Trading places
By CA magazine
31 March 2021
As the UK declares its intention to join the Trans-Pacific Partnership, Andy Silvester investigates the economic – and symbolic – benefits that membership could bring
It will not have escaped students of geography or history that the UK has been, throughout its existence, predominantly an Atlantic and European power. That is, after all, where we are. But that doesn’t mean that it has ever limited itself to the seas immediately off its rainy shores. For better or – sometimes, at least – worse, the country has been one that has traditionally reached out to truly global horizons.
And so it is with our new post-Brexit future, a trade deal on goods signed with the EU now on the books, attention turns to where the UK government may seek to extend its tentacles overseas. At the end of January, the UK formally applied to become a part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, better known as TPP-11.
That partnership is an old-school free-trade deal, with no political union, between 11 countries around the Pacific Rim: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Combined, it accounts for a chunky 13.4% of global GDP – believed to be the third largest free-trade area in the world, behind Nafta and the European single market.
It works exactly as you’d expect a trade deal to work – making it easier to move goods and services around. While that might seem a relatively benign idea, the arena of global trade is often anything but. The 11-country grouping was originally intended to be a gang of 12, bolstered by the weight of the United States. Alas, that super-grouping was not to be. The US pulled out after Donald Trump’s arrival in the Oval Office, and while he is consigned (for now) to history, the changes in the country’s political weather mean it’s unlikely the new occupant will be signing up any time soon.
Growth curve
TPP-11 does not insist on uniform rules within the bloc. As you’d expect in a group of countries as economically different as, for instance, Japan and Peru or Canada and Brunei, not all goods are completely free of tariffs. Japan still has tariffs in place targeting rice imports; the Canadian dairy industry is also given a carve-out.
According to the Institute for Government (IfG), though, the agreement “provides for almost complete liberalisation of tariffs among the participants”. As we’ve seen with the UK’s departure from the EU, of course, tariffs are only one part of a trade agreement. Non-tariff barriers, such as paperwork, are still required – though the UK government does say that the deal also “reduces a range of non-tariff barriers to trade and investment… and goes further than many existing agreements in promoting agreed standards in areas such as labour and the environment”.
At the organisational level, the TPP-11 is very different from the EU. For one thing, there’s no European Court of Justice, nor a central body developing regulations. If two members come into a dispute, an ad-hoc panel is brought together to discuss the issue – and the punishments are frankly rather minor. In some ways, it’s a lot closer to the model that some in the UK thought they were signing up to in Brussels way back in the 1970s.
The UK’s footprint in the region is significant – about £111bn worth of UK trade in 2019, though it’s worth noting that around £30bn of that is with just one player, Australia. And the UK’s trade with non-EU countries has been growing for a while – 53% of all trade by 2018, compared with 46% in 2006. The government also notes the vast majority of economic growth is forecast to come from outside the EU.
Predicting economic growth was a lot easier before a global pandemic turned the global economy upside down. But emerging economies are still emerging; there’s no reason to believe that Vietnam, to take one example, will see much change from its 6% GDP growth trend once the Covid-19 dust settles. Malaysia, similarly, will surely expect to return to annual growth of 4–5%.
Crucially, while many of those Pacific countries are still predominantly goods exporters, the services sectors across the region continue to grow. And with growing prosperity comes growing demand for the sort of professional and advisory services that Britain excels in.
The interesting thing about joining the TPP-11 is that the UK is already pretty closely aligned with most of these economies. One of the quiet success stories of the UK’s departure from the EU has been the impressive speed with which the Department for International Trade has signed so-called “rollover deals” with countries across the world with which the UK, as part of the EU, already had deals. Rather than mass renegotiations, tweaks here and there have ensured that British traders further afield have in most cases endured less disruption than those trading closer to home, with the continent. So that success does slightly minimise the impact of joining the TPP.
Indeed, rollover deals with all TPP countries other than Malaysia, Brunei, Australia and New Zealand are already in place. And as the IfG notes, for a host of political reasons, the UK is “likely to conclude bilateral FTAs [free trade agreements] with Australia and New Zealand well before it accedes” to the Trans-Pacific Partnership. So, the immediate benefits are free trade with Malaysia and Brunei and some more positive language on, for instance, services than we currently have.
Seat at the table
But there is more to it than that. The US-backed TPP was envisioned as being a key part of the global trade rule-setting order – not entirely driven by a fear of Chinese goods, but not entirely apart from that either. But even without the US, a TPP-11 with Britain would represent 16% of the globe’s GDP.
As Allie Renison, Head of EU and Trade Policy at the Institute of Directors, told me, “the value in this is really being part of the rule-setting in wider global trade agreements”. With global trade in doubt, speaking with one voice would have significant geopolitical advantages for the UK at the World Trade Organisation table, to name just one. It would also help to set the table for further free trade agreements with other parts of the world – with the UK acting as a hub for a host of different agreements, all of which are easier to strike as the global rules are established.
The politics behind the UK’s attempt to accede to the TPP-11 are relatively clear. With an EU trade deal that most would politely describe as less than fulsome, the UK is looking for an opportunity to declare it is still a global player. That’s as valuable at home as it is abroad to a government still keen to talk up the benefits of Brexit. But the real win is on the global stage: a sign that Britain, in contrast to other powers – notably the US – is not drifting towards protectionism, but retains an outward-looking approach as befits a free-trading nation. That, one could argue, is almost as valuable – perhaps even more so – as the nuts and bolts of the TPP-11 deal itself.
Robin McPhail CA
Managing Director, Volta Associates, Singapore
The centre of economic gravity is rapidly shifting to the Asia-Pacific region, home to more than half the global population and, by 2030, according to some projections, approximately two-thirds of the global middle class. The Association of South East Asian Nations (Asean) and China are expecting to enjoy a strong economic recovery from Covid-19 in 2021, with a GDP growth projection of around 6% – and as high as 8.5% in Vietnam. This presents some opportunities for the UK, but with some caveats.
Both the TPP-11 signed in 2018 and 2020’s Regional Comprehensive Economic Partnership Agreement (RCEP), a 15-strong pact that also includes China among others, are focused on countries bordering the Asia Pacific. The RCEP is not just very large (comprising about 30% of global GDP and about a third of the world’s population), it is in the fastest-growing region in the world. Trading with the UK may be a fairly low priority for its signatories.
For example, the latest survey by Asean’s Studies Centre at the ISEAS-Yusof Ishak Institute (conducted 18 November–10 January) asked “Who do you have the strongest confidence in to provide leadership in championing the global free trade agenda?” Answers were split between the US (22.5%) and the EU (22.2%), closely followed by Asean (20.6%), then Japan (15.4%). The UK, featured on its own for the first time, following departure from the EU, came in at just 1.3%.
At the moment, TPP-11 signatories are focused on implementation of the agreement. The EU is not a member and all other signatories are in the Pacific region. Japan, Singapore, and Vietnam have signed new bilateral agreements with the UK. Most larger UK companies have established relationships and structures in the region; for smaller ones, joining is unlikely to put much of a dent in far more challenging hurdles such as long-distance market entry and logistics. The main benefit for the UK and TPP-11 signatories is likely to be the strategic commitment to the region, given the rising geopolitical tensions.
Helen Brocklebank
CEO, Walpole, London
Conversations about TPP-11 have been around for a while, but have really gathered pace over the past 12 plus months. Global trade has been moving gradually eastwards for decades and the appeal of the TPP-11 is that it gives access to a much deeper, higher-level trade agreement.
From a national perspective – how does the UK manage its trading position with the rest of the world? – it could be extremely positive. There’s currently a great deal of interest from businesses, as well as from the UK government, as to how that could work. Regarding the sector Walpole represents, British luxury, we already have very good relationships in Japan, South Korea, Singapore and Malaysia. Anything that helps to strengthen that is welcome.
The opportunity for an independent trading policy is absolutely the right one for us to grasp – and one that wasn’t open before. Having a trading block of 11 countries is interesting, as is the US expression of interest in joining. But, in our sector, the supply chain is closely integrated across continental Europe, so that will always be our main priority.
The trade and cooperation agreement with the EU has some serious teething troubles – we’ve gone from one set of rules governing all to dealing with 27 separate countries – but the EU accounts for 42% of trade so nothing will replace that export potential.
That said, we now have to focus on our life as a trading nation post-Brexit. I’m excited by talk from countries in the TPP-11 about the UK’s possible accession. Our luxury brands have always been an incredible calling card globally and our exports are very strong in Greater China and south-east Asia.
But it’s not just about economic power, it’s about soft power too. How do we build the reputation for a country that has extraordinary creativity, entrepreneurship and exciting technological advancements? That’s what we need to focus on. It’s a challenging time, but an interesting and exciting one.
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