After nearly two years of negotiations, Britain has reached a historic trade agreement to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a vast Indo-Pacific trade bloc consisting of 11 members. The deal, announced on Friday, will provide access to a region with a combined GDP of £11 trillion ($13.6 trillion).
The UK announced that this is its biggest trade deal post-Brexit, and it is also the first European country to join the CPTPP since its inception in 2018. Prime Minister Rishi Sunak praised the agreement, stating that it places the UK in the midst of a dynamic and expanding group of Pacific economies.
In a statement, he said, “As an open and free-trading nation, this deal showcases the economic advantages of our post-Brexit autonomy. British businesses will now have unprecedented market access from Europe to the South Pacific.”
The trade bloc comprises countries such as Canada, Mexico, Japan, Australia, Vietnam, Singapore, and Malaysia, among others. The agreement is set to be signed by the end of the year, pending final approval from Parliament and the 11 member states. The trade pact emerged from the Trans-Pacific Partnership (TPP), which was originally led by the United States but collapsed when former President Donald Trump withdrew the country’s participation.
According to Britain, the trade agreement will reduce tariffs on exports of cars, food, and drink and provide access to a market of approximately 500 million people. Once the UK becomes a member of the trade bloc, it is expected to be worth 15% of global GDP. The country predicts that its economy will be boosted by £1.8 billion in the long run and wages will increase by £800 million in comparison to 2019 levels after joining the CPTPP.
Kemi Badenoch, the trade secretary, stated that the agreement sends a strong message that the UK is leveraging its post-Brexit independence to expand its economy by tapping into new global markets.
Natalie Black, the U.K.’s trade commissioner for Asia Pacific, described the trade deal as a forward-looking agreement for Britain. In an interview with CNBC’s “Squawk Box Asia” on Friday, she said, “This deal is not just about economic performance today, but also very much about economic performance in the future.”
Despite the enthusiasm over the deal, it is uncertain how much economic growth it will bring to Britain. According to the government’s projections, the long-term boost to domestic GDP will only be 0.08%, which is unlikely to offset the trade losses with Europe resulting from Brexit. Nonetheless, the country remains eager to participate in the discussions that will shape the future of trade in the fast-growing and influential Indo-Pacific region.
According to Deborah Elms, executive director of the Asian Trade Centre, estimating trade figures is difficult, especially when based on current trade flows.
For UK companies, limited existing trade flows to many of the CPTPP countries like Australia, New Zealand, Japan, and Singapore are expected due to the distance and the previously close relationship with the European Union, she said in an interview with CNBC’s “Capital Connection.”
According to Deborah Elms, the executive director of the Asian Trade Centre, trade flows are usually underestimated, and businesses will begin to recognize the advantages and take advantage of trade deals such as the CPTPP.
Despite the agreement, negotiations to complete the trade deal were not always smooth sailing. There was a deadlock between Britain and Canada concerning agricultural market access that had to be resolved to overcome the final obstacle in concluding the agreement. According to Black, “This has been a challenging deal to negotiate. We have negotiated across several time zones and a range of complex issues. They are not always easy to address. Nevertheless, all parties have agreed that the UK is an excellent new member of CPTPP.”
Unlike China, which has not made as much progress, the UK has successfully applied to join the trade bloc. According to Black, there are several “aspirant economies” who have either expressed their desire to formally join or are known to be interested in joining. She refrained from commenting on individual economies, but acknowledged that the barriers to entry are significant and emphasized the importance of meeting the high-quality application expectations of existing members for future aspirants.