The first great UK trade win is in the bag

UK Secretary of State for Business and Trade Kemi Badenoch (Copyright: Department for International Trade and The Rt Hon Kemi Badenoch MPSimon Dawson / No 10 Downing Street, OGL 3 , via Wikimedia Commons )

Earlier this month, UK Business Secretary Kemi Badenoch signed the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership” – or CPTPP, a new trade deal with 11 Asian and Pacific countries, covering a trade area of  about 500 million people or 15 percent of world GDP. That is before Thailand and South Korea join. Perhaps at one point also the United States, which under President Trump decided to abandon the arrangement, may opt to join after all.

Yes, India and China are not part of the deal, it is relatively weak on opening up services, the UK’s supply chains are obviously a lot more integrated with the European continent and the estimated gains are modest, with 0.08% GDP.

However, in today’s world of decoupling and rising protectionist sentiment, trade opening gains are achieved step by step. More countries have applied to join. China is among then, but whether it will be permitted, can be doubted, as the project was initially meant as a Pacific trade counterweight against China. TTIP, the proposed trade deal between the U.S. and the EU, which failed, was its Atlantic counterpart. Still, also Taiwan, Ukraine, Costa Rica, Uruguay and Ecuador have applied to join the CPTPP pact. Signatories are required to scrap or significantly reduce tariffs, make strong commitments to open up services and investment markets and respect rules around competition, intellectual property rights and protections for foreign companies.

Whatever the precise benefits for the UK, the most important aspect of this event is the precedent value. With her proposed Brexit deal, former UK Prime Minister Theresa May intended to shackle the UK’s trade policy to that of the EU indefinitely. This trade achievement by the UK government is further proof of how misguided it would have been for a leading economy like Britain to outsource something as important as trade to another jurisdiction. As imperfect as it may be, the Windsor agreement which the EU and the UK agreed in March, proves that avoiding a hard border on the island of Ireland is possible without the UK sacrificing trade sovereignty.

Few EU trade success stories

In contrast, the European Union hasn’t been achieving much success lately when it comes to securing trade agreements. There was a minor success with New Zealand, but still no success so far with Australia or with the Latin American Mercosur trading bloc.

According to World Bank predictions, by 2050, CPTPP will account for almost a quarter of the world economy, and the European Union just for a tenth. Still, it would be wrong to pit opening up trade with the EU against opening up trade with the rest of the world. On the contrary, with the UK economy expected to grow as a result of this arrangement, it only becomes more interesting for the EU to make the concessions needed to further minimize the new bureaucracy burdening trade between the EU and the UK following Brexit.

Yes, CPTPP membership effectively makes it even more difficult for any Labour government to dig up Theresa May’s plan and lock the UK into a customs union with the EU, which would force the UK to follow the EU’s trade guidance. But apart from this, as trade expert David Henig has pointed out: “CPTPP will not in any way affect our relationship with the EU. I’m confident in saying that. Because if there was a future political decision to rejoin the EU or the single market, it would just be one of many things that would need sorting”, similar how this was also the case in 1973 and 2016.

That does not mean any UK Labour government could not for example more closely align the UK voluntarily with selected EU regulations. Otherwise the Northern Ireland arrangement, which does precisely that, would have been seen as an obstacle to the UK joining CPTPP.

Then, in the end, if the EU really continues its current path of imposing ever more stringent regulations for digital innovation or energy, the UK is likely to diverge, if only because as a smaller economy, it is less able to afford the EU’s folly. The UK government abandoning some of its most burdensome climate policies can serve as early proof of this.

Trade is about trust

Given how the UK already has good trade deals with nine of the eleven CPTPP countries, the key progress lies in trade with one of the two, Malaysia. Here, the UK even promised to cut its tariff on importing palm oil from 12 to 0 percent immediately. This was decried by green activists, but their concern is shortsighted. As also the WWF has pointed out, palm plantations have impressively heavy yields, producing more oil per land area than any other equivalent vegetable oil crop. Alternatives like coconut or sunflower require between four and ten times as much land, contributing to environmental degradation elsewhere.

It speaks for the UK that it doesn’t follow the EU’s very restrictive approach here, which not only has prevented it from building closer trade ties with angered South East Asian countries, but is also inspired by protectionism on request of the European oilseeds lobby.

As opposed to the UK, the EU is simply burdening Indonesian and Malaysian palm oil producers with a lot of extra bureaucracy, despite the fact that these countries have managed to secure great progress in reducing deforestation, as a result of domestic certification schemes like the Malaysia Sustainable Palm Oil (MSPO) Board. The EU no longer wants to recognize this scheme, as opposed to the UK, which has understood that trade is about trust. As a consequence, the UK secures greater trade opening, while EU talks with South East Asia have now been frozen, as a result of the EU’s new deforestation legislation.

It is a pity that the United States abandoned interest in CPTPP, as also President Biden has not revived interest. Still, for the UK, an important member of CPTPP is Canada. In 2018, my former think tank Open Europe identified this country, along with India and Israel, as the countries where the UK currently under-performs, relative to its export capability to all markets.

With CPTPP, the UK therefore already has one out of three major trade targets out of the way. Not bad at all.