The UK’s Pacific Pivot

19 Jun 2023, 17:20

What is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)?

A trading bloc consisting of 11 countries, that the UK is set to join this year, spanning the Pacific Rim, from Asia to the Americas. Populated by half a billion people, the combined GDP will be roughly £11 trillion once the UK joins.
UK membership is significant not only because it’s the first major trade bloc agreement since leaving the EU, but also because the UK is the first European country to join the bloc. The UK is the first new member to be admitted since the CPTPP was created in 2018. For many Brexiteers, this was part of a long-term vision for a ‘Global Britain’ that appears to have finally materialised.

But what’s in it for UK investors?
Undoubtedly, the key benefit to doing business in the UK is an increased liberalisation of trade. World trade has become more protectionist over the past decade, especially as a result of geopolitical tensions between the West, China, and Russia, but the CPTPP puts the emphasis back on free trade.

Although the UK already had trade agreements with nine of the 11 existing countries, CPTPP membership is much more comprehensive. Under CPTPP, most of the tariffs are liberalised, allowing for the free-flowing movement of goods and services.

A boost for business?
Although the small print hasn’t yet been released, at first glance this should be good news for UK investors and businesses.

As digital trade continues to grow, data flows are essential for modern trade. Joining the CPTPP will ensure that data is shared between the UK and CPTPP members. This will help the Government fulfil its aim of making the UK a global leader in digital trade, allowing those who invest in British businesses to expand into CPTPP markets with confidence and vice versa.

Away from trade, membership also means investors from CPTPP countries will get the same treatment as domestic firms when they invest in projects in other member states.

A deal for today or tomorrow?
Despite some short-term qualitative benefits to joining the bloc, the economic outlook is pessimistic, with the latest official modelling suggesting that the deal will boost the UK economy by 0.8% over 10 years.

The longer-term outlook is more positive, though. Today, the share of the world economy that the EU and the CPTPP contribute is roughly 15-16%. In 2050, it’s predicted that the EU will account for 10% of the global economy and the CPTPP will account for 20% of the world economy. This shift in the weight of economic gravity towards the East is the overwhelming rationale for joining this trade bloc.

The number of member countries is also expected to grow over time, most notably with speculation over America joining the bloc, boosting its stake in the world economy.

What about China?
It’s no secret that China has expressed an interest in joining the bloc. However, under the rules of the CPTPP, China won’t be allowed to join given the current share of its economy that’s governed by the state, among other reasons. One to watch as the UK, like all members, will have a veto any other countries wanting to join; membership is only granted if all of the member countries agrees. Thailand, South Korea, Costa Rica and Ecuador are among the countries that have expressed an interest in joining so far.

The devil is in the detail
While we await the finer details, the deal will go through final negotiations before it goes live, expected to be at the end of 2024.