CPTPP: UK set to join Asia’s trade club but what is it?

The UK is expected to sign up to a trade pact with several countries in Asia and the Pacific, including Japan and Australia.

The name of this pact – CPTPP – is an unwieldy mouthful, but it’s also a new club of 500 million people the UK will be able to access.

So what does it mean for the fortunes of businesses and households?

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a trade agreement between 11 nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Those founding members signed the Pacific trade pact in March 2018.

Between them, the club’s constituents generate 13% of the world’s income.

The UK is the first non-founding country to join, and will be its second biggest economy after Japan. It takes the value of the new grouping to £11 trillion.

The short-term gains are marginal.

The UK already had deals with the majority of these nations as part of its EU membership which have been carried over.

Since Brexit, the UK has added Australia and New Zealand to its trade deal tally.

It was just Brunei and Malaysia left that the UK didn’t have a deal with and between them those two account for less than 0.5% of the total of UK trade.

Even with some changes to the trading arrangements with other countries, the gains from the expanded accord is expected to be fairly small – around 0.08% of GDP over 10 years, according to the government’s best stab at an estimate.

By contrast, leaving the EU, the government’s independent forecasters reckon, will cost the UK far more than that – perhaps 4% of our income.

In total, the CPTPP accounted for 8% of UK exports in 2019 – less than we sold to Germany.

The key perk is greater access to each other’s markets, and a pledge to eliminate or reduce 95% of import charges or tariffs.

But some are kept to protect sensitive domestic areas, such as Japan’s rice farming industry.

Also, manufacturers that get components from lots of different places can claim their products qualify for preferential treatment.

That means they can tick the so-called “rules of origin” box, as long as 70% of those components come from any of the participating countries.

The provisions could help UK producers of items such as machinery and medicines – our most valuable exports to those nations – by reducing their costs and allowing them to expand their supply chains across the constituent countries.

Away from trade, membership means investors from CPTPP countries get the same treatment as domestic firms when they put money into projects taking place in other member states, which could benefit UK firms.

In 2017, the CPTPP nations accounted for about £1 in every £12 of foreign investment in the UK, and the same going the other way – supporting business and jobs.

In return, countries must co-operate on regulations, such as food standards.

However, unlike the European Union, the CPTPP is neither a single market nor a customs union.

So countries are not required to have identical regulations and standards.

And countries can strike their own trade deals with others, as the UK has with the EU – although membership of the CPTPP would not be consistent with re-joining the EU itself.

In short, what has the UK had to agree to as the price of admission?

Some, including Members of a House of Lords Committee want to know how the UK intends, for example, to ensure standards to on environmental and animal welfare standards will be met

The government has pointed out that CPTPP allows members to set their own levels of protection and it wouldn’t compromise UK’s standards.

As part of the agreement, the UK may have to allow foreign farmers more access to UK markets – but hormone treated meat will still be banned.

And the UK may have to concede to lower tariffs on Malaysian palm oil – which has been blamed for aiding deforestation.

It’s the partnership’s potential that’s key.

The agreement will loosen restrictions on services and digital trade, which matches the UK’s ambitions, and ties it in with some of the faster-growing nations.

But the biggest rewards – and challenges – could occur if others join the club.

China is among those vying to sign up, as is Taiwan.

Could the UK veto China’s membership? Or use its membership to shape China’s access and ambitions?

The real prize would be if the US reverses the decision made by President Trump not to sign up.

America buys about double the amount of UK exports than the current CPTPP nations put together, but membership doesn’t appear to be on President Biden’s to-do list.

At present, membership of the CPTPP is a mainly symbolic win for post-Brexit Britain.

But ultimately it could yield considerable rewards.