A Union Jack flag flies near the Elizabeth Tower, commonly known as Big Ben, in front of the Houses of Parliament in central London, Britain on March 29, 2017.
Justin Tallis | AFP | Getty Images
Britain has struck a historic trade deal to join a vast Indo-Pacific trading bloc after nearly two years of intense negotiations.
On Friday, the government announced it would join the comprehensive and progressive 11-member Trans-Pacific Partnership Agreement, unlocking access to a region with a combined GDP of £11 trillion ($13.6 trillion).
The UK said this is the country’s biggest post-Brexit trade deal and makes it the first European nation to join the CPTPP since it came into force in 2018.
Prime Minister Rishi Sunak welcomed the deal, saying it puts Britain at the center of a dynamic and growing group of Pacific economies.
“We are an open and free-acting nation at heart, and this deal demonstrates the real economic benefits of our post-Brexit freedoms,” he said in a statement. “British companies now enjoy unprecedented access to markets from Europe to the South Pacific.”
The trading bloc includes Canada, Mexico, Japan, Australia, Vietnam, Singapore and Malaysia, among others. The agreement is expected to be officially signed by the end of the year after final approval by Parliament and the 11 member states.
The trade pact grew out of the now-defunct Trans-Pacific Partnership (TPP), which originated in the United States but fell apart after former President Donald Trump abolished US involvement.
Trade Benefits
Britain said the deal will cut tariffs on exports of food, drink and cars and give access to a market of around 500 million people and be worth 15% of global GDP once Britain joins the trading bloc.
The UK estimates that joining the CPTPP will boost its economy by £1.8bn in the long term and raise wages by £800m compared to 2019 levels.
Trade Minister Kemi Badenoch said the deal sends a “strong signal” that the UK is using its “post-Brexit freedoms to reach new markets around the world and grow our economy”.
Natalie Black, the UK’s trade commissioner for Asia-Pacific, called it a “progressive deal” for Britain.
“This deal is, yes, about economic performance today. But it’s very, very much about economic performance going forward,” she told CNBC’s Squawk Box Asia on Friday.
“This is the part of the world that will drive economic growth and will also drive the rules for the future trade route. We want to be part of these discussions.”
Still, it remains to be seen how much the deal actually benefits Britain’s growth prospects. According to the government’s own estimates, the deal will add only 0.08% to the country’s long-term GDP, which will do little to offset European trade losses caused by Brexit.
Deborah Elms, executive director of the Asian Trade Centre, said it is very difficult to calculate these trade numbers, especially based on existing trade flows.
“If you’re a UK company, you probably have the existing trade flows restricted to many of the CPTPP countries like Australia, New Zealand, Japan and Singapore,” she told CNBC’s Capital Connection. “Simply because the distance is great and because you used to be very closely linked to the European Union.”
Trade flows are always “below what you’re likely to see in reality once companies see the benefits and start leveraging a trade deal like the CPTPP,” she added.
High bar for entry
Nevertheless, the negotiations to conclude the trade agreement were not always easy. An impasse between Britain and Canada over agricultural market access had to be broken in order to clear the final hurdle in finalizing the deal.
“This was a complex negotiation,” admitted Black. “We negotiated a number of complex issues across multiple time zones. And they are not always easy. But ultimately all parties agree that the UK is a great new member of CPTPP.”
China has also applied to join the trading bloc but has not made as much progress as Britain
There are many “emerging economies” that have either “declared that they want to join formally or that we know are interested in joining,” Black said.
While the trade commissioner said it was “inappropriate” to comment on individual economies, she noted that the barriers to joining the trading bloc were very high.
“It’s really up to those who come behind us to ensure they meet members’ expectations of quality applications.”