CPTPP: UK economy to see at least 0.08% boost
Three years after pulling out of the European Union, the United Kingdom has agreed to join a trade pact with 11 Asian-Pacific nations.
The government claims that joining the club will enhance UK exports by lowering tariffs on cheese, automobiles, chocolate, machinery, gin, and whisky.
Nevertheless, according to the government’s calculations, joining the EU will only add 0.08% to the size of the UK economy.
The commerce area encompasses a market of over 500 million people.
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2018.
Participation in the CPTPP relaxes trade restrictions between members and eliminates tariffs – a type of border tax – on goods.
The 11 members account for approximately 13% of global wealth, and the UK has become the first European country to join following 21 months of discussions.
According to the government, the pact is the UK’s “largest trade deal since Brexit.”
Nonetheless, the benefits of joining are projected to be minor. Apart from Brunei and Malaysia, the UK already has free trade agreements with all of the members, some of which were carried over from its former membership in the EU.
Even with some advances in trade, the government expects that it will only add 0.08% to the size of the economy in ten years. The Office for Budget Responsibility (OBR), which sets government estimates, previously stated that Brexit would limit the UK’s long-term potential economic growth by around 4%.
Prime Minister Rishi Sunak, on the other hand, said the agreement proved the “true economic benefits of our post-Brexit freedoms.”
He stated that due to the CPTPP, the United Kingdom is now in a good position in the global economy to capitalize on prospects for new jobs, growth, and innovation. In addition, British companies will now have unprecedented access to markets ranging from Europe to the South Pacific.”
According to Commerce and Trade Minister Kemi Badenoch, the deal is similar to “acquiring a new business.
Labour’s shadow international trade secretary, Nick Thomas-Symonds, said the UK’s participation in the CPTPP was “encouraging,” but that concerns about “consumer safety, food safety, data privacy, and environmental regulations” remained.
According to the government, other “benefits” of membership in the EU include a boost to the services industry because UK firms will not be needed to open a local office or be residents to deliver a service, putting them on a level with local firms.
The government stated that it and CPTPP members would complete the final legal and administrative formalities required for the UK to sign in 2023 formally.
What exactly is the CPTPP?
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam have signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
The Pacific trade pact’s founding countries signed it in March 2018.
The club’s members collectively generate 13% of global income.
The United Kingdom is the first non-founding member to join, and it will be the world’s second-largest economy after Japan. It raises the new grouping’s value to £11 trillion.
The short-term improvements are insignificant. The UK already dealt with most of these countries as part of its EU membership, which was carried over.
Following Brexit, the United Kingdom has added Australia and New Zealand to its list of trading partners.
The only countries with which the UK still needs an agreement were Brunei and Malaysia, which contribute to less than 0.5% of total UK trade.
Even with certain revisions to trade agreements with other nations, the gains from the extended agreement are likely to be modest – roughly 0.08% of GDP over ten years, according to the government’s best guess.
In comparison, leaving the EU, according to the government’s independent forecasts, will cost the UK significantly more – maybe 4% of our income.
The CPTPP contributed 8% of UK exports in 2019, less than what we sold to Germany.
What has changed?
The main benefit is increased access to each other’s markets and a commitment to eliminate or reduce 95% of import levies or tariffs.
Some are preserved, however, to safeguard critical domestic sectors, such as Japan’s rice farming business.
Furthermore, producers who source components from various sources can claim that their products qualify for special treatment.
That is, they can check the “rules of origin” box if 70% of the components come from any of the participating countries.
The clauses could benefit UK manufacturers of machinery and medicines, which are among our most valued exports to those countries, by lowering their costs and allowing them to expand their supply networks throughout the member countries.
Besides commerce, participation means that investors from CPTPP nations are treated the same as domestic enterprises when they participate in projects in other member countries, which might benefit UK firms.
In 2017, CPTPP countries accounted for roughly £1 in every £12 of foreign investment in the UK, with the same going the other way – supporting business and jobs.
Read Also: The UK becomes the latest addition to the CPTPP
In exchange, governments must work together on rules such as food standards.
The CPTPP, however, is neither a single market nor a customs union, unlike the European Union.
As a result, countries are not compelled to have the same norms and standards.
Countries can also sign their trade arrangements with others, as the UK has done with the EU – however, membership in the CPTPP would be incompatible with re-joining the EU.