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Should the EU join the CPTPP?
11 Aug, 2023

That bastion of journalistic standards, the Daily Express, is highlighting the massive benefits of the UK joining the £12 trillion Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). If that is the case, why doesn't the EU join too? Wouldn't that be amusing? L4E Secretary Andy Pye reviews the pros and cons.

According to the Express, "experts" believe that signing the CPTPP "mega trade deal" means that the door will close on Britain rejoining the EU.

Spoiler: it won’t.

After the UK agreement was announced at the end of March, it was accompanied by government hype from supporters of leaving the EU that Brexit was thus vindicated. The CPTPP, whose members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, has a population of over 500 million, coincidentally the same as the EU, but a little further away - in several different directions!

The problem with the UK Government’s fanfare is the underwhelming official government forecast of only 0.08% GDP growth from membership, which Secretary of State Kemi Badenoch simply dismissed as "outdated". This is just 1/50th of the OBR’s 4% estimate of what Brexit has cost the UK economy to date. Even for those who are sceptical about models and forecasts, that is an enormous difference in magnitude. But taken at face value, it equates to around £100 billion per annum, or a loss in tax revenue of around £40 billion per annum.

Between 2016 and 2020, UK exports of goods and services to CPTPP countries represented 8.3% of total UK exports to the world, while UK imports of goods were 6.9%. This compares to figures of around 42% and 48% for the EU respectively. This is no surprise, given the gravity theory of trade (countries tend to trade more with nearby countries).

Another principal reason for this dismal comparison is that, apart from Japan, the major global economic players are not in the CPTPP.  Plus, the UK already had free trade agreements with nine out of the 11 members. Supporters of Brexit and the CPTPP route claim that the deal is worth much more than the 0.08% boost to GDP, speculating that if Thailand, South Korea and the US all joined, then the benefits could be as much as £20 billion. Wow! Even then, how would that compare to repairing the damage to our local trade with the EU? The article notes that “supply chains are lengthening”, while those in the know are focusing on reshoring or near-shoring, because long, distant supply chains are now recognised as being risky, due to the unstable political situation and the effects of climate change, as well as being disastrous for the carbon footprint.

Two CPTPP members, Malaysia and Brunei, are also controversial. Why? All trading blocs have rules - this is ironic, because Brexiters didn’t like EU rules being imposed, despite the democratic system underwriting them! One of the rules that has now been imposed on the UK, with no say and with no means of electing representatives to a Parliamentary equivalent of the European Parliament, is the elimination of the 12% tariff on palm oil from Malaysia and Brunei, thus condoning deforestation and the potential extinction of orangutans. So much for taking back control…

Beyond the hype, for a UK which has left its own natural regional grouping, it makes sense to join a club that includes mid-sized, like-minded trading powers and support a foreign-policy ‘pivot’ to Asia. Importantly, the CPTPP is strong for trade in services and sets high standards for digital trade, intellectual property and public procurement.

For existing CPTPP members, the UK provides a new export market, as the UK tends to be a big importer of goods.

Why the EU should follow the UK into CPTPP...

The CPTPP has its limitations, notably after the Trump administration withdrew from its predecessor, the TPP. There are only three distinct players in world trade able to drive global trade rules: the EU, China, and the United States. How far can the CPTPP go without access to the US market?

Or could China’s accession bid revitalise the CPTPP, albeit at considerable cost to the existing members? China’s nominal GDP is significantly higher than the combined GDP of the 11 CPTPP members. This would provide Beijing with powerful leverage to negotiate exemptions favourable to its state-capitalist business model. To accept China, the existing members (now including the UK) would have to overcome their collective scepticism about Beijing’s attitude toward rules-based free trade. A unanimous consensus to welcome China is thought highly unlikely.

Japanese researcher Jo Tamura observes that the CPTPP needs more market share than its current paltry 10%, while the EU needs to expand its trade leadership in the Asia-Pacific. Would an alternative to the US or China be accession of the European Union? This idea is also supported by Frédéric Grare, Senior Policy Fellow at the European Council on Foreign Relations (ECFR), and by former EU trade commissioner Cecilia Malmström.

While only modest gains from CPTPP membership of just 0.3% more GDP are predicted for the EU, little better than the 0.08% predicted for the UK, the world’s largest trading bloc is also the primary source into the Indo-Pacific region of foreign direct investment and development assistance. It is the second largest trading partner for Southeast Asia, behind only China.

The EU could be a like-minded trade partner for current CPTPP members who share the same basic values. EU membership would push up the GDP of the CPTPP from 10% to 31%. And with its large market of high-income consumers, the economic opportunities for CPTPP members would be immense.

There are also strategic reasons why the EU might seriously consider going further. It has the potential to become a regional trade policy counterweight to China, which the European Commission has designated as a “systemic rival” since 2019. With a combined GDP greater than China’s, the EU could provide a regional economic anchor. The CPTPP might be an ideal way to disseminate the EU’s trading principles and standards more widely and on a global scale.

...but also why it shouldn’t!!

The counter view is argued, among others, by David Henig. He prefers deepening dialogue on new trade policy issues to formal accession. A February 2023 article from Kommerskollegium, the National Board of Trade Sweden, suggests some ways to do this, such as a mutual recognition agreement around the circular economy.

As a global rule-maker, the EU is in a very different position to the UK. So why is Brussels reluctant? One reason could be the wide gaps between the EU’s trade policies and CPTPP rules. For example, the EU has never bargained on data privacy in FTA negotiations, while the CPTPP rules focus more on freer use of data. The EU requires FTA partners to obtain Adequacy Decisions to secure the free flow of data under its GDPR. Only some CPTPP members are currently entitled to such status.

Other EU rules, such as the carbon border adjustment mechanism and deforestation regulation, are two measures that stand out as difficult negotiating points. Notably, there is no mention of climate in the environment chapter of the CPTPP.

Seven years on from the 2016 referendum, global trade conversations are dominated by different issues, such as industrial subsidies, critical raw materials, and the net-zero transition. The CPTPP looks dated, so much so that members have been looking at further measures and agreements on e-commerce or climate change, often outside the CPTPP structure. These include the Digital Economy Partnership Agreement between New Zealand, Chile, and Singapore, and the proposed Agreement on Climate Change, Trade and Sustainability, that involves New Zealand, along with non-member countries Norway and Switzerland. With 12 members having differing views, it seems unlikely that CPTPP will ever be significantly updated!

Given the EU Single Market and the wider Pan-European Mediterranean Convention (PME), the economics of the EU joining CPTPP would be complex. While it would create a huge zone of cumulation to incentivise trade, it might put European manufacturing jobs at risk. It is not clear if such a move would gain popular European support.

The Asia-Europe Meeting (ASEM) is an informal platform for dialogue and cooperation between Asia and Europe on the big challenges of a fast-changing world, including trade and investment, climate change, security challenges and migration. ASEM partners represent around 65% of global GDP, 60% of global population, 75% of global tourism and 68% of global trade.

The last ASEM (Asia Europe Meeting) summit was held in November 2021, but it didn't progress the trade agenda as much as it perhaps might have done, focusing instead on peace and stability, the environment, post-COVID 19 socio-economic recovery and digital connectivity.

Yet maybe, just maybe, such differences are not insurmountable. Could the EU convince the current CPTPP members to adhere to Brussels’ preferred approaches? And where would that leave the UK, having left the EU only to find itself taking rules in its new home from its former partner? Now that would be funny!

References

(1) JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL - The EU strategy for cooperation in the Indo-Pacific. Brussels, 16.9.2021 JOIN(2021) 24 final

(2) New mega Brexit trade deal will 'slam door shut' on hopes to rejoin EU

(3) Jo Tamura: Can the EU Save the CPTPP?

(4) Dr Huw Edwards and Dr Mustapha Douch, 6 April 2023. Why Britain’s new CPTPP trade deal will not make up for Brexit

(5) David Henig, 12/04/2023. Perspectives: Why the EU shouldn’t follow the UK into CPTPP

(6) Peter Draper, Naoise McDonagh, 20 October 2021. The missing anchor: Why the EU should join the CPTPP

(7) Frédéric Grare, Senior Policy Fellow, The European Council on Foreign Relations. European trade and strategy in the Indo-Pacific: Why the EU should join the CPTPP

(8) The need for enhanced EU cooperation with the CPTPP

 

Andy Pye
Technology Editor and Writer
Secretary, London4Europe

https://www.london4europe.co.uk/should_the_eu_join_the_cptpp

London4Europe blogs are edited by Nick Hopkinson, Vice-Chair. Articles on this page reflect the views of the author and not necessarily of London4Europe.

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Andrew (Andy) Pye
published this page in Latest blogs 2023-08-11 07:28:18 +0100
Andrew (Andy) Pye
published this page in Latest blogs 2023-08-11 07:28:18 +0100