UK Joins Asia’s Trade Club: The CPTPP Explained.
CPTPP: UK Joins Asia’s Trade Club, Unlocking Opportunities for Businesses and Households
The CPTPP is a trade agreement among 11 nations, including Canada Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. As the first non-founding country to join, the UK becomes the second-largest economy in the group after Japan. With a combined GDP of £11 trillion, this new alliance opens up significant opportunities for businesses and households worldwide.
UK’s Benefits in Joining the CPTPP: Marginal Short-Term Gains, but Long-Term Potential
The immediate benefits for the UK in joining the CPTPP are relatively small. As a former EU member, the UK already had trade deals with most CPTPP nations, which were carried over post-Brexit. The addition of Australia and New Zealand expanded the UK’s trade agreements, leaving only Brunei and Malaysia without existing deals, which account for less than 0.5% of UK trade.
While changes to trading arrangements may bring some gains, the government estimates that the expanded accord will contribute approximately 0.08% of GDP growth over a decade.
However, it’s important to note that this estimate needs to fully consider the increasing importance of certain CPTPP members like Vietnam, which is rapidly growing in global trade significance.
In contrast, leaving the EU is projected to have a more significant impact, with government forecasters estimating a potential reduction of around 4% of UK income.
In 2019, the CPTPP accounted for only 8% of UK exports, less than what was sold to Germany. Despite the limited immediate gains, the UK government sees the CPTPP as a promising opportunity, akin to a start-up, as it acknowledges the growth potential of CPTPP members and their increasing influence in the global trade landscape.
Changes in the CPTPP: Enhanced Market Access, Reduced Tariffs, and Regulatory Cooperation
Joining the CPTPP brings several changes for the UK, including increased access to member markets and a commitment to eliminate or reduce 95% of import charges or tariffs. However, sensitive domestic sectors, such as Japan’s rice farming industry, retain protection through maintained taxes.
The agreement allows manufacturers sourcing components from multiple countries to qualify for preferential treatment. As long as 70% of the members come from any participating country, they can meet the “rules of origin” criteria.
This provision benefits UK producers of valuable exports like machinery and medicines, reducing costs and expanding supply chains across member nations.
Beyond trade, CPTPP membership ensures that investors from member countries receive equal treatment as domestic firms when investing in projects within other member states.
This provision can be advantageous for UK firms, as CPTPP nations accounted for a significant share of foreign investment in the UK in 2017, supporting businesses and employment.
While cooperation on regulations, including food standards, is required within the CPTPP, it differs from the European Union in that it is neither a single market nor a customs union.
Member countries are not obligated to maintain identical regulations and standards. Also, countries are free to pursue trade agreements with non-CPTPP nations, as the UK did with the EU. However, rejoining the EU would not align with CPTPP membership.
Concerns Surrounding UK’s CPTPP Membership: Standards, Access, and Investor-State Disputes
One of the concerns regarding the UK’s CPTPP membership is how it will ensure the maintenance of environmental and animal welfare standards. Critics, including House of Lords committee members, question how the UK intends to uphold these standards.
The government has emphasized that CPTPP allows members to set their protection levels and assures that the UK’s standards will not be compromised.
As part of the agreement, the UK will provide Canadian farmers with increased access to UK markets, but it will still maintain the ban on hormone-treated meat. Additionally, the UK is conceding to lower tariffs on imports of Malaysian palm oil, which has been associated with deforestation. Currently, these tariffs can be as high as 12%.
Trade unions have expressed concerns that efforts to attract more investment could open the door for multinational companies to challenge British policies legally. However, trade experts note that such provisions exist in other trade agreements, and this capacity has yet to be successfully exercised against the UK government.
Future Implications of CPTPP Membership for the UK: Potential and Challenges
The CPTPP treaty will undergo scrutiny and ratification by member countries before it comes into force, which will likely take at least a year.
The key lies in the partnership’s potential.
he agreement aligns with the UK’s aspirations by loosening services and digital trade restrictions, connecting it with faster-growing nations. However, the most significant rewards and challenges may arise if other countries join the club.
China and Taiwan are among those seeking membership, raising questions about the UK’s stance.
Could the UK veto China’s membership or use its membership to influence China’s access and ambitions?
The ultimate prize would be if the US reverses the decision made by former President Trump and decides to join. The US purchases roughly twice the amount of UK exports compared to all current CPTPP nations combined.
However, membership is not on President Biden’s immediate agenda.
Currently, CPTPP membership represents a primarily symbolic victory for post-Brexit Britain. However, in the long run, it has the potential to yield substantial rewards.
