IGNORE the usual suspects, the fact is Brexit Britain joining CPTPP is a fantastic long term opportunity, representing a globally significant event. It makes re-joining the EU single market simultaneously less likely and less desirable economically.
It is high time British politicians and policy makers learned that trade is an essential part of foreign policy, and British foreign policy must be to undertake an ‘Asian pivot’. It is time for London to shift away from a declining fortress Europe regionalist bloc and instead prioritise an Asia-Pacific which represents the new centre of global trade, wealth and power. CPTPP is the future economic powerhouse for global trade, it’s more important than the EU single market long term for Britain.
What is CPTPP?
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership – or CPTPP – was established in 2018, comprising of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. CPTPP formed following former President Trump’s decision to pull the USA out of the Trans-Pacific Partnership. Ironically his reckless decision proved the instigating factor transforming what had been envisioned as regional agreement into a truly global one.
The 10 current members of the agreement combined (Brunei has still to formally sign) represent 13 per cent of the world’s income, and the CPTPP is already a rival system to the atrophied World Trade Organisation (WTO) system. When the UK joins the CPTPP its value of world income will rise to 15% – the same as the EU’s. With China plus Chinese Taipei customs territory all officially applying as well, it will soon represent a much larger share of the global economy than the EU single market. And this is before acknowledging the fact that Thailand, Philippines, South Korea and Indonesia have all announced joining CPTPP as official government policies for the future.
Fact is, CPTPP is a truly global trade agreement and is centred on the high growth heart of the future global economy in the far-east. Furthermore, being in CPTPP requires the member to have full regulatory sovereignty, thus rendering the prospect of the UK re-joining the EU single market extremely difficult if not impossible.
Alternative to WTO
Following heavy Japanese backing, the UK membership of CPTPP has effectively become a ‘done deal’. The UK will be the first non-Asia-Pacific member to join, and will transform a regional bloc in to a truly global one.
At the same time, the CPTPP has the potential to revitalise or even replace an atrophied and failing WTO system; which has come under pressure from trade wars and an effectively defunct appellate body.
The CPTPP represents what academics are calling the ‘spaghetti bowl’ concept. This is where countries cut trade deals directly with each other, bypassing the WTO. If we listen to Tim Groser, a former trade minister with New Zealand:
“What is actually happening is that the spaghetti is all being put together in this sort of large multilateral or multilateral/plurilateral deal known as TPP … and of course, now we have this interest of China, the No 2 economy in the world, plus the customs territory of Taiwan, and the interest of the United Kingdom…If we get a geographically European country coming into what we have always up to now seen as an Asia-Pacific entity, it does transform this from a regional to an alternative global system.”
Mr Groser has a point, not least since the WTO is simply going round in circles, doing and achieving precious little. By comparison CPTPP represents the next best hope for a truly global, liberalising free trade competitive world economy. The UK joining this trade system makes patently obvious good sense.
But wait, why specifically is CPTPP more desirable long term for the UK than re-joining the EU?
A global framework more desirable than an EU regional bloc
It is more beneficial for the UK to be a part of a global, liberalising trade system such as CPTPP, than favour instead a regional trade bloc like the EU. Fact is, CPTPP reduces the attractiveness of re-joining a protectionist regional bloc like the EU.
The EU itself has shrunk as a percentage of the global economy no matter which way you look at it. Sure, the EU has grown, but the rest of the world has grown much, much faster.
And, if we consider the EU measured in terms of Purchasing Power Parity, it has actually shrunk as a proportion of world GDP.
These two graphs cannot tell the whole story, but they do illustrate a few pertinent points.
• First, the EU represents declining share of the global economy.
• Second, its growth is slower compared to the rest of the world.
• Third, this is a trend which will likely only continue – perhaps even accelerate.
CPTPP by comparison, is already of equivalent size as the EU, even before the UK and other new members sign up. It represents a liberalising global system superior to the atrophied WTO and will become representative of half the entire global economy once the current and future applicants join. All of this, without any loss of regulatory sovereignty for Britain – unlike the EU system which emphasises harmonisation over trade competitiveness (and charges a substantial fee for the privilege).
Benefiting global Britain
Sceptics, especially the usual suspects at the BBC, Financial Times et al, repeatedly point out the UK Government’s estimate that joining the CPTPP will “only add 0.8%” to UK GDP. But this is a typical example of conventional thinking; determined to ignore the wider economic context.
CPTPP will become bigger as a share of global trade than the EU within the next ten years, whereas it currently matches the EU. CPTPP represents the high-growth rest of the world, offering the UK tariff-free access to these thriving future markets.
Already CPTPP means we will get better services and investment provision than the WTO system offers. It means we secure better protection of our ideas and intellectual property rights and newer more up-to-date digital rules for global trade.
The insistence of the negative choristers on only seeing the 0.8% figure is a perfect example of static modelling. It insists on only seeing the short term immediate benefits, blind to the truly global significance of the UK joining the CPTPP.
To quote Shanker A Singham, chief executive of Competere and a former trade advisor to UK Secretary of State for International Trade:
“It has always been the case that trade policy is part of your wider foreign policy, not merely an accretion of narrow commercial interests or whatever businesses tell you they want.”
He is exactly right. Right now the UK, like the entire EU, faces the dual impacts of a US-China national security rivalry and a subsequent semi-bifurcation of key areas of global trade. Our foreign policy post-brexit should prioritise maximalising tariff free trade with the future centre of the global economy. In short, the UK needs to undertake a trade, foreign and diplomatic ‘Asian pivot’. We already know this must happen, which is why the UK was a founding member of the AIIB – in defiance of US warnings not to do so.
CPTPP will further the goals of turbo-charging our trade in goods and services – and connects us with tariff-free access to the key economic zone of the planet. At the same time, it offers meaningful protection to intellectual property and economic safety from Chinese market manipulations such as steel dumping.
Additionally, let us not forget the CPTPP deal solidifies supply chains for future tech, such as semiconductors and critical minerals used to make electric vehicles and wind turbines.
It all makes the prospect of re-joining the declining EU regional protectionist bloc less attractive. It is certainly not in global Britain’s best foreign policy interest to ignore being a ground-floor member of the next global system just to sign back up to fortress Europe.
Britain must partner with the pacific giants, so the news of the UK joining CPTPP is a massive win. The UK can now turbo-charge our trade with key players in the most important economic zone of the globe.
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