Each week brings new challenges for Rishi Sunak’s beleaguered UK government, so it is little surprise that it has leapt upon the news that the nation has formally acceded to the Comprehensive and Progressive Trans-Pacific Partnership.
On the face of it, the deal appears to be a boon for the UK, as it joins a trade agreement that covers about 500 million people across 11 other nations, accounting for about 13 percent of the world’s gross domestic product. It joins Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam in signing up to the bloc. The UK is the first European country to join and it will be the pact’s second-biggest economy behind Japan.
Already, CPTPP-based businesses employ about 400,000 people across the UK. Downing Street asserts that such companies punch well above their weight economically, as, while they account for just 0.3 percent of all UK businesses, they generate 6.1 percent of the country’s total turnover.
The government also argues that, unlike the EU, the CPTPP is neither a single market nor a customs union. So, countries are not required to have identical standards — a fact that concerns UK trade unions, which highlight threats to workers’ rights, public services and democratic decision-making that they believe puts many jobs at risk.
Another key challenge for Prime Minister Sunak in seeking to sell the deal is that, while the market opportunity may be significant in the longer term, even his government’s own assessment declares that the economic gains for the UK will be small to begin with — only about 0.08 percent of GDP over 10 years. To put this another way, all the CPTPP nations combined accounted for 8 percent of UK exports in 2019 — less than the amount sold to Germany alone.
While the nation has formidable, continuing strengths
as one of the world’s largest economies, some Brexiteers
were too optimistic prior to the referendum about the
range of new deals that could be negotiated in the
first few years after leaving the EU
The potential immediate opportunities for the UK when it formally begins to trade with the CPTPP nations under the new terms will be country and sector-specific. For example, Brunei and Malaysia — which currently account for less than 0.5 percent of total UK trade — are the two nations in the club that the UK does not have an existing trade deal with.
On the sectoral side, it is anticipated that dairy producers will gain export opportunities to Canada, Chile, Japan and Mexico, while beef, pork and poultry producers will get better access to Mexico’s market. Moreover, the provisions could also help UK producers of items such as machinery and medicines — among the country’s most-valuable exports to the bloc — by allowing them to expand supply chains across member countries.
According to the British Chambers of Commerce, the CPTPP could have the most relevance for small and medium-sized UK businesses to build efficiencies by importing components from member countries to then use in manufactured goods for export. There are also enhanced terms for data flows, which underpin an increasing part of international trade.
Beneficial as this will be for some firms, UK think tank Chatham House has highlighted that the economic benefits of joining are muted because the country already has bilateral free trade agreements with nine of the 11 CPTPP members. Moreover, it makes the point that the deal will not nearly compensate for the cost of loss trade from leaving the EU.
Optimists like Trade Secretary Kemi Badenoch, however, state that CPTPP is akin to a startup and the current estimates do not account for the fact that some members — for example, Vietnam — are rapidly growing in importance in global trade. She also flags that a key perk of the new deal is greater access to all CPTPP markets, including a pledge to eliminate or reduce 95 percent of import charges or tariffs.
But what this highlights is how much of the potential benefits of joining rest on currently unquantifiable future gains if the UK can redirect its trade patterns more toward the Asia-Pacific, which is forecast to account for at least 50 percent of global growth between now and 2035. This could happen but there are no guarantees of success.
One big prize would come if the US were to reverse the decision made by former President Donald Trump not to sign up. The US purchases about double the amount of UK exports than all the current CPTPP nations put together, but its membership will either have to wait for a second term for President Joe Biden or a successor in the White House.
The fanfare greeting the signing of the deal therefore rests on much speculation about what the future impact of the deal will be and which new countries may join, underlining the significant challenges and opportunities the UK faces in the coming years on the trade front.
While the nation has formidable, continuing strengths as one of the world’s largest economies, some Brexiteers were too optimistic prior to the referendum about the range of new deals that could be negotiated in the first few years after leaving the EU.
There was even talk of London unlocking a new era of global trade in the 2020s, including the swift negotiation of very favorable bilateral trade deals with the world’s two largest economies, the US and China. However, such ambitions have been muted by the reality of the UK’s limited bargaining power in a world shaped by global economic superpowers.
The CPTPP therefore represents a significant long-term gamble for the country. With only a marginal impact expected in the short and medium terms, the success of the deal will rest on issues like whether UK worker rights can be safeguarded and how much British firms can redirect their trade patterns toward the Asia-Pacific and the Americas in the decades ahead.
Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.
Source: Arab News