The CBI is reaching out to its members for inputs on what business thinks of the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
CPTPP is a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Combined, these 11 economies represent close to 14% of total global GDP. This puts it just one percentage point behind the economy of the United States, while the CPTPP also provides a marketplace of over 500 million consumers. If treated as a single bloc, UK trade with the members of the CPTPP amounts to £110bn, smaller than UK trade with the EU, the US or Germany but ahead of China.
In June 2020, Secretary of State for International Trade, Liz Truss confirmed that the Department for International Trade (DIT) is formally pressing ahead with a bid to join the CPTPP, with the free trade agreement that the UK confirmed bilaterally with Japan two weeks ago, and the ongoing negotiations with Australia and New Zealand, forming a strong foundation from which the UK can comply to the bloc.
What would the UK joining the CPTPP mean for business?
The CPTPP represents a highly compatible marketplace for UK goods and services.
The countries of the CPTPP are predominantly rapidly developing emerging economies, with growing middle classes and an increasing demand for high value-add goods and services, for which the UK has a comparative advantage. From advanced electronics, to higher education, to luxury spirits, the UK brand is both desirable and highly competitive.
Running to 29 chapters, and covering trade in goods, services, government procurement, intellectual property, investment, transparency and dispute settlement, the CPTPP is seen by business experts as presenting some of the most liberal trade policy practice on offer.
When the UK joining the CPTPP was originally suggested back in 2018, CBI members quickly flagged the fact that the investment chapter stands out as having potentially strong prospects for UK companies to develop trade opportunities off the back of foreign direct investment. Business was optimistic because the investment chapter includes rules that will open the CPTPP economies to increased inward investment, while also providing a range of protections to foreign investors, including minimum standards of treatment, the right to compensation in the event of certain types of expropriations, protection against discrimination, and a centralised dispute mechanism.
CBI members with interests across the Asia-Pacific considered that these protections provide greater assurance that investments made in the emerging economies of the region will be stable; encouraging them to invest more.
However, there are some issues. Unlike the new Free Trade Agreement that the UK negotiated bilaterally with Japan, when joining the CPTPP, the UK would be signing up to an already completed agreement, and this brings certain challenges. As worded in the agreement, any future regulatory alignment with CPTPP countries on technical barriers to trade (e.g. conformity assessment) or sanitary & phytosanitary measures (e.g. food safety assessment) may lead to a relaxation or changes of standards on goods that could be exported into the EU market, potentially putting the UK in opposition with the EU’s pre-existing single market regulations. This would make it harder for firms to re-export goods into the EU that were manufactured or produced in Asia.
Where would joining the CPTPP position the UK on the world stage?
At a time when protectionism is becoming more common in global trade, joining the CPTPP would be a clear display of intent that the UK will continue to back the international rules-based trading order. Geopolitically, the CPTPP bloc represents a coming together of countries aligned on the merits of free trade, and while not a seemingly commercial issue, many businesses agree that joining the CPTPP could be an important step for the UK to signal that after leaving the EU it intends to remain an open economy.
Joining the CPTPP could also expand the UK’s trading relationship with the US. The Trump administration left the precursor agreement to the CPTPP after he took office – which many saw as ironic as US thinking had been instrumental in TPP. However, the point that the UK joining CPTPP could encourage the US to re-join the bloc has been suggested on multiple occasions, both by the DIT, and current members of the group. The addition of the US would be a hugely positive outcome, not just adding the world’s largest economy and more than 300 million people to the bloc, but also tying together the interests and basic standards of the majority of the world’s traditional proponents of free trade.
Finally, joining the CPTPP could help UK firms diversify their supply chains away from China and move closer to like-minded medium sized countries including Japan, Canada, Australia and New Zealand. Joining the bloc, with the investment protections that the deal appears to extend to its members, would allow UK businesses to invest in the developing economies of the Asia-Pacific regions with more confidence, enabling them to shore up their operations there, while also presenting them with the option of fostering closer ties with China.
Next steps
- The CBI will be providing oral evidence to the newly established House of Lords International Agreements Sub-Committee and its inquiry on the UK-Japan trade negotiations and the merits of joining CPTPP
- The CBI is beginning to collate business views on whether the UK should join the CPTPP, and how it should go about doing so.
How members can get involved
To receive a briefing, or to provide sector insights on the DIT’s plan to negotiate membership of CPTPP, please contact Hemita Bhatti if in the UK, or Joe Cash if in the Asia-Pacific region.