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What happened: The United Kingdom plans to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Why it matters: Joining the multi-lateral agreement will take time, but could register greater economic benefits for Canada than a bilateral Canada-UK agreement.
The world’s seventh biggest economy plans to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The United Kingdom has announced it will prioritize joining the agreement, whose 11 members collectively represent 13% of global gross domestic product (GDP). The UK’s economy would grow the size of the agreement’s market by three percentage points, to 16%.
“Joining CPTPP is strategically important for the UK in the long and short-term. It will help support an industrial revival by boosting trade and investment in key industries, diversify our trade so we are less vulnerable to political and economic shocks, and turn the UK into a global hub for businesses and investors wanting to trade with the rest of the world,” said UK international trade secretary Liz Truss in a news release.
The announcement on Tuesday follows the start of free trade negotiations between the UK and Australia and New Zealand, and the launch of free trade talks between the UK and Japan – all of which are members of the CPTPP.
“For us, this is huge news, but not in the economic sense as much as the political sense,” said Carlo Dade, director of the Canada West Foundation’s trade and investment centre.
News of the expansion of the CPTPP, he says, comes at a time when Canada has scrambled to diversify away from trade with the United States and China – trading partners with whom tensions have risen over the past several years.
“We’ve been scrambling around trying to figure out what else we can do. Having a trade agreement with multiple partners that’s based on liberalized trade, that’s based on win-win trade, that’s based on rules-based trade is hugely important. Having one that now represents 16% of global GDP with the UK joining means that that safe harbour we’ve had suddenly becomes safer and more secure.”
Dade estimates negotiations around the UK joining the agreement will run into next year. But once in place, the agreement will afford Canadians and Canadian companies an advantage over American counterparts.
For example, Dade says that the UK’s bilateral agreement with the United States will not cover the movement of people.
“If the UK wants to establish operations in North America, it makes more sense to have those in Canada,” he said. “From Canada, they would have easier access moving people into Mexico – access that’s not granted to them in NAFTA, they would have under the CPTPP.”
In addition to the UK’s accession to the CPTPP potentially pulling more UK investment to Canada, Dade says it makes sense to expect that some of that investment gets pushed to western provinces poised through B.C. ports to take advantage of growing trade with Asia.
The news hints at what may be in store for the agreement.
James Brander, an Asia Pacific professor in international business and public policy at the University of British Columbia’s Sauder School of Business, says there is a chance that the world’s largest economies may want to sign on to the agreement in what could mark a new era for international trade.
“There is of course a sense that China will want to join, which would make it a more important agreement than it already is. And my guess is that if Joe Biden wins the U.S. presidential election, that the U.S. might want to join,” Brander said.
“That would be a very significant agreement,” he said, adding that the UK using Western Canada as a base to take advantage of the agreement now and in the future is definitely a possibility, though depends on the specifics of the deal.
In a news release, the British High Commission in Ottawa cited securing trade and investment, boosting economic security and becoming an international hub as the UK’s three main reasons for wanting to join the CPTPP.
Brander also points to politics.
“As the UK pulls out of the European Union as Brexit occurs, they’re facing some pressure to do something as well, even just for political purposes,” he noted.