Economics International Relations

The United Kingdom will sign on to the Asia-Pacific Trade Treaty

As it looks to build ties around the world after leaving the European Union, the United Kingdom has agreed to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade pact centred around the Pacific Rim.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

  • The Comprehensive and Progressive deal for Trans-Pacific Partnership (CPTPP) is a free trade deal (FTA) signed in 2018 by 11 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
  • Britain will become the partnership’s 12th member, and the first since its founding.
  • The agreement was first proposed in 2005 as the Trans-Pacific Partnership (TPP), with the aim of creating a free trade zone encompassing 12 countries, including the United States.
  • However, the United States withdrew from the agreement in 2017, forcing the remaining 11 nations to renegotiate the agreement and establish the CPTPP.

Economic prospects

  • Once Britain joins, CPTPP countries will have a combined GDP of roughly 11 trillion pounds ($13.6 trillion), or 15% of global GDP with UK membership.
  • It lacks a single market for products or services, so regulatory harmonisation is not needed, unlike the European Union, which Britain will leave at the end of 2020.

Key trade objectives of CPTPP

  • The CPTPP is intended to lower tariffs and encourage economic integration among its participants.
  • It seeks to eliminate tariffs on more than 95% of goods traded among member countries, as well as to increase market access for services and investment.
  • The agreement also contains intellectual property, labor, and environmental provisions.

How much commerce does the UK have with the CPTPP?

  • In the year ending September 30, 2022, British exports to CPTPP nations totaled 60.5 billion pounds.
  • In the long run, membership in the grouping will add another 1.8 billion pounds per year, and potentially more if other countries join.

The United Kingdom will receive significant benefits.

  • CPTPP membership may benefit exporters even when dealing with countries that have bilateral FTAs.
  • To qualify for preferential tariffs, exporters must show that their product contains an adequate proportion of “locally” sourced components.
  • Exporters can consider EU inputs as “local” under rules of origin in rolled-over post-Brexit free trade agreements with Japan, Mexico, and Canada, for example.
  • However, under the CPTPP, inputs from CPTPP members are generally considered local, providing exporters with another option if it is advantageous.

China as a geopolitical factor

  • While the long-term benefits to the British economy are expected to be minor, Britain has other motivations for joining the EU.
  • The United Kingdom will have a veto over whether China enters the treaty. Beijing had submitted an application to join the union in September 2021.
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