Yahoo Finance CPTPP explained as UK applies to join Pacific trade bloc
The UK government has applied to join a trade bloc on the other side of the world, exercising its post-Brexit freedom to strike deals independently of the EU.
International trade secretary Liz Truss was scheduled to speak to ministers in Japan and New Zealand on Monday about Britain’s request to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
What is the CPTPP?
The CPTPP is a trade agreement between 11 countries centred around the Pacific Ocean.
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam form part of the bloc. The US had planned to join a precursor to the the bloc, but president Donald Trump pulled out in 2017.
The agreement is designed to lower barriers to trade and investment between countries.
Members have agreed to cut or scrap around 95% of tariffs — taxes on imports — on each other’s goods.
Barriers to cross-border services in areas like finance and business travel are also being whittled down. Other countries’ firms and investors will be able to operate more like domestic ones in certain sectors.
How much does Britain trade with the region already?
Britain imported and exported goods and services to the region worth £111bn ($153bn) in 2019, according to the UK government.
Most UK trade with CPTPP members is with Australia, Canada, Japan and Singapore, according to research by the House of Commons Library.
Exporters in the East Midlands are the most likely to trade with the region, according to HMRC analysis.
Trade with the bloc amounted to 8.5% of all UK exports in 2017. Officials say trade with CPTPP members is already growing at a rate of 8% a year since 2016.
The rationale for joining the bloc is to accelerate this growth by making it easier to trade.
What benefits could joining CPTPP bring?
The government’s hope is joining the bloc will boost UK trade and investment with the bloc in both directions, creating jobs and lowering prices for some products as well as boosting UK productivity.
“It will mean lower tariffs for car manufacturers and whisky producers, and better access for our brilliant services providers, delivering quality jobs and greater prosperity for people here at home,” according to Truss.
The government highlighted Malaysian tariffs on UK whisky exports, currently set at 165% of their value, as an example where membership should see taxes slashed to zero.
Some carmakers and food producers could benefit from lower tariffs and restrictions on overseas parts, and business travellers secure cheaper, faster visas.
UK business leaders said tech firms and small and medium-sized businesses were among those likely to benefit from easier access to wider markets. Financial firms hope for easier cross-border payments and mutual recognition of qualifications.
WATCH: UK seeks to join trans-Pacific trade group
The bloc’s rules “allow data to flow freely between members” and protect commercial source code and encryption, according to the department for international trade.
It is hoped membership will also give Britain greater ability to shape global trade rules on e-commerce and data.
The UK government stresses the bloc is less comprehensive than the EU, with a press release stating that joining “does not require the UK to cede control over our laws, borders, or money.”
Experts say any gains are most likely to be more “joined up” rules-of-origin requirements, reducing obstacles and administrative burdens for firms.
Questions over gains and costs
Britain already has preferential trade terms with several members as it effectively inherited the EU’s deals or is in talks over new arrangements, limiting potential benefits.
The government provided no new detailed estimates for potential benefits or costs as it announced its request to join.
Two studies cited in a previous consultation document suggested trade deals more generally boosted goods trade by 17% and 32% respectively over time.
While another study on CPTPP found all member countries’ GDP stood to gain in the long run, gains were only by as much as 0.48% New Zealand in as little as 0.007% in Chile.
READ MORE: Businesses stop serving EU due to ‘nightmare’ post-Brexit rules
Total current UK exports to the bloc are also less than exports to Germany alone. Critics will say any gains from CPTPP will not come close to compensating for Brexit’s damage to trade with much closer countries in the EU, which makes up around two-fifths of UK exports.
Meanwhile the UK government has effectively admitted greater international competition could cost jobs in certain sectors.
A consultation document reads: “Some sectors may expand, creating more jobs and prosperity but some sectors or companies, which fail to adjust to such competition, can be adversely affected.”
It also notes CPTPP rules on health and safety of goods, consumer protections, competition policy and other areas may be seen as “positive or negative” depending on consumers’ perspectives.
How long could it take to join and feel any benefits?
Britain’s application is only the very beginning of the process, with trade deals often taking years to negotiate.
Official documents have also previously highlighted how some gains may take up to 10 years to materialise.
But the government said its negotiation objectives and other planning documents would be published before talks began “this spring.”
“We’re at the front of the queue and look forward to starting formal negotiations in the coming months,” said Truss.
WATCH: Pacific trade deal signed in 2018
