UK applies to Pacific trade pact

Joining the CPTPP would expand trading opportunities for all members

16 February 2021 Shanella Rajanayagam, Trade Economist

    A year after officially leaving the European Union, the UK has applied to join the Comprehensive & Progressive Agreement for Trans-Pacific Partnership – a bloc of 11 Pacific Basin economies with more than 500 million people. The UK would increase the CPTPP’s share of global GDP from 13 per cent to 16 per cent and the share of global exports from 15 per cent to 18 per cent.

    The CPTPP is regarded as the gold standard of trade deals. It aims to tackle modern trade issues, from barriers to e-commerce to social concerns around labour and environmental issues, alongside cutting tariffs and reducing regulatory barriers to trade.

    The deal has been in effect since December 2018 for Australia, Canada, Japan, Mexico, New Zealand and Singapore and for Vietnam since January 2019. Brunei, Chile, Malaysia and Peru have yet to ratify the agreement and other economies are interested in joining, including potentially mainland China and possibly even the US.

    The UK’s existing trade deals with seven CPTPP members will continue, but joining could provide new opportunities and deepen UK trade links with these economies. Currently, only 8 per cent of UK goods and services trade is with CPTPP members – less than the UK’s bilateral trade with Germany and half its US trade. However, Japan is the UK’s 11th largest trade partner and Canada the 15th.

    The UK would expand the bloc’s combined GDP by around 25 per cent in dollar terms: Japan is the only larger member.

    That adds a large consumer market for other members, while UK businesses would benefit from expanded market access and common trading rules across the bloc. Tariffs will ultimately be removed on 95 per cent of trade within the bloc, including Malaysia’s 165 per cent import duty on whisky. Tariffs on motor vehicles will eventually be removed in all CPTPP markets.

    And UK manufacturers could use inputs from across the entire bloc in their exports to other members and still qualify for preferential access. Trade in services is also liberalised under the deal.

    Tariff liberalisation may be faster for some products with the CPTPP than under bilateral UK trade deals. Canada’s 6.1 per cent tariff on cars, for example, will be removed two years earlier, by 2022, than via the UK-Canada trade agreement.

    Besides existing trade agreements with Canada, Chile, Japan, Mexico, Peru, Singapore and Vietnam, the UK is currently negotiating bilateral deals with Australia and New Zealand. Although this may limit the immediate economic gains to the UK from joining the CPTPP, a key benefit of the accord is that it aims to align trade and investment rules across all members, not just bilaterally.

    And UK membership could encourage other economies to join. Thailand and South Korea have expressed interest while mainland China has said it would “favourably consider” joining.

    The US withdrew from the CPTPP’s proposed predecessor, the Trans-Pacific Partnership, in 2017. But even if the Biden administration wants to re-join, new trade deals are not its priority and the new president would likely look to renegotiate some aspects of the pact.

    The UK intends to begin accession negotiations in spring 2021. How long they take is unclear, but other members seem keen and London is not expected to seek to overhaul the agreement.

    First published 2 February 2021.

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