CPTPP: economic impact and implications for UK-EU relations

In March 2023 the UK acceded to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade pact based around the Pacific rim.

Trade and economic impacts

Responses to UK accession vary from cheerleading its success as an independent trading nation to bemoaning the fact that it will do little to remedy trade lost with the EU due to the nature of Boris Johnson’s Brexit agreements. Some fear that membership will make it more difficult in future for the UK to rejoin the EU or its customs union, should a future government choose to apply.

The truth is somewhere between the two. CPTPP membership is of some value to UK businesses and to the UK economy but will not compensate for lost trade with the EU.

CPTPP is not an Asian version of the EU or even its single market. It is, says Sam Lowe of Flint Global, a “pretty decent free trade agreement” between eleven countries, soon to be twelve. As with most free trade agreements it does more for trade in goods (via tariff reduction/removal) than trade in services.

Unlike deeper agreements, such as the EEA, it does not in practice do much to combat regulatory barriers to trade, but it does include some provisions relating to how members approach things such as conformity assessment.

CPTPP is a big trading bloc; it will be worth 15% of global GDP after the UK joins. But given the UK already has bilateral agreements with most members its added value to the UK economy will be small. Accession is expected to add a mere 0.08%, or £1.8 billion, to the size of the UK's economy over the next 10 years.

Given existing agreements membership will have only minimal impact on tariffs. There is greater benefit in changes to rules of origin rules.

From a goods perspective, says Lowe, the main benefit of CPTPP for UK firms is the diagonal cumulation provisions. CPTPP will give UK exporters the additional option of sourcing parts and inputs from CPTPP members, which for something like EVs could be useful.

CPTPP accession has not received the same levels of criticism as previous trade deals with Australia and New Zealand, both of which have put the UK’s agriculture sector at risk. However even the UK Government’s analysis from 2021 suggests that the UK the semi-processed food sector will be harmed as a result of accession. Most other sectors will feel little or no impact.

CPTPP will not turbocharge the economy or alleviate the difficulties facing UK consumers and businesses during the cost of living crisis and sluggish growth forecasts. The best way to remedy this is a closer EU relationship, which would have a positive ripple effect across the UK economy.

Impact on UK-EU relations

Nonetheless, and understandably given the lack of economic benefit to the UK, many are concerned that CPTPP membership will preclude closer UK-EU relations in future, which remains the UK’s best option to improve its trade balance and promote economic growth.

CPTPP will not make up for the economic costs of Brexit. The Office for Budget Responsibility (OBR) has previously said Brexit would reduce the UK's potential economic growth by about 4% in the long term. The Centre for European Reform puts this figure at 5.5%; there is no doubt that Brexit has caused at least some of the problems of low growth and productivity now experienced by the UK economy.

However the claim that accession to CPTPP could be a barrier to closer UK-EU ties due to new regulations and standards has been somewhat overstated.

CPTPP membership does make it more difficult for UK to rejoin the EU customs union, argues Sam Lowe, but given the UK will seemingly join without significant changes to EU-inherited regulations also demonstrates that EU and CPTPP regulatory approaches are compatible.

Unlike the EU the CPTPP does not set regulations, it merely includes language setting out its preferred approach. Regulations were raised in negotiations; the Canadians for example have continually raised the UK’s ban on hormone beef as an example of unscientific, CPTPP non-compliant, UK rule making.

But regulation does not appear to be of huge concern to CPTPP or its members. Given the majority of them have free trade agreements with the EU (the source of the concern about regulatory incompatibility), the assumption is that CPTPP members can live with EU (and hence UK, given we have so far diverged little from EU standards) as long as trade is enhanced. 

Products imported into the UK from CPTPP nations will still need to meet UK standards. Membership has not opened the door to hormone treated beef or chlorinated chicken. What has changed is that certification bodies located in other CPTPP member states can now assess that products meet UK standards where before this assessment would have needed to take place within the UK. Nonetheless the standard remains unchanged.

There will however be some complications. CPTPP’s requirement that members allow the cross border transfer of data by electronic means could conflict with the UK’s EU data adequacy decision. The EU’s response is not yet clear, but the UK should be at pains not to risk its own data adequacy deal with the EU.

The UK will also need to tread carefully in the ethical aspects of its trade policy so as not to damage its EU relationship.

For example the UK agreed to scrap European tariffs on palm oil as a condition for entry into CPTPP. Palm oil produced in Malaysia currently has a 12% tariff which will be eliminated.

Many members of CPTPP operate under animal welfare standards which would be illegal in the UK. Given its commitment to such issues at COP26 and in its independent trade policy the UK should use its seat at CPTPP to encourage higher standards and long term commitments to phasing out unethical trade practices. Failure to do so will undermine the UK’s international credibility on trade and could risk becoming an area of problematic divergence with the EU.

Geopolitics

Beyond trade, it is clear that CPTPP membership for the UK has a more strategic, political and military aim, in line with the 2021 Integrated Review, which stressed that the world’s focus was shifting toward the Indo-Pacific. Both AUKUS and the Global Combat Air Programme with Japan and Italy are evidence of the UK’s intentions.

CPTPP membership will enable the UK to forge closer diplomatic ties with members. In addition, says Lowe, UK membership effectively ends any prospect of China joining CPTPP. This dynamic, says Lowe, is under-discussed in the UK, particularly given it is the reason some existing members are keen for the UK to join.

This strategy could also be a basis for a closer long term EU relationship, if handled effectively and with a future political partnership in mind.

Defence may well underpin a future UK-EU political partnership beyond the review of the TCA. Stronger international UK clout could assist the case for this partnership. The UK is the first European country to join CPTPP; if the UK can act as a bridge for a stronger connection between the EU and the Indo-Pacific, this would make the UK a much more attractive partner.

CPTPP membership could also strengthen UK-EU collaboration on a multilateral level. The bloc includes a chapter on Circular Economy for example, creating scope to go further on sustainable trade policy. CPTPP could also be a useful template for progressing e-commerce negotiations taking place at the World Trade Organization (WTO), an area of significant UK-EU overlap despite the UK holding an independent seat.

What happens next

CPTPP membership is not a solution to the UK’s economic woes, our persistently sluggish growth or low productivity. The Government needs to take significant action at home to stimulate and invest in the economy. In trade and any consequent economic benefit it remains true that proximity matters, as does size of the economy with which we trade and depth of access; as a result closer EU ties remain the best, and in many ways the only, way to boost UK trade and economic output.

As a result the UK’s global strategy, including CPTPP membership, must in future complement its EU relationship.

It is therefore essential that whilst CPTPP membership is utilised it is also used as a platform to display the UK’s international credentials and values, and as a means to become a more important strategic partner to the EU. Doing so could lead to a stronger UK-EU partnership with meaningful reform and closer economic ties.

The announcement of the Windsor Framework reportedly helped unblock the UK’s accession to CPTPP, calming nerves around the stability of the UK economy and the UK’s commitment to the international rules based system.

This goes some way in demonstrating how CPTPP wants a close EU-UK partnership in the same way that the UK ought to want an outward looking and strong EU. This approach is positive for all parties in an increasingly interconnected and globalised world economy in need of like minded trade values, economic and geopolitical security.