The government is right to weigh the options but there is more than economics to considerby David Henig / September 28, 2018 / Leave a comment
International Trade Secretary Liam Fox. Photo: Victoria Jones/PA Wire/PA Images Early in 2019 one of the largest free trade agreements of recent history should go live. The Trans-Pacific Partnership was originally signed by 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam) in February 2016, but the election of President Trump saw the US withdraw and doubt as to whether the other members could or would proceed. After some discussion, and the suspension of some elements the remaining 11 countries disliked, the slightly rebranded Comprehensive and Progressive Agreement for Trans-Pacific Partnership (or CPTPP) was signed in early 2018, and is now going through domestic approval processes. From the start of discussions it was always intended that the agreement should be open to new members, and there is no geographical restriction to membership. Hence at first sight it could seem like the UK joining CPTPP shouldn’t be too difficult a decision. It would give us preferential access to 11 markets, which represent 13-14 per cent of global GDP, 7 per cent of UK trade and are home to around 500m people. International Trade Secretary Liam Fox has said “the government is determined to break new ground, putting the UK at the heart of the world’s fastest growing regions—that is why I am also announcing a consultation on potentially seeking accession to CPTPP.” Yet the decision to do so will not be easy. For while the economic gains just from joining CPTPP are likely to be real, if not necessarily substantial, and joining will be a clear signal of the UK’s commitment to a rules-based economic order, there will also be costs. Most notably signing up to CPTPP’s provisions will mean, slightly oddly despite their withdrawal, signing up to US food standards, and also processes their major drug companies asked for on how state-run health services set drug prices. The UK government’s consultation on whether we should join this agreement closes at the end of October. But the debate is already starting, sparked at least in part by the unexpectedly frank IEA report “Plan A+, creating a prosperous post-Brexit UK” which noted that “acceding to CPTPP, for example, would be very difficult, if not impossible, for a country to do, without control over its regulatory rulebook.” The main problem the UK will face in joining CPTPP is that compared to new bilateral trade deals we may strike with countries such as New Zealand, the text is already in place. We would need to follow rules we had no say in creating, unless we managed to negotiate reservations. In many cases this wouldn’t be a problem, the rules are fairly typical of trade agreements and include things like respecting basic labour rights. However, for food the text follows the US formulation of ensuring measures are based on scientific evidence, which at the very least means that the UK would have to allow imports of beef treated with growth hormones, and most likely chlorine-washed chicken. This would have knock-on effects on our relationship with the EU, potentially precluding frictionless trade and affecting food exports, though this has yet to be fully evaluated. Other sections of the agreement which could be difficult include requirements to give others parties the chance to comment on proposed regulations, a process to de-list Geographical Indications such as those the EU is asking to be included in our Withdrawal Agreement, and perhaps most problematically of all process requirements for the NHS setting drug prices, giving pharmaceutical companies greater ability to challenge decisions. The UK could negotiate individual trade deals with CPTPP countries without signing up to these rules. The EU already has deals or is close to completing them with Canada, Chile, Japan, Mexico, Peru, Singapore, and Vietnam, and the UK is hoping to replicate these after Brexit. The UK and EU are both hoping to negotiate individual agreements with Australia and New Zealand. Economically there may not be much difference between individual agreements and joining CPTPP. The prospect of new members joining CPTPP could be a factor that persuades the UK to join notwithstanding the issues listed above. Already South Korea, Colombia and Thailand have expressed strong interest in joining, and it wouldn’t be a huge surprise if a future US president renewed previous interest, particularly as the US may lose out competitively to members in key sectors such as agriculture. Given the level of interest it is unlikely that existing members will want newcomers to try to unpick the agreement as it stands. Another key factor for the UK to bear in mind will be signalling, post-Brexit, that we intend to remain an open economy. Other countries currently have doubts on this point. Joining CPTPP would show that we continue to back the international rules-based order, something Japan has particular concerns about. The initiators of CPTPP weren’t just thinking about the economics when starting negotiations. They were also thinking about a rules-based order, and a safety net in case problems beset the WTO, as indeed is starting to happen. The UK is choosing to leave a significant part of the global economic system, and it is not outlandish to seek to join a different one in some respects more to our liking. But as many years ago with the EU, there would be a clear cost from not being founder members. The decision on whether to join or not is thus far from straightforward, and may just be a continuation of Remain/Leave arguments from the past few years.