includes some CPTPP members and China. China has also recently expressed an interest in joining CPTPP.
Overall, what are the benefits of CPTPP? Joining CPTPP allows tariff-free trade for 99.9% of what we currently send to the 11 members. To obtain these beneficial rates CPTPP allows content from other CPTPP members in order to meet its rules of origin, making it easier for some British exports to qualify for lower tariffs than under bilateral trade deals.
Joining will allow entry to markets that are already set to increase by around 65%, or £37 billion, by 2030. It offers prospects to open financial services markets between members (whilst ensuring they can continue to regulate appropriately), and expands opportunities for UK financial services, a major plank of our export economy.
Will we join? It is highly likely as there is will on both sides. When will we join? A more difficult question to answer as deals such of this take time but we are on our way.
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