Britain's new trade deal is about more than GDP – The Spectator

Credit: Original article can be found here

With the announcement this week confirming the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the British government has concluded its most important trade agreement since leaving the EU. It is joining a modern free trade area (FTA) comprising 11 Pacific Rim countries located in the most dynamic part of the world, measured by GDP growth, and accounting for about 11 per cent of world output. Or just over 14 per cent with the UK included. Curiously though, the trade and economic benefits which the UK might derive are likely to be pretty meagre. The real story in the UK’s additional tilt into Asia is potentially about geopolitics. 

For the sake of context, CPTPP is the child of the Trans-Pacific Partnership, which originally included the US, and from which former President Trump extricated his country almost as soon as he set foot in the White House in January 2017. The remaining 11 countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – regrouped, renegotiated parts of the agreement and signed CPTPP a year later. 

The UK government’s strategic case for joining, articulated in 2021, was built around the region’s economic dynamism, the likelihood of other applicants, such as South Korea, Thailand and the Philippines. As well as the opportunities for UK beef and lamb, cars and whisky, digital and professional services and jobs. The case, though, is equivocal, not least because the government’s assumptions about growth in Asia will not have factored in much slower growth in China and geopolitical stress to commerce. 

On the one hand, CPTPP represents much of what the UK advocates for and favours. It is a modern FTA that sets high standards in several important areas such as foreign investment, investor protection, e-commerce and the digital economy, intellectual property, labour market and environmental standards, and state enterprises and competition. 

Yet, the UK already has FTAs with nine of the 11 members (not Malaysia or Brunei), in which some arrangements go even further than CPTPP. We ship about 8-9 percent of total exports to, and get about 7 per cent of total imports from CPTPP members, but the bulk of this trade is with those with whom we already have FTAs. The incremental trade that will benefit from the abolition of tariffs is small. The GDP impact of joining CPTPP is also estimated to be extremely small. The economic benefits for the UK from a new and mutually agreeable commercial relationship with the EU in our own geography would be much greater. 

Yet, even if CPTPP trade opportunities are limited, there are other important aspects to our joining. In a nutshell, this is because of China. 

In the Integrated Review Refresh 2023, the government noted the strategic threat posed by China as an ‘epoch-defining and systemic challenge’. The China strategy is supplemented by the intention to ‘enhance our relationships in the Indo-Pacific’, including CPTPP as a big priority, and stronger and enduring regional engagement.

The UK’s greater involvement in Asia already features through membership of the Five Eyes intelligence arrangement, with Japan and India thought to be possible new members, the more recent decision with the US and Australia to supply the latter with nuclear-powered submarines (Aukus), the Royal Navy’s presence in freedom of navigation operations in the South China Sea, the UK’s presence as a dialogue partner with ASEAN countries, and the buildout of naval bases in the Indian Ocean.

Adding this new commercial CPTPP string to its bow, the UK is getting a voice in the Pacific Rim at an important moment, when politics, diplomacy and statecraft, in which the UK has traditionally, if not consistently, had expertise, are liable to be more valuable than narrowly measured trade benefits. There are two immediate and important areas to note.

First, supply chains. Asia-Pacific countries do about 40 percent of world trade, of which about 70 per cent is used as inputs in production processes elsewhere. Yet, the era in which the world’s laser focus was on building China-centric supply chains is over.  Instead, countries and multinational firms face the consequences of geopolitical competition, export controls, investment scrutiny, licensing requirements, sanctions and other regulations that are deemed to be matters of ‘national security’.

Adding this new commercial CPTPP string to its bow, the UK is getting a voice in the Pacific Rim

Global firms, in particular, that depend on reliability and stability in their supply chains are having to review and recalibrate in this new environment, while the US and other governments endeavour to change the geography of supply chains in the 2020s and 2030s, reducing dependence on China, and Taiwan, for example in semiconductors. Roughly a quarter of foreign firms in China say that they have decided on or are now considering future investment outside China. In CPTPP, the UK is well positioned to consider and facilitate new commercial opportunities for British and foreign firms in this context.

Second, China’s and Taiwan’s applications to join CPTPP.  Both applied to join in 2021, and the UK will sit with other members to decide whether to set up working groups to consider the applications. The decision has to be unanimous. If approved, technocrats would have to sort the details, though Taiwan is pretty much oven-ready. China, though, is far from compliant. There is much in CPTPP, with which Chinese laws and regulations are not compatible or even likely to be changed in the spirit of ‘direction of travel’. Negotiations might then take a very long time to conclude, if at all. 

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In the first instance though the decision is political. Some members may be equivocal about or unwilling to snub China. Mexico would have to consider if supporting the application of China, a non-market economy,  would breach its own trade agreement with the US and Canada. Vietnam has South China Sea territorial disputes with China. Other smaller and emerging nations prefer not to take sides as they have conflicted interests, economic with China but security with the US. In CPTPP they may be pushed to remain aloof.

The UK’s accession, though, will add ballast to sceptics that include Japan, Australia and Canada and who are under no illusion that China would want to use its $18 trillion economic heft, not so much to comply with, but to re-frame the rules, governance, and overall engagement in CPTPP in its own interests. In the light of China’s support for Russia’s invasion of Ukraine, moreover, and the looming threat it poses to Taiwan – in which any sort of bellicose move would trigger major sanctions – it is hard to judge how the political pieces in this kaleidoscope might settle.

In any event, the UK is going to sit down with new partners as the only non-Pacific Rim nation in a ‘hot’ part of the global economy where geopolitical tensions are running high, and at a table where neither the US nor China is present. This may give UK diplomats and representatives the opportunity to join with like-minded souls to shape this new era of strategic competition and emphasise, as liberal leaning democracies see it, the standards and values that lie at its heart.