Mar 30, 2023
Sunak Sees Brexit Boost as UK Nears Indo-Pacific Trade Bloc Deal
(Bloomberg) -- The UK will join an 11-nation Indo-Pacific free-trade bloc, becoming the first new member since its creation, in a bid to strengthen economic ties with new partners following divorce from the European Union.
Prime Minister Rishi Sunak’s government sees membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which includes Australia, Japan and Canada, as a boost for economic growth and geopolitical relations. The UK expects growth of £1.8 billion ($2.23 billion) each year over the long-term, a figure that could rise if other countries join the bloc.
The UK also believes membership will give it a role in setting regional trade rules over the coming decades. That could mean the UK and other members preventing China’s future accession to the bloc in a move to ensure high trade standards. In a statement, the UK said it did not compromise on its environmental and food standards to join the bloc.
Britain concluded two years of negotiations with a formal agreement to become the 12th member of the CPTPP, the government announced on Friday. Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam are the other eight members.
The bloc, which is home to 500 million people, will be worth 15% of global GDP once the UK joins, according to the International Monetary Fund.
“Joining the CPTPP trade bloc puts the UK at the center of a dynamic and growing group of Pacific economies, as the first new nation and first European country to join,” Sunak said in a statement. He said it represented “real economic benefits of our post-Brexit freedoms.”
Membership will eventually ensure zero-tariff trade across a range of import and export sectors, with greater UK access to Mexico, Canada and Japan for dairy exports, and a boost to Britain’s automotive and alcohol industries, particularly through the export of spirits to Malaysia.
Tariffs will also be reduced on imports of bananas from Peru, rice from Vietnam, crab sticks from Singapore and palm oil from Malaysia. The latter is likely to prove controversial due to its link to deforestation.
Still, joining the CPTPP isn’t comparable to Britain’s previous membership of the European Union. Unlike the EU, the CPTPP doesn’t have a court or budget, and works more like a multinational trade agreement.
There’s also a long way to go to reverse the economic impact of a steep trade decline with the EU, Britain’s biggest partner, since its exit three years ago. The head of the UK’s independent budget watchdog recently estimated that Brexit likely reduced economic output by 4%.
“This is not a deal about tomorrow, it’s a deal about the future. We’ve got in early and we will be able to have a say in shaping the bloc,” UK Trade Secretary Kemi Badenoch told Times Radio. “We’ve left the EU so we need to look at what to do in order to grow the UK economy.”
Each country will now need to ratify the deal, British High Commissioner to Singapore Kara Owen told Bloomberg Television’s Haslinda Amin on Friday. “It will take some time, but we’re really looking forward to getting off the blocks and doing a huge amount of education with our companies in the meantime,” she said.
The economic gains for Britain are also limited. The UK’s own projections, published in 2021, show that joining CPTPP will only boost its economy by 0.08%, partly due to having existing bilateral trade deals with more than half of the 11 member states. That could increase if membership expands to other nations, like Thailand and South Korea.
Since Brexit, the UK has sought to tilt its foreign policy toward the Indo-Pacific region. Sunak struck a pair of defense agreements with Australia and Japan earlier this year, part of an effort to counter China. CPTPP membership will further align Britain with the region, while joining will also give the UK a more direct say in regional affairs.
“China has applied to join, and it could probably convince/coerce quite a few of the CPTPP members into saying yes,” trade expert Sam Lowe, partner at consultancy Flint Global, wrote on his blog. “Once a member, the UK will just say no to China. This provides cover for other members and effectively allows them to hide behind the welcome obstinance of the UK.”
David Henig, director of the UK Trade Policy Project at the European Centre for International Political Economy, described it as a “shallow” trade deal that mostly focuses on lower tariffs “in the same way that our existing free trade agreements with nine of 11 members do.”
“There may also be future gains from new members joining, and CPTPP will also bring us closer to important allies for retaining open global markets such as Japan and Singapore,” he said.
--With assistance from Kitty Donaldson, Bryce Baschuk, Philip J. Heijmans and Richard Lewis.
(Updates with trade secretary’s comments in 11th paragraph.)
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