FTI Consulting Public Affairs Snapshot: UK Confirms Membership of the CPTPP
UK membership of the CPTPP trading bloc, an 11-party agreement between Pacific states, including Australia, Japan, Mexico and Singapore, was an early priority for trade Ministers following Brexit. It was seen, alongside a bilateral deal with the US, as the most effective way of enhancing UK trade with partners beyond the EU.
It is the culmination of five years of work; while UK membership was first proposed in a public consultation on new trade agreements in autumn 2018, negotiations to join the CPTPP were launched in February 2021 and concluded in July 2023.
The UK is the agreement’s twelfth member, and the first non-Pacific country to join the agreement. Other countries who have declared their interest in following the UK’s example include South Korea, Thailand, Ukraine, Taiwan and China.
How significant is UK membership of CPTPP?
The CPTPP is a market of more than half a billion people, with a combined GDP of £11 trillion (15% of global GDP) taking the UK into account. Although the Government’s initial analysis in 2021 suggested joining the bloc will contribute a mere 0.08% boost to UK GDP, such official estimates tend to be conservative and rapidly become outdated, which leads to an underestimation of the eventual economic impact of trade agreements.
Further limitations of the CPTPP have been highlighted by the fact Brunei and Malaysia are the only CPTPP members with whom the UK does not already have some form of trade agreement – either new (e.g. Australia and New Zealand) or transitioned from the UK’s time as an EU Member State (e.g. Singapore, Vietnam, Japan).
However, there are two additional important considerations as to the agreement’s value.
The first is that the CPTPP is a genuinely high-standard agreement. It includes rules to cut tariffs on around 99% of products, guarantees for market access for suppliers and investors in services sectors, as well as provisions enabling data flows and e-commerce which go beyond existing commitments in the UK’s transitioned EU agreements. It also provides protection for UK investors and access to dispute settlement procedures if treaty obligations are breached for all members other than Australia and New Zealand.
The second is that the Pacific region remains the fastest-growing economic region around the world. As noted in an updated Impact Assessment published by the Government alongside the final text, member economies grew 10% between 2018 and 2022. The ASEAN region, which comprises a number of CPTPP countries, is forecast to become a larger economic bloc than the EU by 2040. Other ASEAN members who have indicated an interest in joining include Thailand, the Philippines and Indonesia.
The real value of the CPTPP likely therefore lies in the future rather than the present. In its anticipated expansion, the CPTPP is unique among current trade agreements. China, Taiwan and Ecuador are also in the current pipeline of aspirant members. Signing up to an existing agreement is a quicker and easier process than negotiating from scratch – talks focus immediately on market access any carve-outs or clarifications applicants may need to satisfy their domestic stakeholders. There is also a desire among CPTPP members for rules on areas such as e-commerce and digital trade to keep pace with technology. The UK will also have an important role scrutinising the applications of other states to join the CPTPP, where new members require unanimous agreement.
Although not likely in the short term, US readmission to the CPTPP cannot be ruled out as an impossible prospect. A return to previous principles on trade could lead a US administration to return to an agreement they were instrumental in creating. US accession to a multiparty trade deal which includes the UK would likely be less controversial than a bilateral trade deal, and therefore a likely more politically palatable means of reaching a UK-US agreement.
A vote of confidence for globalisation?
Although the UK is situated far from the Pacific, its accession to the CPTPP has been welcomed by its members. As a G7 country and traditional advocate of the rules-based international trading system, the addition of the UK is an endorsement of the CPTPP and could result in an injection of momentum behind those members, such as Japan, who support its expansion and modernisation.
The UK shares the need to navigate current geopolitical challenges with its new CPTPP partners. In its commitment to pursuing membership of the CPTPP, the UK has demonstrated its continued commitment to traditional free trade principles and the internationalisation of supply chains as a vehicle for economic growth. This is a clear point of contrast with the US and EU approach, where it is difficult to square off a focus on lavish subsidies and incentives for local enterprises to drive the green economy with core international trade rules and obligations.
With the World Trade Organisation (WTO) in desperate need of reform, the international trade environment risks increasingly becoming a ‘Wild West’ where states can operate unchallenged, CPTPP is again an exception to this – a recent dispute between New Zealand and Canada over diary quotas demonstrates its members are willing and able to hold each other to account for the commitments they have made.
Enhancing UK influence in the Asia Pacific
In the short term, CPTPP accession is a geopolitical win for the UK which, post-Brexit, is still in need of friends and a vision of what Global Britain represents. In part because the UK is so geographically distant from the Pacific region, joining the CPTPP – which is well-regarded by its founders – is a diplomatic coup for the UK. In contrast to the US and EU, the UK is seen as taking the region seriously, which creates scope for further and deeper partnerships on broader areas beyond trade, such as security and combating climate change.
The UK’s hawkish stance on China is also likely to prevent or delay China’s attempt to join the bloc. The CPTPP was designed to create alternative economic framework for the region which was incompatible with China’s model and the terms of the UK’s accession – both in terms of time and the commitments made – have set a strong benchmark. Chinese accession to the CPTPP poses a challenge for many of its other members who have close trade ties with the country but are wary of its willingness to adhere to the CPTPP’s rules. In this context, UK membership may be especially welcome.
Conclusion
While the UK’s membership of the CPTPP may therefore be more impactful than it may first appear, Secretary of State Badenoch was right to say that UK industry must proactively use the agreement for it to ultimately reduce costs and make trade easier. In the near term, UK diplomats in CPTPP member capitals are likely to focus their efforts on pushing their hosts to ratify the updated agreement as fast as possible. This is unlikely to take less than eighteen months and, in some cases, may take longer. For example, Brunei signed the CPTPP in 2018 but only ratified it earlier this year.
To maximise the gains on offer from the UK’s trade agreements, firms must develop an understanding of their trade priorities and develop a strategy which takes into account an increasingly broad range of tools in the development of international supply chains. Similarly, full implementation of the CPTPP rules is essential for the agreement to deliver the promised gains.
Finally, in the context of next year’s General Election, to maximise the potential benefit of UK membership of the CPTPP, the ‘Indo-Pacific tilt’ may need to become a bipartisan foreign policy priority. The lukewarm reaction to the US’ ‘Indo-Pacific Economic Framework’ is an indication that Asia Pacific carefully considers its bilateral trade and political relationships and the goodwill the UK has built up in recent years cannot be taken for granted. Through joining the CPTPP, the UK has won a seat at a geopolitically and economically important table. It may be up to a different Government to subsequently make the most if it.
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