The CPTPP and Britain’s Pacific Rim engagement

Approval of the United Kingdom’s (UK) decision just over two years ago to apply for membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is widely thought to be imminent. Some technical details and differences have yet to be ironed out, but this will be the Britain’s most significant trade agreement since leaving the European Union (EU). It will give a commercial flavour to an involvement in the Indo-Pacific that has already included an agreement with the United States (US) and Australia to provide the latter with nuclear-powered submarines, the Royal Navy’s presence in freedom of navigation operations in the South China Sea, and the UK’s accession to ‘dialogue partner status’ within the Association of Southeast Asian Nations.

What, though, is the major impact of Britain’s participation in the CPTPP likely to be?

CPTPP in a nutshell

The 11 members of the CPTPP (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) are part of a free trade area (FTA) that accounts for about 13% of world Gross Domestic Product (GDP). While it is not the largest trade bloc in the world – the United States-Mexico-Canada Agreement is the largest measured by GDP, and the Regional Comprehensive Economic Partnership in the Indo-Pacific, which includes the People Republic of China (PRC), is over twice as big as the CPTPP – it has two other important features. 

First, the CPTPP compares favourably with many other FTAs because it sets much higher and more pervasive standards. It aims to promote a market-driven economy. It provides for the elimination of tariffs and other trade barriers in a broad range of manufactures and agricultural commodities. It seeks the liberalisation of services trade by removing cross-border restrictions and protection against discrimination. It establishes rules to open markets to foreign investment and protect investors, lays out guidelines for e-commerce, intellectual property protection, labour market and environmental standards, and spells out rules and standards for the digital and communications sectors, and for transparency in business, state enterprises, competition, and procurement. 

Second, the CPTPP also epitomises the significance and interconnectedness of supply chains. Remember that resilience and stability in supply chains are now key geopolitical and commercial issues as many nations and multinational firms put PRC-centric supply chains into their cross-hairs. Indo-Pacific countries supply two-fifths of world exports and imports, but about 70% of the former are used as inputs in production processes elsewhere, while the remainder represent final foreign demand, that is consumer goods.

The CPTPP offers members and their firms an opportunity to recalibrate supply chains in this light. The UK will in future sit as a member and preside with others over whether to proceed with the application of others, including the PRC and Taiwan. These applications will be contentious and involve feisty political decisions that have to be unanimous about whether to commence negotiations with either, both, or neither. Ecuador has applied and should not present too many complications, while South Korea is considering whether to apply. Other possible applicants are Indonesia, Thailand, the Philippines, and Colombia.

Weak economic, stronger political case

For the moment though, the economic case for Britain joining the CPTPP is not hugely persuasive. About 8-9% of UK goods and services exports go to CPTPP countries, but the bulk of these go to 9 of the 11 with which the UK already has bilateral FTAs – all bar Brunei and Malaysia – and in some respects, the details in some of these FTAs go further than the CPTPP. The same metrics apply to goods and services imports, about 7% of which come from CPTPP countries, with the majority from nations with which the UK has FTAs. The GDP impact of joining the CPTPP has been estimated to be 0.1% over the long-term. The CPTPP does not even come close to being a possible substitute for the EU, which trade economists see as conferring geographic and supply chain attributes which cannot be replaced.

Yet, even if physical trade opportunities for the UK may be limited, it is possible that the UK could play an important role with and among important nations to frame the rules and standards under which commerce takes place both in the Pacific Rim and beyond. Indeed, it is hard to understate the potential significance of this in an era in which the PRC’s domestic and foreign policies are increasingly bound up in trade, investment and an array of matters pigeon-holed under national security. 

The political pay-off, in other words, may be where the real advantages of the CPTPP lie for the UK. A greater involvement with Pacific Rim countries would allow the UK to build a deeper engagement in a part of the world that is economically significant, at a time when global supply chains are in flux, and with a rising focus on geopolitical competition with the PRC.

China connections

Much of the UK’s early involvement in the CPTPP should be with the thorny issue of the PRC’s 2021 CPTPP application, which is neither flippant nor opportunist. There is no question that its goal is to gain access to the group and exploit its economic heft to determine its governance and the setting of standards and rules. The UK will have a front row seat in lively discussions about both the technical and political aspects of the PRC’s application. Because many issues are national security-sensitive, the UK’s position and its statecraft on a variety of matters will be anticipated eagerly. 

These will doubtless include such matters as labour market conditions, competition rules governing state enterprises, market access, intellectual property protection, information, data and communications management and usage, and the environment. These are all areas in which the PRC falls short of CPTPP standards or might assert differences in approach that it would want accepted or deem to represent ‘way-stations’ in the direction of travel. The UK and other members will have to decide unanimously whether to approve the start of negotiations, and also to trust that technocrats can be relied upon to reconcile major differences in laws, regulations and standards, and align the group’s interests with an US$18 trillion (£14.6 trillion) Chinese economy run by an ever more ideological Chinese Communist Party.

It is hard to understate the potential significance of this in an era in which the PRC’s domestic and foreign policies are increasingly bound up in trade, investment and an array of matters pigeon-holed under national security. 

CPTPP members could make a political decision either not to proceed, or kick the process into the long grass and stretch negotiations out far into the future. These decisions will also be strongly influenced by Taiwan’s application (roughly simultaneous with the PRC) to join the CPTPP, which has taken on additional poignancy in the wake of Russia’s war against Ukraine, the sanctions imposed on Russia, and the thin ice on which the PRC stands bearing in mind its support for Vladimir Putin’s Russia, which is now, in effect, a vassal state of Beijing. 

Taiwan’s application is sensitive not only because of the PRC’s own, but also because, relative to the PRC, Taiwan is pretty much oven-ready for the CPTPP, and has over the last one to two years tried to get closer politically to Australia, Canada, Japan, the UK and the EU.

The UK should find sympathetic partners in Australia, Canada, and Japan. The stance of other countries, especially Malaysia and Singapore, is not clear, but may tilt more towards the PRC’s accession. Smaller countries in Southeast Asia and South America will clearly have to decide how to resolve any conflict between their PRC-shaped economic interests, and their US-shaped security and intelligence interests. Typically, many smaller and emerging nations prefer not to take sides, but in the CPTPP they may have to make such difficult decisions, not least in the Indo-Pacific where several states have also become more sensitive to the risk that what has happened to Ukraine might also happen one day to Taiwan.

Conclusion

The UK’s accession to the CPTPP is certainly a formal leap into new commercial but also perhaps familiar political territory, after decades of integration into the EU. It is happening at an important time when the bifurcation of trade and investment rules and standards between the PRC and liberal leaning democracies is rising, and when decoupling and the recalibration of supply chains are gathering momentum. 

In this sense, Britain’s accession to the CPTPP may be fortuitous. As global commerce becomes increasingly subject to export controls, licensing arrangements, sanctions, political scrutiny, the greater use of subsidies, and recourse to industrial policies, there is at least an opportunity for the UK to advocate, albeit subject to constraints, for things that it has traditionally championed, such as relatively liberal trade, and commitment to rules, at least in areas where national security concerns are of lesser importance.

However, there also seems little question that the UK’s ‘front foot’ will be political representation and influence. It will sit at a new table where the PRC’s presence will be much more keenly felt, one way or another, and where, for the time being at least, neither the PRC nor the US are present.

George Magnus is a Research Associate at the China Centre at the University of Oxford and at SOAS in London. He is also author of Red Flags: Why Xi’s China is in Jeopardy.