The UK has barely shaken the dust of the EU from its feet but it is already looking to join another trade club.
The CPTPP might sound like an official has accidentally leant on their computer keyboard – but it’s a grouping we’re likely to hear far more often. So what does it mean for the fortunes of businesses and households?
What is the CPTPP?
It stands for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
It is a trade agreement between 11 Pacific Rim nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Between them, the club’s constituents are home to around 500 million people and generate more than 13% of the world’s income.
It has been in place since 2018 and the UK is the first non-founding country to apply to join.
If successful, the UK would be its second biggest economy after Japan.
What does it cover?
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 retained to protect sensitive domestic areas, like Japan’s rice farming and Canada’s dairy industry.
In addition, manufacturers that source components from multiple places can claim their products qualify for preferential treatment. That means they can tick the so-called “rules of origin” box, so long as 70% of those components come from any of the participating countries.
In return, countries are obliged to cooperate 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, and is looking to reach with the US).
What’s in it for the UK?
The immediate gains may be marginal for businesses and households. As part of its EU membership, the UK already had trade deals with most of the nations in the club, and those have been rolled over. As for the rest, it was already in talks with Australia and New Zealand, which leaves just Malaysia and Brunei.
The government has yet to outline the size of the expected economic gain but in total, CPTPP nations account for around 9% of UK exports, which is less than we export to Germany.
What could change?
The rules of origin 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 ensures investors from CPTPP countries get the same treatment as domestic firms when they put money into projects happening 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.
What about the future?
The government claims CPTPP membership will put the UK “at the centre of a modern, progressive network of free trade agreements with dynamic nations” .
But 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.
Perhaps the greatest boost to the UK would come if, as President Joe Biden has hinted, the US was also to sign up.
The US buys more than double the amount of UK exports than all of the current CPTPP nations put together.
The US was involved in the initial discussions of the group, before President Trump pulled out. While membership doesn’t appear on the new president’s imminent to-do list, it could open a backdoor to a trade deal between the US and UK. The trade group would then account for more than 40% of global GDP, giving it considerable heft.
International Trade Secretary Liz Truss has said membership of CPTPP would be a “powerful signal”.
And at present, it may be mainly symbolic. But ultimately it could yield considerable rewards.