The UK and the CPTTP: Creating an Asian Option for the Future

The UK’s application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP) marks an important step in an independent post-Brexit trade policy. Since leaving the EU in March 2020, the UK has signed many trade agreements. However, these have mostly replicated the terms of previous EU trade deals, albeit with some improvement in the case of Japan. Joining the CPTTP is different – a new move to engage with a grouping of Pacific Rim countries. Amid the rhetoric of ‘Global Britain’, this holds out the promise of something tangible. Joining a ‘Trans-Pacific Partnership’ is indeed a significant reorientation for a founding member of NATO that has recently left the European single market and customs union. Why make such a move?

Go East, Young Man

The allure of the Pacific Rim is clear. For the past 20 years and more, Asian economies have grown faster than Europe and the US, powered by trade both within Asia and globally. Asia benefited from trade liberalisation and China’s accession to the World Trade Organization in 2001. According to McKinsey, Asia as a whole accounted for 32% of the global economy on a purchasing power parity basis in 2000 and 42% in 2017, and is forecast to reach 52% by 2040.

Signed in 2018, the CPTTP embodies a regional commitment to further trade liberalisation at a time when it has stalled globally and protectionism has returned. Eleven countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam –responded positively when the US sought to build on previous regional efforts and liberalise trade further through a Trans-Pacific Partnership (TPP) from 2008 onwards. When the Trump administration withdrew its agreement in 2017, the 11 went ahead on their own. Together they account for a market of 500 million people, accounting for around 14% of the world economy.

Distance, of course, still matters. CPTPP countries accounted for only 8.4% of UK exports in 2019, about the same as Germany on its own. Trade with EU countries will continue to be very important to the UK. But, by joining this grouping, the UK stands to gain some immediate, if limited, benefits, subject to trade negotiations. For example, the UK government argues that tariffs on whisky and cars would be eliminated more quickly. The CPTPP’s Digital Trade and Data chapter supports trade in the digital economy.

So Near, and Yet So Far?

Regardless of the realities of physical distance, the fundamental question remains: how can the UK, firmly anchored north-west of the European landmass, connect itself more closely to Asia, home to the world’s largest populations and fastest-growing economies? Asia’s economic heft means that it will play an increasing role in shaping rules and norms on trade, investment and standards in the region and beyond. Moreover, as China’s foreign policy grows more assertive, questions of national security and the regional power balance are becoming more intertwined with questions of economics, trade and investment. These are knotty issues for Asian countries and for the UK, too – hence the UK’s increasing focus on an Indo-Pacific strategy. CPTTP membership is one relatively low-cost way, with no clear drawbacks, of getting closer to high-growth countries that are committed to trade liberalisation within a rules-based system.

On the question of distance: yes, the UK is a long way from Japan and Australia. But Peru and Mexico are a long way from Asia too. It takes longer to fly to Singapore, in non-pandemic times, from Toronto or Ottawa than from London. If Canada is a CPTTP member, then why not the UK? Distance does matter in trade, because – for the most part – trade costs are higher with countries that are most distant. Trade economists use a ‘gravity model’ to analyse trade patterns: the larger the economies and the lower the trade costs, the higher the level of trade. But it is the trade costs that matter here, not the distance per se. Containerisation and other innovations have reduced the costs of shipping physical goods and technology is now enabling greater trade in services through remote operations. The UK’s strength in services means that it benefits disproportionately from liberalisation in services trade.

The CPTTP will only grow in its importance to the world economy. Asian economies are rebounding quickly from the pandemic (having suffered many times fewer deaths than most Western countries) and returning to pre-pandemic growth trajectories. Other countries have announced their desire to join the CPTPP. South Korea has expressed its interest and is well-placed to do so.

Strikingly, China too has stated that it will ‘favourably consider’ joining. This is more complicated. By stating this desire, President Xi Jinping maintains a narrative of supporting globalisation and free trade and keeps options open. But actions cost more than words. In practice, China’s accession to the CPTTP would require significant changes to its economic model or that existing members agree to changes in order to bring China into the group. This route is less appealing as China is already a member of the other main Asian trade grouping, the Regional Comprehensive Economic Partnership (RCEP), that was formalised last November. The CPTPP requires greater trade liberalisation than the RCEP.

Broader Political Ramifications

The US may seek membership. Even though Hillary Clinton may have withdrawn from the TPP if she had defeated Donald Trump in 2016, many US analysts now view withdrawal as a misstep, that reduced American economic engagement in the region just as China was asserting itself more strongly. So the Biden administration may show interest. It does not, however, appear a priority at this stage and the ratification process would not be straightforward.

Joining the CPTPP gives the UK a seat at a different table, a table with places set for Asian, North and South American countries, where many different conversations will be had. For CPTPP members, the UK brings in the world’s fifth-largest economy; a strong advocate of trade liberalisation and the rules-based order; and a permanent member of the UN Security Council. The UK has long-standing relationships with many members through the Commonwealth and its former colonial ties and makes security contributions in the region, such as via the Five Power Defence Arrangements.

Globally the talk is of US–China trade tensions, whether the EU will pursue its own path under ‘strategic autonomy’ or act more in concert with the US, and whether or not other countries can avoid choosing between the US and China. In this context, the CPTTP is a new grouping, without, for the time being, the US or China, that is finding its own solutions to open, rules-based trading. In time, its influence in global trade should grow. The UK can both contribute to and benefit from this.

So the prospects are positive, but uncertain: the very nature of a valuable option. British business too will need to act to turn opportunities into reality. Could an influx of Hong Kongers to the UK under the new British Overseas (National) visa scheme lead to increased connections and interest in doing business with Asia?

Disraeli once wrote that Britain was ‘really more an Asiatic Power than a European one’. His focus on Asia over Europe is striking, though the notion of ‘power’ may suit the 19th century better than the 21st. Still, strengthening the UK’s participation and influence in Asia remains an important ambition. Joining the CPTPP is but one part of an Indo-Pacific strategy. It is also more ‘Pacific’ than ‘Indo’, as India remains unlikely to join. It nonetheless represents a valuable platform for participation, collaboration and national benefit.

The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.